<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
SIERRA PACIFIC RESOURCES
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
NEVADA 4931 88-0198358
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification
Organization) Number)
</TABLE>
6100 NEIL ROAD
RENO, NEVADA 89511
(702) 834-3600
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------------
WILLIAM E. PETERSON MICHAEL R. NIGGLI
Senior Vice President, General Counsel President and Chief Operating Officer
and Corporate Secretary Nevada Power Company
Sierra Pacific Resources 6226 West Sahara Avenue
6100 Neil Road Las Vegas, Nevada 89146
Reno, Nevada 89511 (702) 367-5000
(702) 834-3600
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
------------------------------
WITH COPIES TO:
SHELDON S. ADLER, ESQ. ROBERT A. YOLLES, ESQ.
Skadden, Arps, Slate, Meagher & Flom Jones, Day, Reavis & Pogue
LLP 77 West Wacker
919 Third Avenue Chicago, Illinois 60601
New York, New York 10022 (312) 782-3939
(212) 735-3000
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and all
conditions prerequisite to the merger of LAKE Merger Sub, Inc. (a wholly-owned
subsidiary of the Registrant) with and into the Registrant and the merger of
Nevada Power Company ("Nevada Power") with and into DESERT Merger Sub, Inc. (a
wholly-owned subsidiary of Registrant), as set forth in the Agreement and Plan
of Merger, dated as of April 29, 1998 (the "Merger Agreement"), described in the
enclosed Joint Proxy Statement/Prospectus, are satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT(2) OFFERING PRICE(2)
<S> <C> <C> <C>
Common Stock, par value $1.00 per share, together 78,723,837 $36.5313 (Sierra $2,413,625,927
with preferred stock purchase rights (3) Pacific)
$24.8438 (Nevada
Power)
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Common Stock, par value $1.00 per share, together $712,020(4)
with preferred stock purchase rights (3)
</TABLE>
(1) The maximum number of shares of Sierra Pacific Resources ("Sierra Pacific")
issuable upon consummation of the merger of LAKE Merger Sub, Inc., a Nevada
corporation and wholly-owned subsidiary of Sierra Pacific ("LAKE Merger
Sub"), with and into Sierra Pacific (the "First Merger") and the merger of
Nevada Power with and into DESERT Merger Sub, Inc., a Nevada corporation and
a wholly-owned subsidiary of Sierra Pacific ("DESERT Merger Sub") (the
"Second Merger" and, together with the First Merger, the "Mergers") based on
the exchange ratios of one share of Sierra Pacific common stock, par value
$1.00 per share, together with the associated Sierra Pacific Rights (as
defined herein) ("Sierra Pacific Common Stock") to be exchanged for one
outstanding share of common stock of Nevada Power, par value $1.00 per
share, together with the Nevada Power Rights (as defined herein) ("Nevada
Power Common Stock") and 1.44 shares of Sierra Pacific Common Stock to be
exchanged for one outstanding share of Sierra Pacific Common Stock, in each
case giving effect to the amount of cash to be delivered in connection with
the Mergers.
(2) Estimated pursuant to Rules 457(f)(1) and 457(c) under the Securities Act of
1933, as amended, solely for the purpose of calculating the registration
fee, based on the $36.5313 average of the high and low sale prices for
shares of Sierra Pacific Common Stock and the $24.8438 average of the high
and low sales prices for shares of Nevada Power Common Stock on the New York
Stock Exchange Composite Tape on August 31, 1998.
(3) This Registration Statement also covers the associated preferred stock
purchase rights (the "Sierra Pacific Rights") issued pursuant to a Rights
Agreement, dated as of October 13, 1989, between Sierra Pacific and Bank of
America N.T. & S.A., as rights agent. Until the occurrence of certain
prescribed events, the Sierra Pacific Rights are not exercisable, are
evidenced by the certificates for the Sierra Pacific Common Stock, and will
be transferred along with and only with such securities. Thereafter,
separate certificates will be issued representing one Sierra Pacific Right
for each share of Sierra Pacific Common Stock, subject to adjustment for
dilution.
(4) A credit of $555,064 is due under Rule 457(b) for the fee paid in connection
with preliminary proxy materials filed on June 5, 1998. The total fee
payable herewith taking into account the credit of $156,956.
----------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
This Joint Proxy Statement/Prospectus contains two forms of the Joint Proxy
Statement/Prospectus to be delivered separately to stockholders of Nevada Power
Company ("Nevada Power") in connection with a special meeting of Nevada Power
stockholders and to stockholders of Sierra Pacific Resources ("Sierra Pacific")
in connection with a special meeting of Sierra Pacific stockholders. The Joint
Proxy Statement/ Prospectus to be delivered to Nevada Power stockholders will
contain a letter to Nevada Power stockholders and a Notice of the Nevada Power
Special Meeting. The Joint Proxy Statement/Prospectus to be delivered to Sierra
Pacific stockholders will contain a letter to Sierra Pacific stockholders and a
Notice of the Sierra Pacific Special Meeting. Otherwise, each Joint Proxy
Statement/Prospectus will be identical.
<PAGE>
SIERRA PACIFIC RESOURCES
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
LOCATION OF CAPTION IN JOINT
FORM S-4 ITEM NO. AND CAPTION PROXY STATEMENT/PROSPECTUS
- ------------------------------------------------------------------------ --------------------------------------------------
<S> <C> <C> <C>
A. Information about the Transaction.
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Available Information; Incorporation by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information........................... Summary of Joint Proxy Statement/ Prospectus;
Selected Historical and Pro Forma Data
4. Terms of the Transaction.......................... Summary of Joint Proxy Statement/ Prospectus; The
Mergers; Regulatory Matters; The Merger
Agreement; Proposal for Shares Amendment;
Description of Sierra Pacific Capital Stock
Following the Mergers; Comparison of Stockholder
Rights
5. Pro Forma Financial Information................... Unaudited Pro Forma Consolidated Condensed
Financial Information
6. Material Contacts with the Company Being
Acquired........................................ Summary of Joint Proxy Statement/ Prospectus; The
Mergers; The Merger Agreement; Selected
Information Concerning Nevada Power and Sierra
Pacific
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters... *
8. Interest of Named Experts and Counsel............. Experts; Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... *
B. Information about the Registrant.
10. Information with Respect to S-3 Registrants....... *
11. Incorporation of Certain Information by
Reference....................................... Incorporation by Reference
12. Information with Respect to S-2 or S-3
Registrants..................................... *
13. Incorporation of Certain Information by
Reference....................................... *
14. Information with Respect to Registrations Other
than S-3 or S-2 Registrants..................... *
C. Information about the Company Being Acquired.
15. Information with Respect to S-3 Companies Incorporation by Reference
16. Information with Respect to S-2 or S-3
Companies....................................... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF CAPTION IN JOINT
FORM S-4 ITEM NO. AND CAPTION PROXY STATEMENT/PROSPECTUS
- ------------------------------------------------------------------------ --------------------------------------------------
<S> <C> <C> <C>
17. Information with Respect to Companies Other than
S-3 or S-2 Companies............................ *
D. Voting and Management Information.
18. Information if Proxies, Consents or Authorizations
are to be Solicited............................. Incorporation by Reference; Summary of Joint Proxy
Statement/Prospectus; The Meetings, Voting and
Proxies; The Mergers; Selected Information
Concerning Nevada Power and Sierra Pacific
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange
Offer........................................... *
</TABLE>
- ------------------------
* Not Applicable.
<PAGE>
[LOGO]
September 10, 1998
Dear Nevada Power Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Nevada Power Company, a Nevada corporation ("Nevada Power"), to be held on
October 9, 1998 at the Riviera Hotel & Casino, Conference Center, 2901 Las Vegas
Boulevard South, Las Vegas, Nevada. The meeting will start at 3:00 p.m., Las
Vegas (Nevada) time (the "Special Meeting").
At the Special Meeting, you will be asked to vote on one important
matter--to approve a merger agreement with Sierra Pacific Resources ("Sierra
Pacific") (the "Merger Agreement"). The Merger Agreement involves two mergers.
The first merger will have Sierra Pacific merge with LAKE Merger Sub, Inc., a
wholly-owned subsidiary of Sierra Pacific, with Sierra Pacific as the surviving
corporation (the "First Merger"). Immediately after the First Merger, the second
merger will have DESERT Merger Sub, Inc. ("Desert Merger Sub"), a wholly-owned
subsidiary of Sierra Pacific, merge with Nevada Power, with Desert Merger Sub as
the surviving corporation (the "Second Merger" and, together with the First
Merger, the "Mergers"). DESERT Merger Sub will change its name to Nevada Power.
Upon consummation of the Mergers, Nevada Power and Sierra Pacific Power Company
will be subsidiaries of Sierra Pacific. Both Nevada Power and Sierra Pacific
will retain their individual names and identities in their respective service
territories.
When the Mergers are completed, subject to the allocation procedures
described below, owners of shares of common stock of Nevada Power (the "Nevada
Power Common Stock") will have the option of electing to receive:
(i) one share of common stock of Sierra Pacific (the "Sierra Pacific
Common Stock") for each share of Nevada Power Common Stock held (the "Nevada
Power Stock Consideration");
(ii) $26.00 in cash for each share of Nevada Power Common Stock held
(the "Nevada Power Cash Consideration" and, together with the Nevada Power
Stock Consideration, the "Nevada Power Merger Consideration"); or
(iii) a combination of Sierra Pacific Common Stock and cash.
The Nevada Power Cash Consideration of $26.00 per share represents a 5%
premium per share of Nevada Power Common Stock, based on the 10 day trading
average of Nevada Power Common Stock through the day prior to approval by your
Board of Directors of the Merger Agreement on April 29, 1998. In the First
Merger, Sierra Pacific's stockholders will also be given the election of
receiving Sierra Pacific Common Stock or cash as described in the accompanying
materials.
Under the Merger Agreement, a total of $304.6 million in cash will be paid
to stockholders of Nevada Power and a total of $151.6 million in cash will be
paid to stockholders of Sierra Pacific. Sierra Pacific will finance $460 million
from external sources to fund the total cash consideration to be paid to
stockholders of Nevada Power and to stockholders of Sierra Pacific. As a result
of this financing, pro forma consolidated indebtedness of Sierra Pacific would
be $1,997 million or about 54% of total capitalization. If stockholders of
Nevada Power or Sierra Pacific fail to elect to receive all of the cash
allocated to them, respectively, cash will be proportionately allocated pursuant
to the Merger Agreement among those stockholders who have elected to receive
shares of Sierra Pacific Common Stock. If stockholders of Nevada Power or Sierra
Pacific fail to elect to receive all of the shares of Sierra Pacific Common
Stock allocated to them, respectively, the shares will be proportionately
allocated pursuant to the Merger Agreement among those stockholders who have
elected to receive cash, other than (in the case of Nevada Power stockholders)
holders of fewer than 100 shares of Nevada Power Common Stock or holders who
elect to receive fewer
<PAGE>
than 100 shares of Nevada Power Stock Consideration, who may receive cash in any
event. Please see the accompanying materials for further details regarding the
effects of the Mergers on holders of fewer than 100 shares of Nevada Power
Common Stock.
Based upon the number of shares of common stock of Nevada Power and Sierra
Pacific outstanding at the time the Merger Agreement was signed, upon completion
of the Mergers, approximately 50.2% of the then outstanding Sierra Pacific
Common Stock will be owned by former Nevada Power stockholders and approximately
49.8% of the then outstanding Sierra Pacific Common Stock will be owned by those
who were stockholders of Sierra Pacific prior to the Mergers.
Your Board of Directors received the written opinion of its financial
advisor, PaineWebber Incorporated ("PaineWebber"), dated April 29, 1998, and
updated on September 4, 1998, and based on assumptions made, procedures
followed, matters considered and limitations on the review undertaken as
described in the opinion, that the Nevada Power Merger Consideration to be
received by stockholders of Nevada Power in connection with the Mergers is fair
from a financial point of view to the holders of Nevada Power Common Stock. The
full text of the September 4, 1998 opinion of PaineWebber is set forth as Annex
B to the accompanying Joint Proxy Statement/Prospectus.
Approval of the Merger Agreement by stockholders of Nevada Power and Sierra
Pacific is a condition to the consummation of the Mergers. The Mergers will be
consummated only after certain regulatory approvals are received and other
conditions are satisfied or waived. It is presently anticipated that this will
occur by mid-1999.
Your vote is important no matter how many shares you hold. Even if you plan
to attend the meeting, we urge you to mark, sign and date the enclosed proxy and
return it promptly in the enclosed postage paid envelope. Your Board of
Directors recommends that you mark your proxy FOR approval of the Merger
Agreement. The giving of a proxy will not prevent a stockholder from voting in
person at the meeting. If you have any questions prior to the Special Meeting or
need further assistance please call our proxy solicitor, INNISFREE M&A
Incorporated, at (1-888-750-5834).
IF YOU DO NOT VOTE AT THE MEETING IN PERSON OR BY PROXY OR IF YOU ABSTAIN,
IT WILL HAVE THE SAME EFFECT AS IF YOU VOTED AGAINST THE MERGER AGREEMENT. IF
YOUR SHARES ARE HELD BY A BROKER OR OTHER NOMINEE, THAT PERSON CANNOT VOTE
WITHOUT YOUR SPECIFIC INSTRUCTIONS.
If you sign the proxy, and if no direction is made, the proxy will be voted
in favor of each of the proposals discussed in this letter.
The accompanying Joint Proxy Statement/Prospectus sets forth the voting
rights of holders of Nevada Power Common Stock and describes the matters to be
acted upon at the Special Meeting. I urge you to review carefully the attached
Joint Proxy Statement/Prospectus, which contains a detailed description of the
Merger Agreement and the terms and conditions of the Mergers and related
transactions.
Under Nevada law, neither Nevada Power stockholders nor Sierra Pacific
stockholders will have dissenters' rights in connection with the Mergers.
Shortly before consummation of the Mergers, a form of election will be
mailed to each holder of record of shares of Nevada Power Common Stock to
indicate whether the holder wants to receive Sierra Pacific Common Stock or
cash. If a holder does not return the form of election promptly after the
Mergers are consummated, a letter of transmittal will be mailed to each such
holder of record of shares of Nevada Power Common Stock, as described in more
detail in the accompanying Joint Proxy Statement/Prospectus. Please do not send
your Nevada Power Common Stock certificates with the enclosed proxy card or to
the exchange agent unless and until you receive the form of election or letter
of transmittal, which will include instructions on how to send your Nevada Power
Common Stock certificates.
We look forward to seeing you at the meeting.
Sincerely,
[LOGO]
Charles A. Lenzie
Chairman of the Board and Chief
Executive Officer
<PAGE>
[LOGO]
September 10, 1998
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders of
Sierra Pacific Resources ("Sierra Pacific") to be held at the Peppermill Hotel &
Casino, 2707 South Virginia Street, Reno, Nevada, on October 9, 1998, at 9:00
AM, local time (the "Special Meeting").
The purpose of the Special Meeting is to consider:
1. A proposal to approve an Agreement and Plan of Merger, dated as of
April 29, 1998 (the "Merger Agreement"), by and among Nevada Power Company,
a Nevada corporation ("Nevada Power"), Sierra Pacific, DESERT Merger Sub,
Inc., a Nevada corporation and a wholly-owned subsidiary of Sierra Pacific
("DESERT Merger Sub"), and LAKE Merger Sub, Inc., a Nevada corporation and a
wholly-owned subsidiary of Sierra Pacific ("LAKE Merger Sub"), which
provides for the merger of LAKE Merger Sub with and into Sierra Pacific (the
"First Merger") and the merger of Nevada Power with and into DESERT Merger
Sub (the "Second Merger" and, together with the First Merger, the
"Mergers"). As a result of the Mergers, Nevada Power will become a
wholly-owned subsidiary of Sierra Pacific.
2. A proposal to approve the issuance of shares (the "Share Issuance")
of common stock, par value $1.00 per share, together with the associated
stock purchase rights, of Sierra Pacific (the "Sierra Pacific Common Stock")
pursuant to the Merger Agreement.
3. A proposal to amend the Amended and Restated Articles of
Incorporation of Sierra Pacific to increase the maximum number of authorized
shares of Sierra Pacific Common Stock from 90,000,000 to 250,000,000 shares
(the "Shares Amendment").
Pursuant to the Merger Agreement, stockholders of Sierra Pacific will
receive, at the stockholder's election, for each share of Sierra Pacific Common
Stock that they own either:
- $37.55 in cash (the "Sierra Pacific Cash Consideration") or
- 1.44 shares of Sierra Pacific Common Stock (the "Sierra Pacific Stock
Consideration" and, together with the Sierra Pacific Cash Consideration,
the "Sierra Pacific Merger Consideration").
Holders of common stock, par value $1.00 per share, together with the
associated stock purchase rights, of Nevada Power (the "Nevada Power Common
Stock") will receive, at the stockholder's election, either $26.00 in cash (the
"Nevada Power Cash Consideration") or one share of Sierra Pacific Common Stock
(the "Nevada Power Stock Consideration" and, together with the Nevada Power Cash
Consideration, the "Nevada Power Merger Consideration") for each share of Nevada
Power Common Stock that they own. The Sierra Pacific Cash Consideration
represents a 5% premium per share of Sierra Pacific Common Stock, based on the
10-day trading average of Sierra Pacific Common Stock through the day prior to
approval by your Board of Directors of the Merger Agreement on April 29, 1998.
The shares of Sierra Pacific Common Stock to be issued to stockholders of Nevada
Power will represent approximately 50.2% of the outstanding Sierra Pacific
Common Stock after the Mergers.
Under the Merger Agreement, a total of $151.6 million in cash will be paid
to stockholders of Sierra Pacific, and a total of $304.6 million in cash will be
paid to stockholders of Nevada Power. Sierra Pacific will finance from external
sources to fund the total cash consideration to be paid to stockholders of
Sierra Pacific and to stockholders of Nevada Power. As a result of this
financing, pro forma consolidated indebtedness of Sierra Pacific would be $1,997
million or about 54% of total capitalization. In the event that stockholders of
Sierra Pacific or Nevada Power fail to elect to receive all of the cash
allocated to them, cash will be proportionately allocated pursuant to the Merger
Agreement among those stockholders who
<PAGE>
have elected to receive shares of Sierra Pacific Common Stock. In the event that
stockholders of Sierra Pacific or Nevada Power fail to elect to receive all of
the shares of Sierra Pacific Common Stock allocated to them, the shares will be
proportionately allocated pursuant to the Merger Agreement among those
stockholders who have elected to receive cash, other than (in the case of
stockholders of Sierra Pacific), holders of fewer than 100 shares of Sierra
Pacific Common Stock or holders who elect to receive fewer than 100 shares of
Sierra Pacific Stock Consideration, who may receive cash in any event. Please
see the accompanying materials for further details regarding the effects of the
Mergers on holders of fewer than 100 shares of Sierra Pacific Common Stock.
FOR THE REASONS DESCRIBED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS, YOUR BOARD OF DIRECTORS (I) HAS DETERMINED THAT THE
MERGERS AND THE SHARE ISSUANCE ARE IN THE BEST INTERESTS OF SIERRA PACIFIC AND
ITS STOCKHOLDERS, (II) HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
SHARE ISSUANCE AND (III) RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE MERGER
AGREEMENT AND THE SHARE ISSUANCE AT THE SPECIAL MEETING. IN ADDITION, YOUR BOARD
OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL OF THE SHARES AMENDMENT.
In determining that the Mergers are in the best interests of Sierra Pacific
and its stockholders and to recommend approval of the Merger Agreement and the
Share Issuance, your Board of Directors has carefully reviewed and considered
the terms and conditions of the Merger Agreement, as well as a number of other
factors, including the opinions, dated as of April 29, 1998, and as of the date
of the Joint Proxy Statement/Prospectus, of SG Barr Devlin and Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Sierra Pacific's
financial advisors, to the effect that, as of such dates, the Sierra Pacific
Merger Consideration to be issued in the First Merger, in light of the Nevada
Power Merger Consideration to be issued in the Second Merger, was fair from a
financial point of view to the holders of Sierra Pacific Common Stock. Each
financial advisor's opinion is based upon and subject to the assumptions made,
matters considered and limits of review set forth therein. The full text of each
of the opinions of SG Barr Devlin and Merrill Lynch, dated the date of the Joint
Proxy Statement/Prospectus, is set forth as Annexes C and D, respectively, to
the accompanying Joint Proxy Statement/Prospectus.
Your vote is important regardless of the number of shares you own. Approval
of the Merger Agreement requires the affirmative vote of the holders of a
majority of the outstanding shares of Sierra Pacific Common Stock, and approval
of the Share Issuance requires the affirmative vote of the holders of a majority
of the votes cast on the Share Issuance; PROVIDED, HOWEVER, that the total
number of votes cast on the Share Issuance proposal represents more than 50% of
the shares of Sierra Pacific Common Stock entitled to vote thereon at the
Special Meeting. Approval of the Shares Amendment requires the affirmative vote
of the holders of a majority of the outstanding shares of Sierra Pacific Common
Stock. In determining whether the Share Issuance has received the requisite
number of affirmative votes, abstentions and broker non-votes will have the
effect of votes cast against the Share Issuance. In determining whether the
Merger Agreement or the Shares Amendment has received the requisite number of
affirmative votes, abstentions and broker non-votes will have the effect of
negative votes. It is presently anticipated that consummation of the Mergers
will occur by mid-1999.
The accompanying Notice and Joint Proxy Statement/Prospectus more fully
describe the matters to be acted on at the special meeting. We urge you to read
and consider these documents carefully. Whether or not you plan to attend the
Special Meeting, please be sure to sign, date and return the enclosed proxy card
in the enclosed, postage-paid envelope as promptly as possible so that your
shares may be represented at the Special Meeting and voted in accordance with
your wishes. Your Board of Directors recommends that you vote FOR approval of
all the proposals. If you sign the proxy, and if no direction is made, the proxy
will be voted in favor of each of the proposals discussed in this letter. It is
important that your shares be represented at the Special Meeting. If you have
any questions prior to the Special Meeting or need further assistance, please
call our proxy solicitor, MacKenzie Partners, Inc., at (800) 322-2885.
PLEASE DO NOT SEND ANY CERTIFICATES WITH YOUR PROXY CARD.
Very truly yours,
[LOGO]
Malyn K. Malquist
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
<PAGE>
NEVADA POWER COMPANY
6226 WEST SAHARA AVENUE
LAS VEGAS, NV 89146
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 9, 1998
------------------------
TO OUR STOCKHOLDERS:
A Special Meeting of Stockholders of Nevada Power Company will be held at
the Riviera Hotel & Casino, Conference Center, 2901 Las Vegas Boulevard South,
Las Vegas, Nevada on Friday, October 9, 1998 at 3:00 p.m., local time (the
"Special Meeting") for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger (the "Merger Agreement"), dated as of April 29, 1998, by and among
Nevada Power Company, Sierra Pacific Resources, DESERT Merger Sub, Inc. and LAKE
Merger Sub, Inc., a copy of which is attached as Annex A to the accompanying
Joint Proxy Statement/Prospectus.
2. To consider and vote upon a proposal to postpone or adjourn the Special
Meeting, if proposed by the Board of Directors of Nevada Power.
3. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
The close of business on September 3, 1998 has been fixed as the record date
for determining the stockholders entitled to receive notice of and to vote at
the Special Meeting. All such stockholders of record are requested to be
represented at the Special Meeting, either in person or by proxy. Under Nevada
law, neither holders of Nevada Power Common Stock nor holders of Sierra Pacific
Common Stock are entitled to dissenters' rights with respect to either of the
mergers provided for in the Merger Agreement.
YOUR BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE MERGER AGREEMENT, BELIEVES THAT THE MERGERS ARE IN THE BEST
INTERESTS OF NEVADA POWER AND ITS STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
Approval of the Merger Agreement by Nevada Power stockholders is a condition
to consummation of the transactions contemplated by the Merger Agreement.
By order of the Board of Directors,
[SIGNATURE]
Richard L. Hinckley
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
September 10, 1998
PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED,
POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING
JOINT PROXY STATEMENT/PROSPECTUS AT ANY TIME BEFORE THE PROXY HAS BEEN VOTED AT
THE SPECIAL MEETING. YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU MARK YOUR PROXY
FOR APPROVAL OF THE MERGER AGREEMENT.
<PAGE>
[LOGO]
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 9, 1998
------------------------
To the Stockholders of Sierra Pacific Resources:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Sierra
Pacific Resources, a Nevada corporation ("Sierra Pacific"), will be held at the
Peppermill Hotel & Casino, 2707 South Virginia Street, Reno, Nevada on October
9, 1998, at 9:00 AM, local time (the "Special Meeting"), for the following
purposes:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated as of April 29, 1998 (the "Merger Agreement"), by and among Nevada
Power Company, a Nevada corporation ("Nevada Power"), Sierra Pacific, DESERT
Merger Sub, Inc., a Nevada corporation and a wholly-owned subsidiary of Sierra
Pacific ("DESERT Merger Sub"), and LAKE Merger Sub, Inc., a Nevada corporation
and a wholly-owned subsidiary of Sierra Pacific ("LAKE Merger Sub"), providing
for the merger of LAKE Merger Sub with and into Sierra Pacific (the "First
Merger"), with Sierra Pacific continuing as the surviving corporation and for
the merger, immediately after the First Merger, of Nevada Power with and into
DESERT Merger Sub, with DESERT Merger Sub continuing as a wholly-owned
subsidiary of Sierra Pacific (the "Second Merger" and, together with the First
Merger, the "Mergers").
2. To consider and vote upon a proposal to approve the issuance of shares
(the "Share Issuance") of common stock, par value $1.00 per share, together with
the associated stock purchase rights, of Sierra Pacific (the "Sierra Pacific
Common Stock") pursuant to the Merger Agreement. Approval of the Share Issuance
by stockholders of Sierra Pacific is a condition to the consummation of the
Mergers. The Share Issuance, the Mergers and the Merger Agreement are more fully
described in the accompanying Joint Proxy Statement/Prospectus, and a copy of
the Merger Agreement is attached as Annex A thereto.
3. To consider and vote upon a proposal to amend Sierra Pacific's Amended
and Restated Articles of Incorporation to increase the number of authorized
shares of Sierra Pacific Common Stock from 90,000,000 shares to 250,000,000
shares (the "Shares Amendment"). The Shares Amendment is more fully described in
the accompanying Joint Proxy Statement/Prospectus.
4. To consider and vote upon a proposal to postpone or adjourn the Special
Meeting, if proposed by the Board of Directors of Sierra Pacific.
5. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
The close of business on September 3, 1998 has been fixed as the record date
for determination of the stockholders entitled to notice of, and to vote at, the
Special Meeting and any adjournment or postponement thereof. Approval of the
Merger Agreement requires the affirmative vote of the holders of a majority of
the outstanding shares of Sierra Pacific Common Stock, and approval of the Share
Issuance requires the affirmative vote of the holders of a majority of the votes
cast on the Share Issuance; PROVIDED, HOWEVER, that the total number of votes
cast on the Share Issuance proposal represents more than 50% of the outstanding
shares of Sierra Pacific Common Stock entitled to vote thereon at the Special
Meeting. Approval of the Shares Amendment requires the affirmative vote of the
holders of a majority of the outstanding shares of Sierra Pacific Common Stock.
Under Nevada law, neither holders of Sierra Pacific
<PAGE>
Common Stock nor holders of Nevada Power Common Stock are entitled to
dissenters' rights with respect to the First Merger and the Second Merger,
respectively.
THE BOARD OF DIRECTORS OF SIERRA PACIFIC UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE SHARE ISSUANCE AT
THE SPECIAL MEETING. IN ADDITION, THE BOARD OF DIRECTORS OF SIERRA PACIFIC
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE SHARES
AMENDMENT.
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the enclosed proxy card and return it promptly in the enclosed,
postage-paid envelope so that your vote can be recorded. If you are attending
the Special Meeting and desire to do so, you may revoke your proxy card and vote
in person, even if you have previously returned your proxy card. Your prompt
cooperation will be greatly appreciated.
By Order of the Board of Directors,
[LOGO]
William E. Peterson
SENIOR VICE PRESIDENT, CORPORATE
SECRETARY AND GENERAL COUNSEL
Dated: September 10, 1998
PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN YOUR PROXY CARD IN THE ENCLOSED,
POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON. YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ALL PROPOSALS. YOU
MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS AT ANY TIME BEFORE THE PROXY HAS BEEN VOTED AT THE SPECIAL
MEETING.
<PAGE>
JOINT PROXY STATEMENT
OF
NEVADA POWER COMPANY
AND
SIERRA PACIFIC RESOURCES
---------------------
PROSPECTUS OF
SIERRA PACIFIC RESOURCES
This Joint Proxy Statement/Prospectus relates to the proposed mergers and
certain related transactions contemplated by the Agreement and Plan of Merger,
dated as of April 29, 1998 (the "Merger Agreement"), by and among Nevada Power
Company, a Nevada corporation ("Nevada Power"), Sierra Pacific Resources, a
Nevada corporation ("Sierra Pacific"), DESERT Merger Sub, Inc., a Nevada
corporation and a wholly-owned subsidiary of Sierra Pacific ("DESERT Merger
Sub"), and LAKE Merger Sub, Inc., a Nevada corporation and a wholly-owned
subsidiary of Sierra Pacific ("LAKE Merger Sub").
This Joint Proxy Statement/Prospectus is being furnished to the common
stockholders of Nevada Power in connection with the solicitation of proxies by
the Board of Directors of Nevada Power (the "Nevada Power Board") for use at the
special meeting of Nevada Power common stockholders (the "Nevada Power Special
Meeting"). At the Nevada Power Special Meeting, holders of common stock , par
value $1.00 per share, together with the associated stock purchase rights, of
Nevada Power (the "Nevada Power Common Stock") will consider and vote upon a
proposal to adopt and approve the Merger Agreement.
This Joint Proxy Statement/Prospectus is also being furnished to the
stockholders of Sierra Pacific in connection with the solicitation of proxies by
the Board of Directors of Sierra Pacific (the "Sierra Pacific Board") for use at
the special meeting of Sierra Pacific common stockholders (the "Sierra Pacific
Special Meeting"). At the Sierra Pacific Special Meeting, holders of common
stock, par value $1.00 per share, together with the associated stock purchase
rights, of Sierra Pacific (the "Sierra Pacific Common Stock") will consider and
vote upon (1) a proposal to approve the Merger Agreement, (2) a proposal to
approve the issuance of shares (the "Share Issuance") of Sierra Pacific Common
Stock pursuant to the Merger Agreement and (3) a proposal to amend Sierra
Pacific's Amended and Restated Articles of Incorporation (the "Sierra Pacific
Restated Charter") to increase the number of authorized shares of Sierra Pacific
Common Stock from 90,000,000 shares to 250,000,000 shares (the "Shares
Amendment").
The Merger Agreement provides for the merger of LAKE Merger Sub with and
into Sierra Pacific, with Sierra Pacific as the surviving corporation (the
"First Merger"), and the merger of Nevada Power with and into DESERT Merger Sub,
with DESERT Merger Sub continuing as the surviving corporation and as a
wholly-owned subsidiary of Sierra Pacific (the "Second Merger" and, together
with the First Merger, the "Mergers"). Pursuant to the Merger Agreement, upon
the effectiveness of the Mergers, and subject to the allocation procedures
described below, (i) each issued and outstanding share of Sierra Pacific Common
Stock will be converted at the stockholder's option into EITHER (x) $37.55 in
cash (the "Sierra Pacific Cash Consideration") OR (y) 1.44 (the "Sierra Pacific
Exchange Ratio") shares of Sierra Pacific Common Stock (the "Sierra Pacific
Stock Consideration") and (ii) each issued and outstanding share of Nevada Power
Common Stock will be converted at the stockholder's option into EITHER (x)
$26.00 in cash (the "Nevada Power Cash Consideration") OR (y) 1.00 (the "Nevada
Power Exchange Ratio" and, together with the Sierra Pacific Exchange Ratio, the
"Exchange Ratios") share of Sierra Pacific Common Stock (the "Nevada Power Stock
Consideration"). The aggregate Sierra Pacific Cash Consideration and the
aggregate Sierra Pacific Stock Consideration to be received by the Sierra
Pacific stockholders as a group, are collectively called the "Sierra Pacific
Merger Consideration." The aggregate Nevada Power Cash Consideration and the
aggregate Nevada Power Stock Consideration to be received by Nevada Power
stockholders as a group are collectively called the "Nevada Power Merger
Consideration." Although stockholders will have an election to exchange their
Nevada Power Common Stock or Sierra Pacific Common Stock, as the case may be,
for EITHER cash OR stock, the opportunity to make that election will not occur
at the time of the stockholder vote on the Mergers, but rather will occur
shortly before consummation of the Mergers, after all necessary regulatory
approvals have been obtained. Under Nevada law, neither holders of Sierra
Pacific Common Stock nor holders of Nevada Power Common Stock are entitled to
dissenters' rights with respect to the First Merger and the Second Merger,
respectively.
Subject to the terms and conditions of the Merger Agreement, holders who (i)
own fewer than 100 shares of Sierra Pacific Common Stock or Nevada Power Common
Stock (as the case may be) or (ii) elect to receive the Sierra Pacific Stock
Consideration or the Nevada Power Stock Consideration in respect of fewer than
100 shares of Sierra Pacific Common Stock or Nevada Power Common Stock, as the
case may be (the "Sierra Pacific Deminimis Shares" or the "Nevada Power
Deminimis Shares," respectively, and collectively, the "Deminimis Shares"), will
be deemed to have elected to receive the Sierra Pacific Cash Consideration or
the Nevada Power Cash Consideration, respectively. However, if the value of the
Sierra Pacific Stock Consideration or the Nevada Power Stock Consideration
exceeds 120% of the value of the Sierra Pacific Cash Consideration or the Nevada
Power Cash Consideration, respectively, at the time of the election deadline,
then such holders of Deminimis Shares may, at the election of Nevada Power and
Sierra Pacific, receive the Sierra Pacific Stock Consideration or the Nevada
Power Stock Consideration in lieu of all or part of the cash they would have
received. Cash will be paid in lieu of any fractional share of Sierra Pacific
Common Stock.
Under the Merger Agreement, a total of $151.6 million in cash will be paid
as Sierra Pacific Cash Consideration to stockholders of Sierra Pacific, and a
total of $304.6 million in cash will be paid as Nevada Power Cash Consideration
to stockholders of Nevada Power. The Nevada Power Cash Consideration and the
Sierra Pacific Cash Consideration will be financed at the Sierra Pacific holding
company level through external sources. Sources of financing being considered
include, but are not limited to, commercial banks, investment banks,
institutional lenders and the public securities markets. In the event that
stockholders of Sierra Pacific or Nevada Power fail to elect to receive all of
the cash allocated to them, respectively, cash will be proportionately allocated
pursuant to the Merger Agreement among those stockholders of Sierra Pacific or
Nevada Power (as the case may be) who have elected to receive shares of Sierra
Pacific Common Stock. In the event that stockholders of Sierra Pacific or Nevada
Power fail to elect to receive all of the shares of Sierra Pacific Common Stock
allocated to them, respectively, the shares will be proportionately allocated
pursuant to the Merger Agreement among those stockholders of Sierra Pacific or
Nevada Power (as the case may be) who have elected to receive cash, other than
among holders of Deminimis Shares who may receive cash in any event.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Sierra Pacific filed as part of the Registration Statement (as defined herein)
with respect to up to 78,723,837 shares of Sierra Pacific Common Stock to be
issued pursuant to or as contemplated by the Merger Agreement.
Sierra Pacific will be more highly leveraged following the Mergers with
total consolidated indebtedness of $1,997 million or about 54% of total
capitalization. FOR A DISCUSSION OF LEVERAGE AND CERTAIN OTHER MATTERS THAT
STOCKHOLDERS SHOULD CONSIDER, SEE "RISK FACTORS AND OTHER CONSIDERATIONS" ON
PAGE 31.
This Joint Proxy Statement/ Prospectus is first being mailed to stockholders
on or about September 10, 1998.
------------------------------
THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE MERGERS HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS SEPTEMBER 4, 1998.
<PAGE>
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Joint Proxy Statement/Prospectus, and, if given or made, such information or
representation should not be relied upon as having been authorized. This Joint
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Joint Proxy
Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction, to or
from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither the
delivery of this Joint Proxy Statement/Prospectus nor any distribution of
securities pursuant to this Joint Proxy Statement/Prospectus shall, in any
circumstances, create an implication that there has been no change in the
affairs of Nevada Power or Sierra Pacific or any of their respective
subsidiaries or in the information set forth herein since the date of this Joint
Proxy Statement/Prospectus.
As used in this Joint Proxy Statement/Prospectus, unless the context
otherwise requires, the term "Nevada Power" refers to Nevada Power Company and
its consolidated subsidiaries and the term "Sierra Pacific" refers to Sierra
Pacific Resources and its consolidated subsidiaries, including, upon
consummation of the Mergers, DESERT Merger Sub, as the surviving corporation
(the "Surviving Corporation") in the Second Merger, and Sierra Pacific Power
Company ("SPPC"). At the time of consummation of the Mergers, the Surviving
Corporation will change its name to Nevada Power Company. References to "Nevada
Power," which will be a wholly-owned subsidiary of Sierra Pacific after
consummation of the Mergers refer to the Surviving Corporation.
All information herein with respect to Nevada Power has been furnished by
Nevada Power and all information herein with respect to Sierra Pacific, Sierra
Pacific's subsidiaries, the Share Issuance and the Shares Amendment has been
furnished by Sierra Pacific.
This Joint Proxy Statement/Prospectus does not cover any resale of the
securities to be received by the stockholders of Nevada Power or Sierra Pacific
upon consummation of the Mergers, and no person is authorized to make any use of
this Joint Proxy Statement/Prospectus in connection with any such resale.
AVAILABLE INFORMATION
Each of Nevada Power and Sierra Pacific is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder, and, accordingly,
files reports, proxy statements and other information with the Securities and
Exchange Commission ("SEC"). Such reports, proxy statements and other
information filed with the SEC are available for inspection and copying at the
public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such documents may also be obtained from the Public
Reference Room of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, any such material and
other information concerning Nevada Power and Sierra Pacific can be inspected at
the New York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street, 7th Floor, New
York, New York 10005, on which exchange the Nevada Power Common Stock and the
Sierra Pacific Common Stock are listed. Such material and other information
concerning Nevada Power can also be inspected at the Pacific Exchange, Inc. (the
"PE"), 301 Pine Street, San Francisco, California 94104, on which exchange the
Nevada Power Common Stock is also listed. In addition, electronically filed
documents, including reports, proxy statements and other information regarding
Nevada Power and Sierra Pacific, can be obtained from the SEC's website at
http://www.sec.gov.
Sierra Pacific has filed a registration statement on Form S-4 (together with
all amendments, schedules and exhibits thereto, the "Registration Statement")
with the SEC pursuant to the Securities Act of 1933, as amended (the "Securities
Act") and the rules and regulations promulgated thereunder, with respect to the
shares of Sierra Pacific Common Stock to be issued pursuant to or as
contemplated by the Mergers. This
2
<PAGE>
Joint Proxy Statement/Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the SEC. The Registration Statement is
available for inspection and copying as set forth above. Statements contained in
this Joint Proxy Statement/Prospectus or in any document incorporated by
reference in this Joint Proxy Statement/Prospectus as to the contents of any
contract or other document referred to herein or therein are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement or such
other document, each such statement being qualified in all respects by such
reference. Capitalized terms used and not otherwise defined in this Joint Proxy
Statement/Prospectus shall have the meanings set forth elsewhere in the Merger
Agreement.
INCORPORATION BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
CERTAIN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE TO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON
REQUEST FROM, IN THE CASE OF DOCUMENTS RELATING TO NEVADA POWER, RICHARD C.
SCHMALZ, DIRECTOR, TREASURY, NEVADA POWER COMPANY, 6226 WEST SAHARA AVENUE, LAS
VEGAS, NEVADA 89146, (702) 367-5000, AND, IN THE CASE OF DOCUMENTS RELATING TO
SIERRA PACIFIC, RICHARD ATKINSON, ASSISTANT TREASURER, SIERRA PACIFIC RESOURCES,
6100 NEIL ROAD, RENO, NEVADA 89511, (702) 834-3600. TO ENSURE TIMELY DELIVERY OF
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY SEPTEMBER 30, 1998.
Nevada Power and Sierra Pacific hereby undertake to provide without charge
to each person, including any beneficial owner, to whom a copy of this Joint
Proxy Statement/Prospectus has been delivered, upon the written or oral request
of such person, by first class mail or other equally prompt means, within one
business day of receipt of such request, a copy (without exhibits, except those
specifically incorporated by reference) of any and all of the documents referred
to below which have been or may be incorporated in this Joint Proxy
Statement/Prospectus by reference. Requests for such documents should be
directed to the persons indicated above.
The following documents, previously filed with the SEC by Nevada Power or
Sierra Pacific pursuant to the Exchange Act, are hereby incorporated by
reference:
1. Nevada Power's Annual Report on Form 10-K for the year ended December
31, 1997 (the "Nevada Power Form 10-K").
2. Nevada Power's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998.
3. Nevada Power's Current Report on Form 8-K, dated April 29, 1998.
4. Sierra Pacific's Annual Report on Form 10-K and on Form 10-K-A for the
year ended December 31, 1997 (the "Sierra Pacific Form 10-K").
5. Sierra Pacific's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998.
6. Sierra Pacific's Current Report on Form 8-K, dated April 29, 1998.
In lieu of incorporating by reference the description of (i) Sierra Pacific
Common Stock contained in Sierra Pacific's Registration Statement on Form 8-B,
dated September 19, 1984, and (ii) Sierra Pacific's Registration Statement on
Form 8-A, dated October 30, 1989, relating to the Sierra Pacific Rights (as
defined herein), such description is included in this Joint Proxy
Statement/Prospectus. See "Description of Sierra Pacific Capital Stock."
The information relating to Nevada Power and Sierra Pacific contained in
this Joint Proxy Statement/ Prospectus does not purport to be complete and
should be read together with the information in the
3
<PAGE>
documents incorporated by reference herein. All reports and other documents
filed by Nevada Power and Sierra Pacific pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the date of the
Nevada Power Special Meeting on October 9, 1998, and any adjournment or
postponement thereof, or the Sierra Pacific Special Meeting on October 9, 1998,
and any adjournment or postponement thereof, respectively, will be deemed to be
incorporated by reference herein and to be a part hereof from the dates of
filing of such reports and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Joint Proxy Statement/Prospectus
to the extent that a statement contained herein, or in any other subsequently
filed document which also is or is deemed to be incorporated by reference
herein, modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Joint Proxy Statement/Prospectus
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. The forward-looking statements relate
to anticipated financial performance, management's plans and objectives for
future operations, business prospects, outcome of regulatory proceedings, market
conditions and other matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements in certain
circumstances. The following discussion is intended to identify the
forward-looking statements and certain factors that could cause future outcomes
to differ materially from those set forth in the forward-looking statements.
Forward-looking statements include the information concerning possible or
assumed future results of operations of Sierra Pacific, as the combined company,
and other future events set forth under "Summary of Joint Proxy
Statement/Prospectus--Reasons for the Mergers," "The Mergers--Conditions to the
Mergers," "The Mergers--Opinions of Financial Advisors," "The Mergers--Reasons
for the Mergers," "The Mergers--Recommendations of the Boards of Directors,"
"The Mergers--Accounting Treatment," "Regulatory Matters," "Merger Related
Financing" and other statements in this Joint Proxy Statement/ Prospectus
identified by words such as "anticipate," "estimate," "expect," "intend,"
"believe," and "objective," and include, in particular, the statements as to:
(i) the ability of the combined company to compete more effectively in
unregulated markets and serve customers more cost-effectively in regulated
markets;
(ii) the anticipated levels and sources of synergies and cost savings
resulting from the Mergers;
(iii) the anticipated manner in which identified cost savings and synergies
will be achieved;
(iv) the ability of the combined entity to further diversify through
acquisitions or development of new business and the marketing and delivery of
new products and services, thus, creating a broader range of strategic choices;
(v) the ability to attract and retain qualified employees and the
anticipated benefits to employees;
(vi) the ability of Nevada Power and Sierra Pacific to obtain all required
consents and approvals necessary to consummate the Mergers;
(vii) Sierra Pacific's expectation of remaining an exempt public utility
holding company;
(viii) the expected accounting treatment and federal income tax consequences
of the Mergers;
(ix) the ability to finance on reasonable terms the cash portion of the
consideration to be paid to stockholders in the Mergers;
(x) the ability to pay dividends at indicated expected levels;
4
<PAGE>
(xi) the beliefs of the Nevada Power Board and the Sierra Pacific Board and
the basis for those beliefs set forth under "The Mergers--Recommendations of the
Boards of Directors;" and
(xii) the estimates, projections and forecasts analyzed by Nevada Power's and
Sierra Pacific's financial advisors in connection with their opinions as set
forth under "The Mergers--Opinions of Financial Advisors."
Readers are cautioned not to place undue reliance on such forward-looking
statements, which involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of Sierra
Pacific to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors may affect Sierra Pacific's operations, markets, products, services and
prices. In addition to any assumptions and other factors referred to
specifically in connection with such forward-looking statements, factors that
could cause Sierra Pacific's actual results to differ materially from those
contemplated in any forward-looking statement include, among others, the
following: general economic and business conditions; industry capacity; changes
in technology; changes in political, social and economic conditions; regulatory
matters; integration of the operations of Nevada Power and SPPC; regulatory
delays or conditions imposed by regulatory bodies in approving the Mergers;
adverse regulatory treatment; the ability of Nevada Power and Sierra Pacific to
implement and realize anticipated cost savings from the Mergers; the actual
costs required to effect the Mergers and to realize synergies and cost savings;
the loss of any significant customers; changes in business strategy or
development plans; the speed and degree to which competition enters the electric
utility industry; state and federal legislative and regulatory initiatives that
increase competition, affect cost and investment recovery and have an impact on
rate structures; industrial, commercial and residential growth in the service
territories of Nevada Power and SPPC; changes in the capital markets affecting
the ability to finance capital requirements or the cash component of the
Mergers; the weather and other natural phenomena; the timing and extent of
changes in commodity prices and interest rates; the development of opportunities
for growth by the subsidiaries of Nevada Power and Sierra Pacific; and the other
factors listed in the Nevada Power Form 10-K, the Sierra Pacific Form 10-K or in
other reports previously or hereafter filed with the SEC, which are incorporated
by reference herein. Other factors and assumptions not identified above were
also involved in the derivation of these forward-looking statements, and the
failure of such other assumptions to be realized, as well as other factors, may
also cause actual results to differ materially from those projected. Neither
Nevada Power nor Sierra Pacific assumes any obligation to update such
forward-looking statements to reflect actual results, changes in assumptions or
changes in other factors affecting such forward-looking statements.
5
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION...................................................................................... 2
INCORPORATION BY REFERENCE................................................................................. 3
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS................................................. 4
SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS................................................................ 13
THE PARTIES.............................................................................................. 13
Nevada Power........................................................................................... 13
Sierra Pacific......................................................................................... 13
THE MERGERS.............................................................................................. 13
CONVERSION OF SHARES..................................................................................... 15
CASH OR STOCK ELECTION................................................................................... 15
ALLOCATION OF CASH AND STOCK............................................................................. 15
STOCKHOLDER ELECTIONS; EXCHANGE OF STOCK CERTIFICATES.................................................... 18
Exchange Agent......................................................................................... 18
Election and Exchange Procedures....................................................................... 18
BACKGROUND OF THE MERGERS................................................................................ 19
REASONS FOR THE MERGERS.................................................................................. 20
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS............................................................... 21
Nevada Power........................................................................................... 21
Sierra Pacific......................................................................................... 21
OPINIONS OF FINANCIAL ADVISORS........................................................................... 21
Nevada Power........................................................................................... 21
Sierra Pacific......................................................................................... 22
CONDITIONS TO THE MERGERS................................................................................ 22
NO SOLICITATION.......................................................................................... 22
RIGHTS TO TERMINATE, AMEND OR WAIVE CONDITIONS........................................................... 22
MANAGEMENT OF SIERRA PACIFIC............................................................................. 23
ACCOUNTING TREATMENT..................................................................................... 24
COMPARISON OF STOCKHOLDER RIGHTS......................................................................... 24
MATERIAL FEDERAL INCOME TAX CONSEQUENCES................................................................. 25
AMENDMENT TO SIERRA PACIFIC RESTATED CHARTER............................................................. 25
THE SPECIAL MEETINGS..................................................................................... 25
Nevada Power........................................................................................... 25
Sierra Pacific......................................................................................... 25
REQUIRED VOTE............................................................................................ 26
Nevada Power........................................................................................... 26
Sierra Pacific......................................................................................... 26
SELECTED HISTORICAL AND UNAUDITED PRO FORMA DATA........................................................... 27
HISTORICAL DATA.......................................................................................... 27
UNAUDITED PRO FORMA DATA................................................................................. 29
COMPARATIVE MARKET PRICES AND DIVIDENDS.................................................................. 29
RISK FACTORS AND OTHER CONSIDERATIONS...................................................................... 30
THE SPECIAL MEETINGS, VOTING AND PROXIES................................................................... 35
THE NEVADA POWER SPECIAL MEETING......................................................................... 35
Purpose; Time and Place................................................................................ 35
Record Date; Voting Rights............................................................................. 35
Quorum................................................................................................. 35
Required Vote.......................................................................................... 35
Proxies................................................................................................ 35
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE SIERRA PACIFIC SPECIAL MEETING....................................................................... 36
Purpose; Time and Place................................................................................ 36
Record Date; Voting Rights............................................................................. 37
Quorum................................................................................................. 37
Required Vote.......................................................................................... 37
Proxies................................................................................................ 37
THE MERGERS................................................................................................ 38
BACKGROUND OF THE MERGERS................................................................................ 38
REASONS FOR THE MERGERS.................................................................................. 43
Benefits and Risks of the Mergers...................................................................... 43
Cost Savings........................................................................................... 45
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS............................................................... 46
Nevada Power........................................................................................... 46
Sierra Pacific......................................................................................... 48
OPINIONS OF FINANCIAL ADVISORS........................................................................... 50
Opinion of Nevada Power's Financial Advisor............................................................ 50
Opinion of Sierra Pacific's Financial Advisors......................................................... 55
INTERESTS OF CERTAIN PERSONS IN THE MERGERS.............................................................. 64
Employment Agreements.................................................................................. 65
Employee Plans and Severance Arrangements.............................................................. 65
Board of Directors..................................................................................... 65
Indemnification........................................................................................ 65
CERTAIN ARRANGEMENTS REGARDING THE DIRECTORS AND MANAGEMENT OF SIERRA PACIFIC FOLLOWING THE MERGERS...... 65
EMPLOYMENT AGREEMENTS.................................................................................... 65
EMPLOYEE PLANS AND SEVERANCE ARRANGEMENTS................................................................ 67
Nevada Power........................................................................................... 67
Sierra Pacific......................................................................................... 68
SIERRA PACIFIC RESOURCES' COMMON STOCK REINVESTMENT PLAN................................................. 69
MATERIAL FEDERAL INCOME TAX CONSEQUENCES................................................................. 69
General................................................................................................ 69
The Mergers............................................................................................ 70
First Merger........................................................................................... 70
Second Merger.......................................................................................... 71
Backup Withholding..................................................................................... 72
ACCOUNTING TREATMENT..................................................................................... 72
STOCK EXCHANGE LISTING OF SIERRA PACIFIC COMMON STOCK.................................................... 72
DELISTING AND DEREGISTRATION OF NEVADA POWER COMMON STOCK................................................ 72
FEDERAL SECURITIES LAW CONSEQUENCES...................................................................... 73
ABSENCE OF DISSENTERS' RIGHTS............................................................................ 73
REGULATORY MATTERS......................................................................................... 74
GENERAL.................................................................................................. 74
STATE APPROVALS AND RELATED MATTERS...................................................................... 74
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935............................................................... 75
FEDERAL POWER ACT........................................................................................ 75
ANTITRUST CONSIDERATIONS................................................................................. 76
OTHER.................................................................................................... 76
THE MERGER AGREEMENT....................................................................................... 76
STRUCTURE OF THE MERGERS................................................................................. 76
CLOSING; EFFECTIVE TIME.................................................................................. 77
EFFECTS OF THE MERGERS................................................................................... 77
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CONVERSION OF SHARES; ELECTION........................................................................... 77
ALLOCATION PROCEDURES.................................................................................... 78
EXCHANGE OF STOCK CERTIFICATES........................................................................... 79
Exchange Agent......................................................................................... 79
Exchange Procedures.................................................................................... 79
NO FRACTIONAL SHARES..................................................................................... 81
REPRESENTATIONS AND WARRANTIES........................................................................... 81
CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME.......................................................... 82
NO SOLICITATION OF TRANSACTIONS.......................................................................... 83
INDEMNIFICATION.......................................................................................... 84
CORPORATE GOVERNANCE MATTERS............................................................................. 84
Sierra Pacific Board................................................................................... 84
Officers............................................................................................... 85
Corporate Offices...................................................................................... 85
LABOR AND EMPLOYEE BENEFITS MATTERS...................................................................... 85
CONDITIONS TO CONSUMMATION OF THE MERGERS................................................................ 87
TERMINATION; FEES AND EXPENSES........................................................................... 87
AMENDMENT AND WAIVER..................................................................................... 89
PROPOSAL FOR SHARES AMENDMENT.............................................................................. 90
SHARES AMENDMENT......................................................................................... 90
REASONS FOR SHARES AMENDMENT............................................................................. 90
CERTAIN CONSIDERATIONS................................................................................... 90
ABSENCE OF APPRAISAL RIGHTS.............................................................................. 90
BOARD OF DIRECTORS RECOMMENDATION........................................................................ 91
DESCRIPTION OF SIERRA PACIFIC CAPITAL STOCK FOLLOWING THE MERGERS.......................................... 91
AUTHORIZED CAPITAL STOCK................................................................................. 91
SIERRA PACIFIC COMMON STOCK.............................................................................. 91
SPPC COMMON STOCK........................................................................................ 91
SPPC PREFERRED STOCK..................................................................................... 92
SIERRA PACIFIC POWER CAPITAL I........................................................................... 92
VOTING RIGHTS............................................................................................ 92
SECTION 78.438 OF THE NGCL............................................................................... 93
TRANSFER AGENT AND REGISTRAR............................................................................. 93
SIERRA PACIFIC RIGHTS AGREEMENT.......................................................................... 94
COMPARISON OF STOCKHOLDER RIGHTS........................................................................... 94
GENERAL.................................................................................................. 94
AUTHORIZED CAPITAL....................................................................................... 94
Nevada Power........................................................................................... 94
Sierra Pacific......................................................................................... 94
SPECIAL MEETINGS OF STOCKHOLDERS......................................................................... 94
Nevada Power........................................................................................... 94
Sierra Pacific......................................................................................... 94
STOCKHOLDER ACTION BY CONSENT............................................................................ 94
Nevada Power........................................................................................... 94
Sierra Pacific......................................................................................... 95
ADVANCE NOTICE OF PROPOSALS OR DIRECTOR NOMINATIONS AT STOCKHOLDERS' SPECIAL MEETINGS.................... 95
Nevada Power........................................................................................... 95
Sierra Pacific......................................................................................... 95
AMENDMENTS TO CHARTERS................................................................................... 95
Nevada Power........................................................................................... 95
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Sierra Pacific......................................................................................... 95
AMENDMENTS TO BY-LAWS.................................................................................... 96
Nevada Power........................................................................................... 96
Sierra Pacific......................................................................................... 96
FAIR PRICE PROVISIONS.................................................................................... 96
Nevada Power........................................................................................... 96
Sierra Pacific......................................................................................... 96
RIGHTS PLANS............................................................................................. 96
Nevada Power........................................................................................... 96
Sierra Pacific......................................................................................... 98
BOARD OF DIRECTORS; REMOVAL; VACANCIES................................................................... 99
Nevada Power........................................................................................... 99
Sierra Pacific......................................................................................... 99
COMMITTEES OF THE BOARD OF DIRECTORS..................................................................... 100
Nevada Power........................................................................................... 100
Sierra Pacific......................................................................................... 100
MERGER RELATED FINANCING................................................................................... 100
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................................................ 101
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS..................................... 105
SELECTED INFORMATION CONCERNING NEVADA POWER AND SIERRA PACIFIC............................................ 108
BUSINESS OF NEVADA POWER................................................................................. 108
BUSINESS OF SIERRA PACIFIC............................................................................... 108
Sierra Pacific Power Company........................................................................... 108
Tuscarora Gas Pipeline Company......................................................................... 108
e-three................................................................................................ 109
Lands of Sierra........................................................................................ 109
SIERRA PACIFIC FOLLOWING THE MERGERS....................................................................... 109
MANAGEMENT OF SIERRA PACIFIC AFTER THE MERGERS........................................................... 109
OPERATIONS............................................................................................... 110
DIVIDENDS................................................................................................ 110
STOCK OWNERSHIP............................................................................................ 111
Nevada Power........................................................................................... 111
Sierra Pacific......................................................................................... 112
EXPERTS.................................................................................................... 113
LEGAL MATTERS.............................................................................................. 113
STOCKHOLDER PROPOSALS...................................................................................... 114
NEVADA POWER............................................................................................. 114
SIERRA PACIFIC........................................................................................... 114
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Annex A Merger Agreement
Annex B Opinion of PaineWebber
Annex C Opinion of SG Barr Devlin
Annex D Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
</TABLE>
9
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
-----------------
<S> <C>
10% Ownership Date............................................................................. 93
10% Stockholder................................................................................ 93
1935 Act....................................................................................... 23
Acquiring Person............................................................................... 95
Amendment to the Rights Agreement.............................................................. 93
Antitrust Division............................................................................. 73
Articles of Incorporation...................................................................... 74
Assumptions.................................................................................... 51
Business Combination........................................................................... 18
Bylaws......................................................................................... 74
Certificate(s)................................................................................. 16
CFFO........................................................................................... 50
Closing........................................................................................ 74
Closing Date................................................................................... 74
Code........................................................................................... 17
Combinations................................................................................... 23
Common Securities.............................................................................. 9
Comparable Companies........................................................................... 56
Comparable Transactions........................................................................ 56
Continuation Period............................................................................ 63
DCF............................................................................................ 55,59
Debentures..................................................................................... 9
Deminimis Shares............................................................................... cover page
DESERT Merger Sub.............................................................................. cover page
e-three........................................................................................ 4
EBIT........................................................................................... 50,55
EBITDA......................................................................................... 50,55
Effective Time................................................................................. 77
Effective Time of the First Merger............................................................. 14
Effective Time of the Second Merger............................................................ 14
Election Deadline.............................................................................. 18,76
Employment Agreements.......................................................................... 32
EPS............................................................................................ 50
Estimated Synergies............................................................................ 58
Exchange Act................................................................................... 1
Exchange Agent................................................................................. 17,76
Exchange Ratios................................................................................ cover page
Executive...................................................................................... 14
Exercise Price................................................................................. 93
FERC........................................................................................... 31
FERC Application............................................................................... 73
First Merger................................................................................... cover page
Form of Election............................................................................... 18,76
FTC............................................................................................ 73
GAAP........................................................................................... 79
HSR Act........................................................................................ 31
IBES........................................................................................... 60
Indemnified Parties............................................................................ 81
Indemnified Party.............................................................................. 81
Initial Termination Date....................................................................... 84
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------------
<S> <C>
Interested Stockholder......................................................................... 90
Jones Day...................................................................................... 24
Junior Preferred Shares........................................................................ 93
LAKE Merger Sub................................................................................ cover page
LOS............................................................................................ 14
LTM............................................................................................ 50
LTM Period..................................................................................... 56
Merger Agreement............................................................................... cover page
Merger Consideration........................................................................... 18
Mergers........................................................................................ cover page
Merrill Lynch.................................................................................. 19
Merrill Lynch Opinion.......................................................................... 58
Nevada Power................................................................................... cover page
Nevada Power Board............................................................................. cover page
Nevada Power By-laws........................................................................... 23
Nevada Power Cash Consideration................................................................ cover page
Nevada Power Cash Number....................................................................... 17
Nevada Power Certificate(s).................................................................... 76
Nevada Power Common Stock...................................................................... cover page
Nevada Power Comparable Companies.............................................................. 50
Nevada Power Deminimis Shares.................................................................. cover page, 17
Nevada Power Distribution Date................................................................. 94
Nevada Power Exchange Ratio.................................................................... cover page
Nevada Power Form 10-K......................................................................... 2
Nevada Power Material Adverse Effect........................................................... 84
Nevada Power Merger Consideration.............................................................. cover page
Nevada Power Preferred Stock................................................................... 79
Nevada Power Record Date....................................................................... 24
Nevada Power Restated Articles................................................................. 23
Nevada Power Right............................................................................. 93
Nevada Power Rights Agreement.................................................................. 93
Nevada Power Severance Plan.................................................................... 65
Nevada Power Special Meeting................................................................... cover page
Nevada Power Stock Consideration............................................................... cover page
Nevada Power Stock Number...................................................................... 74
NGCL........................................................................................... 25
NYSE........................................................................................... 1
Out-of-Pocket Expenses......................................................................... 85
PaineWebber.................................................................................... 18
PaineWebber Opinion............................................................................ 41
PE............................................................................................. 1
PGT............................................................................................ 105
Preferred Securities........................................................................... 89
Projection Period.............................................................................. 55
Projections.................................................................................... 55
PUCC........................................................................................... 71
PUCN........................................................................................... 31
Redemption Price............................................................................... 94
Registration Statement......................................................................... 1
Representatives................................................................................ 80
Rights Agent................................................................................... 93
SEC............................................................................................ 1
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------------
<S> <C>
Second Merger.................................................................................. cover page
Section 13(a) Event............................................................................ 94
Securities Act................................................................................. 1
Share Issuance................................................................................. cover page
Shares......................................................................................... 77
Shares Amendment............................................................................... cover page
Sierra Pacific................................................................................. cover page
Sierra Pacific Board........................................................................... cover page
Sierra Pacific Bylaws.......................................................................... 23
Sierra Pacific Cash Consideration.............................................................. cover page
Sierra Pacific Cash Number..................................................................... 17
Sierra Pacific Certificate(s).................................................................. 76
Sierra Pacific Change in Control Agreements.................................................... 32
Sierra Pacific Common Stock.................................................................... cover page
Sierra Pacific Comparable Companies............................................................ 50
Sierra Pacific Deminimis Shares................................................................ cover page, 75
Sierra Pacific Distribution Date............................................................... 95
Sierra Pacific Exchange Ratio.................................................................. cover page
Sierra Pacific Form 10-K....................................................................... 2
Sierra Pacific Material Adverse Effect......................................................... 76
Sierra Pacific Merger Consideration............................................................ cover page
Sierra Pacific Power Class A Preferred Stock................................................... 23
Sierra Pacific Power Preferred Stock........................................................... 79
Sierra Pacific Preferred Stock................................................................. 42
Sierra Pacific Record Date..................................................................... 14
Sierra Pacific Restated Charter................................................................ cover page
Sierra Pacific Right........................................................................... 95
Sierra Pacific Rights Agreement................................................................ 95
Sierra Pacific Severance Allowance Plans....................................................... 66
Sierra Pacific Special Meeting................................................................. cover page
Sierra Pacific Stock Consideration............................................................. cover page
Sierra Pacific Stock Number.................................................................... 74
Skadden Arps................................................................................... 24
SPE............................................................................................ 14
SPPC........................................................................................... 1
SPPC $50 Preferred Stock....................................................................... 88
SPPC Class A Preferred Stock................................................................... 88
SPPC Common Stock.............................................................................. 88
SPPC Preferred Stock........................................................................... 88
SPPC Restated Charter.......................................................................... 89
Stock Acquisition Date......................................................................... 95
Stock Plans.................................................................................... 83
Stock Reinvestment Plan........................................................................ 66
Stockholder Disapproval........................................................................ 86
Surviving Corporation.......................................................................... 1
Synergies...................................................................................... 53
TGPC........................................................................................... 14
TGTC........................................................................................... 105
Transaction Fee................................................................................ 61
TransCanada.................................................................................... 4
Trust.......................................................................................... 89
Trust Securities............................................................................... 89
</TABLE>
12
<PAGE>
SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS
The following is a summary of the material terms and conditions of the
Mergers and related information contained elsewhere in this Joint Proxy
Statement/Prospectus. This summary is qualified in its entirety by reference to
the more detailed information appearing in this Joint Proxy
Statement/Prospectus, the Annexes and the documents incorporated herein by
reference. Stockholders are urged to read this Joint Proxy Statement/Prospectus
and the Annexes carefully and in their entirety.
Unless otherwise indicated, capitalized terms in this Joint Proxy
Statement/Prospectus are defined herein. An Index of Defined Terms can be found
at pages 10 through 13.
THE PARTIES
NEVADA POWER. Nevada Power, incorporated in 1929 under the laws of Nevada,
is a public utility engaged in the electric utility business in Las Vegas and
vicinity in southern Nevada. Most of Nevada Power's operations are conducted in
Clark County, Nevada (with an estimated service area population of 1,303,000 at
December 31, 1997) where Nevada Power furnishes electric service in the
communities of Las Vegas, North Las Vegas, Henderson, Searchlight, Laughlin and
adjoining areas and to Nellis Air Force Base (consisting of a permanent military
installation northeast of Las Vegas and the USAF Tactical Fighter Weapons
Center). Electric service is also supplied to the Department of Energy at
Mercury and Jackass Flats in Nye County, where the Nevada Test Site is located.
The principal executive office of Nevada Power is, and after the Effective
Time of the Second Merger (as defined herein) will be, located at 6226 West
Sahara Avenue, Las Vegas, Nevada 89146, and its telephone number is (702)
367-5000. See "Selected Information Concerning Nevada Power and Sierra
Pacific--Business of Nevada Power."
SIERRA PACIFIC. Sierra Pacific is a utility holding company with operating
subsidiaries primarily engaged in the energy and utility businesses. Sierra
Pacific's five primary subsidiaries include: SPPC, Tuscarora Gas Pipeline
Company ("TGPC"), Sierra Energy Company, d/b/a e-three ("e-three"), Lands of
Sierra, Inc. ("LOS") and Sierra Pacific Energy Company ("SPE"). Sierra Pacific's
principal subsidiary, SPPC, provides electric service to northern Nevada and
northeastern California, and provides natural gas and water service to the
Reno/Sparks area of Nevada. The assets of SPPC represented 99% of the
consolidated assets of Sierra Pacific at December 31, 1997. TGPC, in partnership
with a subsidiary of TransCanada PipeLines, USA Limited, of Calgary, Alberta,
Canada ("TransCanada"), operates a 229-mile natural gas 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. SPE is developing a
customer information system for the energy industry.
The principal executive office of Sierra Pacific is, and after the Effective
Time of the Second Merger will be, located at 6100 Neil Road, Reno, Nevada
89511, and its telephone number is (702) 834-3600. See "Selected Information
Concerning Sierra Pacific and Nevada Power--Business of Sierra Pacific" and
"Sierra Pacific Following the Mergers--Operations."
THE MERGERS
Pursuant to the Merger Agreement, the First Merger will become effective
upon filing the articles of merger or upon such later date as is agreed upon by
the parties and specified in the articles of merger (the "Effective Time of the
First Merger"). The Second Merger will become effective upon filing the articles
of merger or upon such later date as is agreed upon by the parties and specified
in the articles of merger (the "Effective Time of the Second Merger"). The First
Merger will occur immediately prior to the Second Merger. At the Effective Time
of the First Merger, LAKE Merger Sub will be merged with and into Sierra
Pacific, with Sierra Pacific continuing as the surviving corporation, and at the
Effective Time of the Second
13
<PAGE>
Merger, Nevada Power will be merged with and into DESERT Merger Sub, with DESERT
Merger Sub continuing as the Surviving Corporation and a wholly-owned subsidiary
of Sierra Pacific. In the Mergers, each share of Sierra Pacific Common Stock and
each share of Nevada Power Common Stock (other than shares held by Sierra
Pacific and Nevada Power or any of their respective wholly-owned subsidiaries,
which will be canceled) will be converted into the right to receive cash or
Sierra Pacific Common Stock (including associated Sierra Pacific Rights), as
described under "The Merger Agreement--Conversion of Shares; Election" and
summarized below under "Conversion of Shares." Under the Merger Agreement, a
total of $304.6 million in cash will be paid to stockholders of Nevada Power and
a total of $151.6 million in cash will be paid to stockholders of Sierra
Pacific. The remaining merger consideration will be paid in Sierra Pacific
Common Stock. Although each stockholder will be able to elect to receive cash or
stock (or a combination of cash and stock), if stockholders elect, in the
aggregate, more cash than is available, or more stock than is available, the
actual merger consideration received by each stockholder may differ from what
that stockholder elected. See the examples under "Allocation of Cash and Stock"
below.
The current corporate organization is as follows:
[CHART]
Following the Mergers, the corporate organization will be as follows:
[CHART]
14
<PAGE>
CONVERSION OF SHARES
Pursuant to the Merger Agreement and subject to the allocation procedures
described herein:
- each share of Sierra Pacific Common Stock outstanding immediately prior to
the Effective Time of the First Merger will be canceled and converted into
the right to receive either:
(i) $37.55 in cash or
(ii) 1.44 shares of Sierra Pacific Common Stock;
- each share of Nevada Power Common Stock outstanding immediately prior to
the Effective Time of the Second Merger will be canceled and converted
into the right to receive either:
(i) $26.00 in cash or
(ii) 1.00 share of Sierra Pacific Common Stock;
- Holders of both Nevada Power Common Stock and Sierra Pacific Common Stock
will receive cash in lieu of fractional shares; and
- Holders of Deminimis Shares will receive cash unless the per share market
value of their surrendered stock is more than 120% of the applicable per
share cash amount and Nevada Power and Sierra Pacific elect to allocate
stock to such holders as more fully described under "Allocation of Cash
and Stock" below.
- Record or beneficial holders may submit a form of election indicating an
election of cash for a portion of their shares and an election of stock
for a portion of their shares. See "The Merger Agreement--Exchange of
Stock Certificates."
CASH OR STOCK ELECTION
Although stockholders will have an election to exchange their Nevada Power
Common Stock or Sierra Pacific Common Stock, as the case may be, for either cash
or stock, the opportunity to make that election will not occur at the time of
the stockholder vote on the Mergers, but rather will occur shortly before the
Effective Time of the Mergers, after all necessary regulatory approvals have
been obtained. The cash amount to be paid for surrendered shares is fixed at
$26.00 per share of Nevada Power Common Stock and $37.55 per share of Sierra
Pacific Common Stock. These prices will not be adjusted based on changes in
market prices or any other factor. Likewise, the exchange ratios are fixed. Each
share of Nevada Power Common Stock to be exchanged for stock will be exchanged
for one share of Sierra Pacific Common Stock and each share of Sierra Pacific
Common Stock to be exchanged for stock will be exchanged for 1.44 shares of
Sierra Pacific Common Stock. These exchange ratios will not be adjusted based on
changes in market prices or any other factor.
ALLOCATION OF CASH AND STOCK
Because the total number of shares of Nevada Power Common Stock and the
total number of shares of Sierra Pacific Common Stock to be exchanged for cash
are each fixed, stockholders may not receive all the cash or all the stock that
they elect. If the market price of the Nevada Power Common Stock at the time
stockholders are making their elections exceeds the Nevada Power Cash
Consideration ($26.00 per share) or the market price of the Sierra Pacific
Common Stock at that time exceeds the Sierra Pacific Cash Consideration ($37.55
per share), it is likely that more stockholders will elect to receive stock,
I.E., the Nevada Power Stock Consideration or the Sierra Pacific Stock
Consideration, as the case may be. To the extent more stockholders elect to
receive stock, because of the market price of the Nevada Power Common Stock or
the Sierra Pacific Common Stock or otherwise, it is likely that the allocation
formula provided in the Merger Agreement will result in those stockholders
nevertheless receiving cash for a portion of their
15
<PAGE>
Nevada Power Common Stock or Sierra Pacific Common Stock. The reason for this is
summarized in the following paragraphs and an example is given at the end of
this section.
The maximum number of shares of Nevada Power Common Stock that will be
available for exchange for cash is fixed at 11,715,804 shares. If holders of
Nevada Power Common Stock holding MORE THAN that number of shares elect to
receive cash (I.E., $26.00 per share), the cash to be paid to Nevada Power
stockholders ($304.6 million in total) will be allocated among those holders
according to the formula set out in the Merger Agreement. Likewise, the number
of shares of Sierra Pacific Common Stock available for exchange for cash is
fixed at 4,037,809 shares and if holders of Sierra Pacific Common Stock holding
MORE THAN that number of shares elect to receive cash (I.E., $37.55 per share),
the cash to be paid to Sierra Pacific stockholders ($151.6 million in total)
will be allocated among those holders according to the same formula. Under this
allocation formula, if the demand for cash is too high, all stockholders who
elected stock (or who made no election) will receive stock and all stockholders
who elected cash will receive a pro rata allocation of cash and the remainder of
their consideration in stock.
Similarly, if holders of Nevada Power Common Stock holding LESS THAN
11,715,804 shares or holders of Sierra Pacific Common Stock holding LESS THAN
4,037,809 shares elect to receive cash (I.E., more stockholders have elected to
exchange their existing shares for Sierra Pacific Common Stock), the total
amount of cash will nevertheless be distributed. Under the allocation formula,
if the demand for stock is too high, all stockholders who elected cash (or who
made no election) will receive cash and all stockholders who elected to receive
stock will receive a pro rata allocation of stock and the remainder of their
consideration in cash.
The Merger Agreement provides two exceptions to the allocation rules
summarized in the prior two paragraphs.
First, the holders of Deminimis Shares, which are those who:
(i) hold fewer than 100 shares of Sierra Pacific Common Stock or Nevada
Power Common Stock, as the case may be, or
(ii) elect to receive the Sierra Pacific Stock Consideration or the Nevada
Power Stock Consideration in respect of fewer than 100 shares of Sierra
Pacific Common Stock or Nevada Power Common Stock, as the case may be,
will receive CASH in exchange for their Nevada Power Common Stock or Sierra
Pacific Common Stock, as the case may be, in all cases EXCEPT:
(i) in the case of Nevada Power holders, if the market price (based on a
20-day average prior to the deadline for making elections) of the Nevada
Power Common Stock exceeds $31.20, or
(ii) in the case of Sierra Pacific holders, if the market price (based on a
20-day average prior to the deadline for making elections) of the Sierra
Pacific Common Stock exceeds $45.06,
then Nevada Power and Sierra Pacific may, at their option, honor any election
made by a holder of Deminimis Shares to receive stock rather than cash. The
allocation of cash to holders of Deminimis Shares will reduce the amount of cash
available to be allocated to other stockholders in the event demand for cash is
too high.
Second, if the pro rata allocation rules summarized above would result in
stockholders receiving an allocation of fewer than 100 shares of stock, then all
those holders will be allocated cash prior to cash being allocated to others. If
there is insufficient cash to fully allocate cash to all such holders, some of
those holders will receive all cash and some holders will receive their
allocation of fewer than 100 shares of stock. The holders to receive cash and
the holders to receive stock in this circumstance will be selected by lot or
other manner deemed fair by Nevada Power and Sierra Pacific.
16
<PAGE>
If neither the number of shares of Sierra Pacific Common Stock or Nevada
Power Common Stock for which cash was elected exceeds 4,037,809 shares of Sierra
Pacific Common Stock (the "Sierra Pacific Cash Number") or 11,715,804 shares of
Nevada Power Common Stock (the "Nevada Power Cash Number"), respectively, nor
the number of shares of Sierra Pacific Common Stock or Nevada Power Common Stock
for which Sierra Pacific Common Stock was elected exceeds the Sierra Pacific
Stock Number or Nevada Power Stock Number, respectively, then (i) those
stockholders holding Sierra Pacific Deminimis Shares or Nevada Power Deminimis
Shares will receive all cash for their shares, unless Sierra Pacific and Nevada
Power mutually agree to follow such stockholders' elections as described above,
(ii) all stockholders who elected to receive cash will receive cash, (iii) all
stockholders who elected to receive Sierra Pacific Common Stock will receive
Sierra Pacific Common Stock and (iv) all stockholders who made no election will
receive cash, Sierra Pacific Common Stock or a combination of cash and Sierra
Pacific Common Stock, as mutually determined by Sierra Pacific and Nevada Power.
Cash will be paid in lieu of any fractional shares. See "The Merger
Agreement--Conversion of Shares; Elections."
Pursuant to the Merger Agreement, Mr. Niggli will become Chairman and Chief
Executive Officer of Sierra Pacific and Chairman of each of its subsidiaries.
Mr. Malquist will become President and Chief Operating Officer of Sierra Pacific
and President and Chief Executive Officer of the Surviving Corporation (Nevada
Power) and SPPC. Mr. Lenzie, currently Chairman and Chief Executive Officer of
Nevada Power, will retire upon completion of the Mergers. See "The
Mergers--Employment Agreements."
See "Sierra Pacific Following the Mergers--Management of Sierra Pacific
After the Mergers."
The following tables give examples of how the allocations would work in
various situations for a hypothetical Nevada Power stockholder or Sierra Pacific
stockholder holding 1,000 shares. THESE ARE ONLY EXAMPLES, AND THE ACTUAL
ALLOCATIONS WILL DEPEND ON THE EXACT ELECTIONS MADE BY ALL STOCKHOLDERS JUST
PRIOR TO THE CONSUMMATION OF THE MERGERS. The tables assume that holders of
Deminimis Shares will receive all cash.
NEVADA POWER
The far left column shows a sliding scale of the possible TOTAL elections
for stock, I.E., of the total outstanding shares of Nevada Power Common Stock,
elections covering this percentage have been made to receive STOCK
consideration. The far right column shows the corresponding percentage for
elections to receive CASH consideration. The columns in the middle show (A) what
the hypothetical holder who elected ALL STOCK would receive in each situation
and (B) what the hypothetical holder who elected ALL CASH would receive in each
situation.
<TABLE>
<CAPTION>
(A) (B)
IF YOU ELECT IF YOU ELECT
ALL STOCK ALL CASH
YOU WOULD RECEIVE: YOU WOULD RECEIVE:
-------------------------------- --------------------------------
TOTAL PERCENTAGE OF
OUTSTANDING SHARES TOTAL PERCENTAGE OF
FOR STOCK CASH STOCK CASH OUTSTANDING SHARES
WHICH STOCK IS FOR THIS NUMBER FOR THIS NUMBER FOR THIS NUMBER FOR THIS NUMBER FOR
ELECTED OF SHARES OF SHARES OF SHARES OF SHARES WHICH CASH IS ELECTED
- ------------------- --------------- --------------- --------------- --------------- ---------------------
<S> <C> <C> <C> <C> <C>
100% 771 229 0 1,000 0%
90 856 144 0 1,000 10
80 963 37 0 1,000 20
70 1,000 0 245 755 30
60 1,000 0 440 560 40
50 1,000 0 554 446 50
40 1,000 0 630 370 60
30 1,000 0 684 316 70
20 1,000 0 724 276 80
10 1,000 0 755 245 90
0 1,000 0 780 220 100
</TABLE>
17
<PAGE>
SIERRA PACIFIC
Like the table above, the far left column below shows a sliding scale of the
possible TOTAL elections for stock, I.E., of the total outstanding shares of
Sierra Pacific Common Stock, elections covering this percentage have been made
to receive STOCK consideration. The far right column shows the corresponding
percentage for elections to receive CASH consideration. The columns in the
middle show (A) what the hypothetical holder who elected ALL STOCK would receive
in each situation and (B) what the hypothetical holder who elected ALL CASH
would receive in each situation.
<TABLE>
<CAPTION>
(A) (B)
IF YOU ELECT IF YOU ELECT
ALL STOCK ALL CASH
YOU WOULD RECEIVE: YOU WOULD RECEIVE:
-------------------------------- --------------------------------
TOTAL PERCENTAGE OF
OUTSTANDING SHARES TOTAL PERCENTAGE OF
FOR STOCK CASH STOCK CASH OUTSTANDING SHARES
WHICH STOCK IS FOR THIS NUMBER FOR THIS NUMBER FOR THIS NUMBER FOR THIS NUMBER FOR
ELECTED OF SHARES OF SHARES OF SHARES OF SHARES WHICH CASH IS ELECTED
- ------------------- --------------- --------------- --------------- --------------- ---------------------
<S> <C> <C> <C> <C> <C>
100% 869 131 0 1,000 0%
90 966 34 0 1,000 10
80 1,000 0 349 651 20
70 1,000 0 567 433 30
60 1,000 0 675 325 40
50 1,000 0 740 260 50
40 1,000 0 784 216 60
30 1,000 0 815 185 70
20 1,000 0 838 162 80
10 1,000 0 856 144 90
0 1,000 0 870 130 100
</TABLE>
STOCKHOLDER ELECTIONS; EXCHANGE OF STOCK CERTIFICATES
EXCHANGE AGENT. As of the Effective Time of the First Merger, Sierra
Pacific will deposit with a bank or trust company (the "Exchange Agent"), for
the benefit of the holders of shares of Sierra Pacific Common Stock and Nevada
Power Common Stock, cash equal to the sum of the total aggregate Sierra Pacific
Cash Consideration and Nevada Power Cash Consideration and certificates
representing the shares of Sierra Pacific Common Stock issuable pursuant to the
Merger Agreement in exchange for outstanding shares of Sierra Pacific Common
Stock and Nevada Power Common Stock. See "The Merger Agreement--Exchange of
Stock Certificates."
ELECTION AND EXCHANGE PROCEDURES. Not more than 90 days or fewer than 30
days prior to the Closing Date the Exchange Agent will make available to
stockholders a form of election (a "Form of Election"). Any stockholder's
election to receive the Sierra Pacific Stock Consideration or the Sierra Pacific
Cash Consideration (collectively, the "Sierra Pacific Merger Consideration") or
the Nevada Power Stock Consideration or the Nevada Power Cash Consideration
(collectively, the "Nevada Power Merger Consideration") (as applicable, the
"Merger Consideration") must be received by the Exchange Agent by 5:00 p.m., New
York City time, 5 business days immediately preceding the Closing Date (the
"Election Deadline"). An election may be revoked by the stockholder only by
written notice received by the Exchange Agent prior to 5:00 p.m., New York City
time, on the Election Deadline.
As set forth in the Merger Agreement and described more fully under "The
Merger Agreement-- Exchange of Stock Certificates; Exchange Procedures," in
certain cases two or more separate record holders may submit a joint Form of
Election that will be treated as a single election and record owners may submit
a separate Form of Election for each beneficial owner for whom such record
holder is a nominee, which will be treated as separate elections. Record or
beneficial holders may submit a form of election indicating an election for cash
for a portion of their shares and an election of stock for a portion of their
shares.
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As soon as reasonably practicable after the consummation of the Mergers, the
Exchange Agent will mail to each stockholder of record whose shares of Sierra
Pacific Common Stock or Nevada Power Common Stock were converted into the right
to receive the Merger Consideration and who failed to return a properly
completed Form of Election, a letter of transmittal and instructions for use in
surrendering their Certificates in exchange for the Merger Consideration. See
"The Merger Agreement--Exchange of Stock Certificates."
BACKGROUND OF THE MERGERS
In recent years Nevada Power and Sierra Pacific have carefully followed
developments in energy regulatory policies at the federal level and in Nevada
and California that have substantially increased competition in the markets for
wholesale and retail electricity. Both companies recognized that significant
changes in the utility industry would result from these policy developments. The
companies believe that industry restructuring and economic forces are likely to
exert tremendous pressure on small and medium-sized electric utilities, making
it difficult for them to effectively compete with larger utilities. As such, the
two companies had exploratory discussions from time to time in recent years
regarding a potential business combination between Sierra Pacific and Nevada
Power but no further steps were taken.
During February 1998, Mr. Michael Niggli, President and Chief Operating
Officer of Nevada Power, and Mr. Malyn Malquist, President, Chairman of the
Board and Chief Executive Officer of Sierra Pacific, talked about their shared
visions for Nevada Power and Sierra Pacific, and senior management of each
company began to discuss the potential benefits of a possible business
combination. The Nevada Power Board and the Sierra Pacific Board were advised of
these discussions in February and March 1998.
On March 5 and 6, 1998, a joint meeting was held in San Francisco between
Nevada Power and Sierra Pacific along with Nevada Power's financial advisor
PaineWebber and Sierra Pacific's financial advisor Barr Devlin to discuss a
possible business combination. As a result, on March 10, 1998, Sierra Pacific
and Nevada Power entered into a confidentiality agreement pursuant to which they
agreed to exchange non-public information. Following these meetings, the
companies commenced extensive due diligence and exchanged information.
On March 12, 1998, at a meeting of the Nevada Power Board, Nevada Power's
senior management and representatives of PaineWebber Incorporated
("PaineWebber"), Nevada Power's financial advisor, made a detailed presentation
to the Nevada Power Board with regard to a potential "merger of equals" business
combination with Sierra Pacific. At the conclusion of the meeting, the Nevada
Power Board gave management authorization to continue to explore a possible
combination with Sierra Pacific.
On March 13, 1998, at a meeting of the Sierra Pacific Board, Sierra
Pacific's senior management and representatives of SG Barr Devlin, Sierra
Pacific's financial advisor, briefed the Sierra Pacific Board with regard to a
potential "merger of equals" business combination with Nevada Power. The Sierra
Pacific Board authorized Mr. Malquist and Mr. Oldham, Vice President,
Transmission Services Group and Strategic Development of Sierra Pacific, to
continue discussions with Nevada Power regarding such business combination.
Throughout the remainder of March and April 1998, representatives of Sierra
Pacific and Nevada Power held numerous discussions which focused primarily on
the issues of valuation, dividend policy, management and headquarters locations.
On March 30, 1998, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") was retained to provide additional financial advice and guidance to
management and the Sierra Pacific Board. During April 1998, the Nevada Power
Board and the Sierra Pacific Board were separately briefed on the progress of
negotiations, including reviews of the steps that had been taken regarding due
diligence and transaction structure, as well as proposals regarding corporate
names and headquarters locations, board representation and senior management
composition. The presentations described potential strategic benefits of the
transaction, the status of negotiations on, and key terms and conditions of, the
proposed Merger Agreement and the regulatory plan for the transaction.
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By the last week of April 1998, Nevada Power and Sierra Pacific had agreed
on a merger of equals transaction consisting of a cash election merger where
holders of Nevada Power Common Stock could elect to receive for each of their
shares either $26.00 in cash or one share of Sierra Pacific Common Stock and
holders of Sierra Pacific Common Stock could elect to receive for each of their
shares either $37.55 in cash or 1.44 shares of Sierra Pacific Common Stock. The
companies further agreed that following the Mergers, former holders of Nevada
Power Common Stock would own approximately 50.2% of the outstanding Sierra
Pacific Common Stock, and former holders of Sierra Pacific Common Stock would
own approximately 49.8% of the outstanding Sierra Pacific Common Stock.
On April 29, 1998, the Sierra Pacific Board and the Nevada Power Board each
approved the Merger Agreement. Following the meetings of their respective Boards
of Directors, Sierra Pacific and Nevada Power executed the Merger Agreement on
April 29, 1998 and publicly announced the proposed Mergers on April 30, 1998.
For a more detailed description of the background of the Mergers, see "The
Mergers--Background of the Mergers."
REASONS FOR THE MERGERS
Nevada Power and Sierra Pacific believe that the Mergers offer significant
strategic and financial benefits to each company and to their respective
stockholders, as well as to their employees and customers and the communities in
which they do business. The expected benefits include, among others:
- SUPPORT FOR UTILITY DEREGULATION--The combined company will be better able
to compete in unregulated markets and serve customers more
cost-effectively in regulated markets.
- COMPETITIVE AND STRATEGIC POSITION--The combined company will have the
size and scope to be an effective competitor in the emerging and
increasingly competitive markets for transporting and distributing energy
and marketing energy services.
- ABILITY TO BETTER MANAGE GROWTH--Nevada Power and SPPC have both
experienced high rates of service territory growth. The combined company
should be in a better position to finance and manage the construction and
operational changes required to meet the increasing needs of customers in
Southern and Northern Nevada while also maintaining stronger earnings than
either company could standing alone.
- POTENTIAL COST SAVINGS AND COST AVOIDANCES RESULTING FROM THE
MERGERS. Sierra Pacific and Nevada Power believe that the Mergers will
result in net cost savings and cost avoidances estimated at $322 million
in the aggregate over ten years that will benefit customers and
stockholders.
- EXPANDED MANAGEMENT RESOURCES AND EMPLOYMENT OPPORTUNITIES--The combined
company will be able to draw on a larger and more diverse pool of
management for leadership in an increasingly competitive environment.
- COMMUNITY DEVELOPMENT--The combined company will continue to play a
leading role in the communities served by SPPC and Nevada Power. See "The
Mergers--Reasons for the Mergers."
Entering into the transactions contemplated by the Merger Agreement is not
without risks. Achieving the benefits of the transactions will depend
substantially on timely and favorable regulatory approval of the Mergers. Risks
to stockholders include the risk of unfavorable regulatory treatment, potential
difficulties in integrating the two companies and achieving estimated cost
savings and cost avoidances, and the possibility of market fluctuations in the
price of Nevada Power Common Stock and Sierra Pacific Common Stock subsequent to
the time stockholder approval is sought and prior to consummation of the
Mergers. These and other risk factors, as well as other special considerations,
are discussed in more detail under "Risk Factors and Other Considerations."
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RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
NEVADA POWER. THE NEVADA POWER BOARD, BY A UNANIMOUS VOTE, HAS APPROVED AND
ADOPTED THE MERGER AGREEMENT, BELIEVES THAT THE TERMS OF THE SECOND MERGER ARE
FAIR TO, AND IN THE BEST INTERESTS OF, NEVADA POWER'S STOCKHOLDERS AND
RECOMMENDS THAT THE STOCKHOLDERS OF NEVADA POWER VOTE FOR APPROVAL OF THE MERGER
AGREEMENT.
The Nevada Power Board approved and adopted the Merger Agreement after
consideration of a number of factors described under the heading "The
Mergers--Recommendations of the Boards of Directors--Nevada Power." As described
thereunder, certain directors or officers of Nevada Power may have interests
that are different than, or in addition to, the interests of stockholders of
Nevada Power generally. The Nevada Power Board was aware of these interests and
considered them, along with other matters, in approving the Merger Agreement.
SIERRA PACIFIC. THE SIERRA PACIFIC BOARD, BY A UNANIMOUS VOTE, HAS APPROVED
AND ADOPTED THE MERGER AGREEMENT, BELIEVES THAT THE TERMS OF THE MERGERS ARE
FAIR TO, AND IN THE BEST INTERESTS OF, SIERRA PACIFIC'S STOCKHOLDERS, HAS
APPROVED THE SHARE ISSUANCE AND THE SHARES AMENDMENT, AND RECOMMENDS THAT THE
STOCKHOLDERS OF SIERRA PACIFIC VOTE (I) FOR APPROVAL OF THE MERGER AGREEMENT,
(II) FOR THE SHARE ISSUANCE, AND (II) FOR APPROVAL OF THE SHARES AMENDMENT.
The Sierra Pacific Board approved and adopted the Merger Agreement after
considering a number of factors described under the heading "The Mergers--
Recommendations of the Boards of Directors-- Sierra Pacific." As described
thereunder, certain directors or officers of Sierra Pacific may have interests
that are different than, or in addition to, the interests of stockholders of
Sierra Pacific generally. The Sierra Pacific Board was aware of these interests
and considered them, along with other matters, in approving the Merger
Agreement.
OPINIONS OF FINANCIAL ADVISORS
NEVADA POWER. PaineWebber has delivered to the Nevada Power Board its
written opinions, dated April 29, 1998 and updated September 4, 1998, that, as
of such respective dates and based upon the assumptions made, procedures
followed matters considered and limitations on the review undertaken as set
forth in such opinions, the Nevada Power Merger Consideration to be received in
connection with the Mergers is fair, from a financial point of view, to the
holders of Nevada Power Common Stock. The written opinion of PaineWebber, dated
September 4, 1998, is attached hereto as Annex B and is incorporated herein by
reference. HOLDERS OF SHARES OF NEVADA POWER COMMON STOCK ARE URGED TO, AND
SHOULD, READ SUCH OPINION CAREFULLY AND IN ITS ENTIRETY. See "The
Mergers--Opinions of Financial Advisors" and Annex B.
SIERRA PACIFIC. On April 29, 1998, SG Barr Devlin delivered to the Sierra
Pacific Board its written opinion and Merrill Lynch delivered to the Sierra
Pacific Board its oral opinion (which opinion was subsequently confirmed in a
written opinion dated as of April 29, 1998) to the effect that, as of such date,
the Sierra Pacific Merger Consideration to be issued in the First Merger, in
light of the Nevada Power Merger Consideration to be issued in the Second
Merger, was fair from a financial point of view to the holders of shares of
Sierra Pacific Common Stock. Each of SG Barr Devlin and Merrill Lynch
subsequently confirmed its April 29, 1998 written opinion by delivery of a
written opinion dated as of the date of this Joint Proxy Statement/Prospectus.
The full text of each of the written opinions of SG Barr Devlin and Merrill
Lynch, each dated as of the date of this Joint Proxy Statement/Prospectus and
each of which sets forth assumptions made, matters considered and limits of the
review undertaken in connection with such opinion, are attached hereto as
Annexes C and D, respectively. HOLDERS OF SHARES OF SIERRA PACIFIC COMMON STOCK
ARE URGED TO, AND SHOULD, READ EACH SUCH OPINION CAREFULLY AND IN ITS ENTIRETY.
See "The Mergers--Opinions of Financial Advisors" and Annexes C and D.
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CONDITIONS TO THE MERGERS
The obligations of Nevada Power, on the one hand, and Sierra Pacific, on the
other hand, to consummate the Mergers are subject to the satisfaction of certain
conditions, including, but not limited to.
- the approval of the Merger Agreement by the stockholders of each of Nevada
Power and Sierra Pacific;
- the approval of the Share Issuance by the stockholders of Sierra Pacific;
- the receipt of all material governmental approvals;
- the absence of any injunction that prevents the consummation of the
Mergers;
- the listing on the NYSE of the shares of Sierra Pacific Common Stock to be
issued pursuant to the terms of the Merger Agreement;
- the receipt of a tax opinion from each company's respective tax counsel;
- the accuracy of the representations and warranties of the other party set
forth in the Merger Agreement as of the Closing Date (except for
inaccuracies which would not have a material adverse effect on such other
party);
- the performance by the other party in all material respects, or the
waiver, of all obligations required to be performed under the Merger
Agreement;
- the receipt of an officer's certificate from the other party stating that
certain conditions set forth in the Merger Agreement have been satisfied;
and
- there having been no material adverse change in the other party.
Nevada Power and Sierra Pacific operate in the highly regulated utility
industry. Approvals from various regulatory agencies are a condition to the
consummation of the Mergers. See "Risk Factors and Other Considerations--Risks
Related to the Mergers--Necessity of Receiving Governmental Approvals Prior to
the Mergers" and "Regulatory Matters." It is also a condition to the Mergers
that Nevada Power receive certain consents from unrelated third parties. See
"Risk Factors and Other Considerations--Risks Related to the Mergers--Necessity
of Receiving Third Party Consents."
NO SOLICITATION
A customary non-solicitation provision in the Merger Agreement prohibits
each of Nevada Power and Sierra Pacific and their subsidiaries from initiating,
soliciting, encouraging, facilitating or taking certain other action regarding a
business combination transaction with any third party, except that, Nevada Power
or Sierra Pacific may, prior to approval by their respective stockholders,
consider and accept an unsolicited offer from a third party if, among other
things, its Board of Directors reasonably believes in good faith, after
consultation with its financial advisors, that the offer is more favorable to
the stockholders of such party than the Mergers and determines in good faith,
after consultation with its financial advisors and outside counsel, that failure
to take such action could reasonably be expected to be a breach of its fiduciary
duties under applicable law. See "The Merger Agreement--No Solicitation of
Transactions."
RIGHTS TO TERMINATE, AMEND OR WAIVE CONDITIONS
The Merger Agreement may be terminated under certain circumstances,
including: by mutual written consent of Sierra Pacific and Nevada Power; by
either party if the Merger is not consummated by October 29, 1999 (which date
will be extended to April 29, 2000 in certain circumstances); by either party if
the requisite stockholder approvals are not obtained or if any state or federal
law or court order prohibits consummation of the Mergers; by a non-breaching
party if there occurs a material breach by the other party of the Merger
Agreement which is not cured within 20 days after notice; or by either party, in
certain
22
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circumstances, as a result of a more favorable third-party tender offer or
business combination proposal with respect to such party. The Merger Agreement
requires that termination fees be paid in certain circumstances, including if
there is a willful breach of the Merger Agreement or if, in certain
circumstances, a business combination with a third party is consummated within
two and one-half years of the termination of the Merger Agreement. The aggregate
termination fees under these provisions is $52.5 million. See "The Merger
Agreement--Termination; Fees and Expenses."
The Merger Agreement may be amended by the Boards of Directors of the
parties at any time before or after the approval by the stockholders of Nevada
Power and Sierra Pacific, but, after such stockholder approval no amendment may
be made which alters or changes (i) the amount or kind of shares, rights or the
manner of conversion of such shares or (ii) the terms or conditions of the
Merger Agreement, if such alteration or change, alone or in the aggregate, would
materially adversely affect the rights of the Nevada Power stockholders or
Sierra Pacific stockholders.
At any time prior to the Effective Time of the Second Merger, to the extent
permitted by applicable law, the conditions to Nevada Power's or Sierra
Pacific's obligations to consummate the Mergers may be waived by the other
party. Any determination to waive a condition would depend upon the facts and
circumstances existing at the time of such waiver and would be made by the
waiving party's Board of Directors, exercising its fiduciary duties to such
party and its stockholders. See "The Merger Agreement-- Amendment and Waiver."
If, after approval of the Mergers by stockholders, either Nevada Power or
Sierra Pacific waives any material condition to the consummation of the Mergers,
Nevada Power and Sierra Pacific will, to the extent they deem it necessary under
applicable law or desirable, resolicit the approval of stockholders to the
Mergers taking into account such waived condition.
MANAGEMENT OF SIERRA PACIFIC
As provided in the Merger Agreement, at the Effective Time of the Second
Merger, the Sierra Pacific Board will consist of 14 persons with seven to be
selected by Nevada Power and seven to be selected by Sierra Pacific. Messrs.
Niggli and Malquist will be members of the Sierra Pacific Board. The Sierra
Pacific Board will have such number of standing committees, with such names and
functions as shall be agreed upon by Nevada Power and Sierra Pacific prior to
the Effective Time of the Second Merger. Nevada Power and Sierra Pacific will
each select one-half of the members of each committee and the chairpersons of
one-half of the committees.
Pursuant to the Merger Agreement, Mr. Niggli will become Chairman and Chief
Executive Officer of Sierra Pacific and Chairman of each of its subsidiaries.
Mr. Malquist will become President and Chief Operating Officer of Sierra Pacific
and President and Chief Executive Officer of the Surviving Corporation (Nevada
Power) and SPPC. Mr. Lenzie, currently Chairman and Chief Executive Officer of
Nevada Power, will retire upon completion of the Mergers. See "The
Mergers--Employment Agreements."
See "Sierra Pacific Following the Mergers--Management of Sierra Pacific
After the Mergers."
Sierra Pacific is currently a holding company under the 1935 Act, exempt
from the registration requirements of the 1935 Act and expects to continue as an
exempt holding company under the 1935 Act after the Mergers.
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ACCOUNTING TREATMENT
Nevada Power and Sierra Pacific believe that the First Merger will be
treated in a manner similar to a pooling of interests for accounting purposes.
The Second Merger will be treated for accounting purposes in accordance with the
rules for purchase accounting. In connection with the Second Merger, for
accounting purposes, the assets and liabilities of Sierra Pacific will be
recorded on the books of Nevada Power (as if it were the surviving parent of the
consolidated entity) at their estimated fair market values with the remaining
purchase price reflected as goodwill. The transaction will be treated as a
reverse acquisition with Nevada Power being the acquirer for accounting
purposes. Accordingly, the historical financial information of the merged entity
will reflect that of Nevada Power. See the Notes to the Unaudited Pro Forma
Combined Condensed Financial Statements included elsewhere in this Joint Proxy
Statement/Prospectus.
COMPARISON OF STOCKHOLDER RIGHTS
As a result of the Mergers, holders of Nevada Power Common Stock will become
stockholders of Sierra Pacific. Such stockholders will have certain different
rights as Sierra Pacific stockholders than they had as stockholders of Nevada
Power, because of the differences between the Articles of Incorporation of
Nevada Power (the "Nevada Power Restated Articles"), by-laws of Nevada Power
(the "Nevada Power By-laws") and Rights Agreement and the Sierra Pacific
Restated Charter, by-laws of Sierra Pacific (the "Sierra Pacific By-laws") and
Rights Agreement. The principal differences between the Nevada Power Restated
Articles and the Sierra Pacific Restated Charter and between the Nevada Power
By-laws and the Sierra Pacific By-laws are as follows:
- ADVANCE NOTICE OF STOCKHOLDER PROPOSALS. Each company's by-laws require
advance notice by stockholders of matters to be presented to meetings of
stockholders. Nevada Power requires notice not less than 30 or more than
60 days prior to the meeting, while Sierra Pacific requires notice 20 days
prior to the anniversary date of the immediately preceding annual meeting
or 10 days after the date notice of a special meeting is given to
stockholders.
- AMENDMENTS TO CHARTERS. Under the Nevada Power Restated Articles, a
supermajority vote is required to approve certain business combinations
and to adopt any amendment relating to the number of directors, classified
board of directors, removal of directors, notice of stockholder nominees
for director or call of special meetings. Under the Sierra Pacific
Restated Charter, a supermajority vote is required to amend any provision
relating to the number, tenure, vacancy, classification or removal of
directors or to amend the fair price provisions.
- AMENDMENTS TO BY-LAWS. Amendments to the Nevada Power By-laws adopted by
stockholders require a majority stockholder vote, whereas such amendments
to the Sierra Pacific By-laws require a two-thirds stockholder vote. In
addition to amendments adopted by stockholders, each of the Nevada Power
Board and the Sierra Pacific Board may amend the respective company's
by-laws.
- APPROVAL OF BUSINESS COMBINATIONS. The Nevada Power Restated Articles
require an 80% vote of stockholders to approve certain business
combinations with a person who is the owner of 5% or more of Nevada Power
Common Stock (or certain affiliates of such person) unless such business
combination is approved as required under applicable law and by a majority
of disinterested directors. The Sierra Pacific Restated Charter includes
certain "fair price" provisions which require a two-thirds vote of
stockholders to approve certain business combinations with a person who is
the owner of 10% or more of Sierra Pacific Common Stock (or certain
affiliates of such person) unless the business combination is approved by
a majority of the disinterested directors or certain fair price
requirements regarding consideration received by stockholders in such
business combination are met.
- REMOVAL OF DIRECTORS. Directors of Nevada Power may be removed without
cause by an 80% vote of stockholders or for cause by a two-thirds vote of
stockholders. Sierra Pacific directors may be removed by a two-thirds vote
of stockholders.
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For a full comparison of the foregoing provisions, as well as a comparison
of the companies' respective Rights Agreements, see "Comparison of Stockholder
Rights."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The consummation of the Mergers is conditioned upon the receipt by Nevada
Power of an opinion from Jones, Day, Reavis & Pogue ("Jones Day") and the
receipt by Sierra Pacific of an opinion from Skadden, Arps, Slate, Meagher &
Flom LLP ("Skadden Arps") substantially to the effect that (i) the First Merger
will be a tax-free transaction under the Code and that Sierra Pacific, LAKE
Merger Sub and the stockholders of Sierra Pacific who exchange their shares
solely for the stock of Sierra Pacific will recognize no gain or loss for
federal income tax purposes as a result of the consummation of the First Merger,
and (ii) the Second Merger will be a tax-free reorganization under the Code and
that Nevada Power, DESERT Merger Sub and the stockholders of Nevada Power who
exchange their shares solely for the stock of Sierra Pacific will recognize no
gain or loss for federal income tax purposes as a result of the consummation of
the Second Merger.
Stockholders who elect to receive cash in connection with the Mergers may
recognize taxable gains. Such gains will under most circumstances be treated as
capital gains. Complicated rules, certain of which are summarized under
"Material Federal Income Tax Consequences," apply for determining the character
of any gains so recognized. See "The Mergers--Material Federal Income Tax
Consequences."
EACH STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE TAX
CONSEQUENCES OF THE MERGERS TO SUCH STOCKHOLDER UNDER FEDERAL, STATE, LOCAL OR
ANY OTHER APPLICABLE LAW.
AMENDMENT TO SIERRA PACIFIC RESTATED CHARTER
Subject to the approval of the Sierra Pacific Shares Amendment by Sierra
Pacific stockholders at the Sierra Pacific Special Meeting, the Sierra Pacific
Restated Charter will be amended no later than the Effective Time of the Second
Merger to increase the maximum number of authorized shares of Sierra Pacific
Common Stock from 90,000,000 shares to 250,000,000 shares. See "Proposal for
Shares Amendment," which includes the text of the proposed amendment.
THE SPECIAL MEETINGS
NEVADA POWER. At the Nevada Power Special Meeting, the holders of Nevada
Power Common Stock will be asked to consider and vote upon the proposal to adopt
and approve the Merger Agreement.
The Nevada Power Special Meeting is scheduled to be held at 3:00 p.m., local
time, on October, 9, 1998, at the Riviera Hotel & Casino, Conference Center,
2901 Las Vegas Boulevard South, Las Vegas, Nevada and at any adjournment or
postponement thereof. The Nevada Power Board has fixed the close of business on
September 3, 1998 as the record date (the "Nevada Power Record Date") for the
determination of holders of Nevada Power Common Stock entitled to notice of and
to vote at the Nevada Power Special Meeting.
THE NEVADA POWER BOARD, BY A UNANIMOUS VOTE, HAS APPROVED AND ADOPTED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, AND RECOMMENDS THAT
NEVADA POWER'S STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
SIERRA PACIFIC. At the Sierra Pacific Special Meeting, the holders of
Sierra Pacific Common Stock will be asked to consider and vote upon proposals
(i) to approve the Merger Agreement, (ii) to approve the Share Issuance and
(iii) to approve the Shares Amendment.
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The Sierra Pacific Special Meeting is scheduled to be held at 9:00 a.m.,
local time, on October 9, 1998 at the Peppermill Hotel & Casino, 2707 South
Virginia Street, Reno, Nevada and at any adjournment or postponement thereof.
The Sierra Pacific Board has fixed the close of business on September 3, 1998 as
the record date (the "Sierra Pacific Record Date") for the determination of
holders of Sierra Pacific Common Stock entitled to notice of and to vote at the
Sierra Pacific Special Meeting.
THE SIERRA PACIFIC BOARD, BY A UNANIMOUS VOTE, HAS APPROVED AND ADOPTED THE
MERGER AGREEMENT, AND THE TRANSACTIONS CONTEMPLATED THEREBY, AND THE SHARES
AMENDMENT, AND RECOMMENDS THAT SIERRA PACIFIC'S STOCKHOLDERS VOTE (1) FOR
APPROVAL OF THE MERGER AGREEMENT, (2) FOR APPROVAL OF THE SHARE ISSUANCE AND (3)
FOR APPROVAL OF THE SHARES AMENDMENT.
REQUIRED VOTE
NEVADA POWER. As provided under the Nevada General Corporation Law (the
"NGCL"), the affirmative vote of a majority of the outstanding voting power
entitled to be cast at the Nevada Power Special Meeting by the holders of
outstanding shares of Nevada Power Common Stock is required to approve the
Merger Agreement. Under the Nevada Power By-laws, the holders of a majority of
the shares of Nevada Power Common Stock issued and outstanding on the Nevada
Power Record Date must be present in person or represented by proxy at the
Nevada Power Special meeting for a quorum to be present. On the Nevada Power
Record Date, there were 51,264,965 shares of Nevada Power Common Stock
outstanding and entitled to one vote per share. As of the Nevada Power Record
Date, directors and executive officers of Nevada Power, together with their
affiliates as a group, owned less than 1% of the issued and outstanding shares
of Nevada Power Common Stock. No approval by the holders of outstanding
preferred stock of Nevada Power is required to approve the Merger Agreement and
such holders are not entitled to vote at the Nevada Power Special Meeting. See
"The Special Meetings, Voting and Proxies--The Nevada Power Special Meeting."
SIERRA PACIFIC. Under the NGCL, the Sierra Pacific Restated Charter, the
Sierra Pacific By-laws and the rules of the NYSE, as applicable: (i) the
affirmative vote of the holders of a majority of the outstanding shares of
Sierra Pacific Common Stock is required for approval of the Merger Agreement and
the Shares Amendment and (ii) the affirmative vote of the holders of a majority
of the votes cast (provided that the total number of votes cast represents at
least a majority of all outstanding shares of Sierra Pacific Common Stock
entitled to vote thereon at the Sierra Pacific Special Meeting) is required for
the approval of the Share Issuance. Under the Sierra Pacific By-laws, the
holders of a majority of the shares of Sierra Pacific Common Stock outstanding
on the Sierra Pacific Record Date must be present or represented by proxy at the
Sierra Pacific Special Meeting for a quorum to be present. On the Sierra Pacific
Record Date, there were 30,956,869 shares of Sierra Pacific Common Stock
outstanding and entitled to one vote per share. As of the Sierra Pacific Record
Date, directors and officers of Sierra Pacific, together with their affiliates
as a group, owned less than 1% of the issued and outstanding shares of Sierra
Pacific Common Stock. No approval by the holders of any class of securities of
SPPC is required to approve the Merger Agreement, the Share Issuance or the
Shares Amendment, and such holders are not entitled to vote at the Sierra
Pacific Special Meeting. See "The Special Meetings, Voting and Proxies--The
Sierra Pacific Special Meeting."
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SELECTED HISTORICAL AND UNAUDITED PRO FORMA DATA
The summary below sets forth selected historical financial and market data
and selected unaudited pro forma financial data. The financial data should be
read in conjunction with the historical financial statements and related notes
thereto of Nevada Power and Sierra Pacific, incorporated herein by reference,
and in conjunction with the unaudited pro forma combined condensed financial
statements and related notes thereto of Sierra Pacific included under "Unaudited
Pro Forma Combined Condensed Financial Statements." The following data should be
read in conjunction with the documents incorporated by reference herein.
HISTORICAL DATA
The selected historical financial data of each of Nevada Power and Sierra
Pacific as of December 31, 1997, 1996, 1995, 1994 and 1993 and for the five
years ended December 31, 1997, set forth below, have been derived from audited
financial statements. The selected historical financial data of Nevada Power and
Sierra Pacific as of and for the six-month period ended June 30, 1998, set forth
below, have been derived from unaudited financial statements and, in the opinion
of management of the respective companies, include all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation for such
periods. Due to the effect of seasonal fluctuations and other factors on the
operations of Nevada Power and Sierra Pacific, financial results for the
six-month period ended June 30, 1998 are not necessarily indicative of results
for the year ended December 31, 1998.
NEVADA POWER COMPANY
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED JUNE -----------------------------------------------------
30, 1998 1997 1996 1995 1994 1993
----------- --------- --------- --------- --------- ---------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating revenues................................... $ 364 $ 799 $ 805 $ 750 $ 764 $ 652
Income applicable to common stock.................... 17 82 75 73 78 70
Earnings per share-basic............................. 0.34 1.65 1.56 1.58 1.82 1.76
Cash dividends declared per common share............. 0.80 1.60 1.60 1.60 1.60 1.60
BALANCE SHEET DATA (END OF PERIOD)
Total assets......................................... $ 2,467 $ 2,339 $ 2,163 $ 2,073 $ 1,907 $ 1,809
Long-term debt (1)................................... 898 915 846 806 770 724
Preferred stock:
Not subject to mandatory redemption................ 3 3 4 4 4 4
Subject to mandatory redemption.................... -- -- 38 38 38 38
Company-obligated mandatorily redeemable preferred
securities......................................... 119 119 -- -- -- --
Book value per share................................. 16.19 16.54 16.40 16.25 16.12 15.56
</TABLE>
27
<PAGE>
SIERRA PACIFIC RESOURCES
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED JUNE -----------------------------------------------------
30, 1998 1997 1996 1995 1994 1993
----------- --------- --------- --------- --------- ---------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating revenues.................................. $ 356 $ 663 $ 628 $ 606 $ 626 $ 528
Income applicable to common stock................... 37 74 67 58 52 45
Earnings per share-basic............................ 1.19 2.41 2.19 1.95 1.79 1.67
Earnings per share-diluted.......................... 1.19 2.40 2.19 1.95 1.79 1.67
Cash dividends declared per common share............ 0.65 1.24 1.18 1.12 1.12 1.12
BALANCE SHEET DATA (END OF PERIOD)
Total assets........................................ $ 1,950 $ 1,936 $ 1,869 $ 1,757 $ 1,633 $ 1,609
Long-term debt (1).................................. 623 638 663 584 573 559
Preferred stock:
Not subject to mandatory redemption............... 73 73 73 73 73 73
Subject to mandatory redemption................... -- -- -- 20 27 34
Company-obligated mandatorily redeemable preferred
securities...................................... 49 49 49 -- -- --
Book value per share................................ 21.05 20.49 19.30 18.13 17.30 16.88
</TABLE>
- ------------------------
(1) Includes current portion of long-term debt.
UNAUDITED PRO FORMA DATA
The following unaudited pro forma financial data give effect to the Mergers.
The following information is not necessarily indicative of the financial
position or operating results that would have occurred had the Mergers been
consummated on the dates as of which, or at the beginning of the period for
which, the Mergers are being given effect nor is it necessarily indicative of
future operating results or financial position. See "Unaudited Pro Forma
Combined Condensed Financial Statements."
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------------- -------------
<S> <C> <C>
(MILLIONS OF DOLLARS, EXCEPT
PER SHARE AMOUNTS AND RATIOS)
PRO FORMA INCOME STATEMENT DATA
Operating revenues.......................................................... $ 720 $ 1,462
Income applicable to common stock........................................... 37 123
Earnings per share--basic................................................... 0.47 1.60
PRO FORMA BALANCE SHEET DATA (END OF PERIOD)
Total assets................................................................ 4,795 --
Long-term debt (1).......................................................... 1,981 --
Preferred stock: not subject to mandatory redemption...................... 73 --
Preferred securities: subject to mandatory redemption..................... 167 --
Book value per share........................................................ 18.68 --
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA PER SHARE DATA HISTORICAL PER SHARE DATA
---------------------------- ----------------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED JUNE DECEMBER 31, ENDED JUNE DECEMBER 31,
30, 1998 1997 30, 1998 1997
------------- ------------- ------------- -------------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C>
COMBINED COMPANY
Earnings per share.................................... $ 0.47 $ 1.60 -- --
Cash dividends declared per common share.............. 0.50 1.00 -- --
Book value per share (end of period).................. 18.68 18.71 -- --
NEVADA POWER
Earnings per share.................................... 0.47 1.60 $ 0.34 $ 1.65
Cash dividends declared per common share.............. 0.50 1.00 0.80 1.60
Book value per share (end of period).................. 18.68 18.71 16.19 16.54
SIERRA PACIFIC
Earnings per share.................................... 0.68 2.30 1.19 2.41
Cash dividends declared per common share.............. 0.72 1.44 0.65 1.24
Book value per share (end of period).................. 26.90 26.94 21.05 20.49
</TABLE>
- ------------------------
(1) Includes amounts due within one year and sinking fund requirements
COMPARATIVE MARKET PRICES AND DIVIDENDS
The Nevada Power Common Stock and the Sierra Pacific Common Stock are traded
on the NYSE. The Nevada Power Common Stock is also traded on the PE. The
following table sets forth, for the periods indicated, the high and low sales
prices of Nevada Power Common Stock and Sierra Pacific Common Stock as reported
on the NYSE Composite Tape and dividends declared.
<TABLE>
<CAPTION>
NEVADA POWER SIERRA PACIFIC RESOURCES
--------------------------------- ---------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
--------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter............................................... 21 3/8 19 1/4 $ 0.40 20 1/8 18 1/8 $ 0.28
Second Quarter.............................................. 21 1/4 19 5/8 0.40 20 7/8 18 1/2 0.28
Third Quarter............................................... 22 1/2 19 1/8 0.40 21 5/8 20 1/8 0.28
Fourth Quarter.............................................. 22 7/8 20 7/8 0.40 23 5/8 21 1/8 0.28
1996
First Quarter............................................... 22 7/8 21 1/8 0.40 25 1/8 22 5/8 0.295
Second Quarter.............................................. 22 19 3/4 0.40 25 3/4 23 3/8 0.295
Third Quarter............................................... 21 3/4 19 7/8 0.40 26 3/4 24 3/8 0.295
Fourth Quarter.............................................. 20 7/8 20 0.40 29 1/8 25 3/4 0.295
1997
First Quarter............................................... 20 25/32 19 3/4 0.40 29 3/4 27 7/8 0.31
Second Quarter.............................................. 21 1/2 19 3/8 0.40 32 28 0.31
Third Quarter............................................... 22 3/16 20 5/8 0.40 32 7/8 31 13/16 0.31
Fourth Quarter.............................................. 27 5/8 20 5/8 0.40 37 9/16 30 1/8 0.31
1998
First Quarter............................................... 26 3/4 24 1/2 0.40 37 7/8 34 3/4 0.325
Second Quarter.............................................. 26 15/16 22 3/16 0.40(a) 38 32 3/8 0.325
Third Quarter (through September 2, 1998)................... 26 3/16 23 1/16 0.40(a) 37 1/8 34 7/16 0.325
</TABLE>
- ------------------------
(a) The Nevada Power Board has determined that commencing with the November 1998
quarterly dividend, the quarterly dividend, if and when declared, will be
$0.25 per share.
29
<PAGE>
RISK FACTORS AND OTHER CONSIDERATIONS
STOCKHOLDERS OF NEVADA POWER AND STOCKHOLDERS OF SIERRA PACIFIC SHOULD
CONSIDER CAREFULLY ALL THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, INCLUDING THE FOLLOWING MATTERS:
RISKS RELATED TO THE MERGER
EFFECT OF STOCK PRICE FLUCTUATIONS; DELAY IN MAKING STOCK OR CASH
ELECTION. Although stockholders will have an election to exchange their Nevada
Power Common Stock or Sierra Pacific Common Stock, as the case may be, for
EITHER cash OR stock, the opportunity to make that election will not occur at
the time of the stockholder vote on the Mergers, but rather will occur shortly
before the Effective Time of the Mergers, after all necessary regulatory
approvals have been obtained. The cash price per share to be paid for
surrendered shares is fixed at $26.00 for shares of Nevada Power Common Stock
and $37.55 for shares of Sierra Pacific Common Stock. These prices will not be
adjusted based on changes in market prices or any other factor. Likewise, the
exchange ratios are fixed. Each share of Nevada Power Common Stock to be
exchanged for stock will be exchanged for one share of Sierra Pacific Common
Stock and each share of Sierra Pacific Common Stock to be exchanged for stock
will be exchanged for 1.44 shares of Sierra Pacific Common Stock. These exchange
ratios will not be adjusted based on changes in market prices or any other
factor.
On April 29, 1998, the last trading day before public announcement of the
Mergers, (i) the high, low and closing sales prices per share of Nevada Power
Common Stock were $24.438, $23.875 and $24.25, respectively, as reported on the
NYSE Composite Transactions Tape, and (ii) the high, low and closing sales
prices per share of Sierra Pacific Common Stock were $34.50, $34.375 and
$34.438, respectively, as reported on the NYSE Composite Transactions Tape. On
September 2, 1998, the most recent date for which it was practicable to obtain
market price data, the high, low and closing sales prices per share of Nevada
Power Common Stock were $25.375, $24.4375 and $25.3125, respectively, as
reported on the NYSE Composite Transactions Tape, and (ii) the high, low and
closing sales prices per share of Sierra Pacific Common Stock were $36.4375,
$35.6875 and $35.875, respectively, as reported on the NYSE Composite
Transactions Tape. Stockholders are urged to obtain current market quotations
for Nevada Power Common Stock and Sierra Pacific Common Stock.
In the period from the time of the stockholders' action on the proposed
Mergers at the Special Meetings until the time for making elections just prior
to consummation of the Mergers, which may be as long as nine months to one year,
the market value of the Nevada Power Common Stock and/or Sierra Pacific Common
Stock may fluctuate and the relative prices of shares of Nevada Power Common
Stock and/or Sierra Pacific Common Stock at the Effective Time of the Mergers
may vary significantly from the prices as of the date of execution of the Merger
Agreement, the date hereof or the date of the Special Meetings. These variances
may be due to changes in the businesses, operations, results and prospects of
Nevada Power or Sierra Pacific, market assessments of the likelihood that the
Merger will be consummated and the timing thereof, the effect of any conditions
or restrictions imposed on or proposed with respect to the combined company by
regulatory agencies in connection with or following consummation of the Mergers,
general market and economic conditions, and other factors.
For example, between April 29, 1997 and April 29, 1998, as reported on the
NYSE Composite Transactions Tape, the closing sales price of the Nevada Power
Common Stock has ranged from a high of $27.25 to a low of $19.875 and the
closing sales price of the Sierra Pacific Common Stock during the same period
has ranged from a high of $38 to a low of $28.375. In addition, the stock market
generally has experienced significant price and volume fluctuations. These
market fluctuations could have a material adverse effect on the market or
liquidity of the Nevada Power Common Stock or the Sierra Pacific Common Stock.
There can be no assurance as to the market price of the Sierra Pacific
Common Stock immediately after the Effective Time of the Mergers and therefore
there is no assurance as to the value of the Nevada
30
<PAGE>
Power Stock Consideration or the Sierra Pacific Stock Consideration. The value
of the stock consideration may be significantly higher or lower than the value
of the Nevada Power Cash Consideration or the Sierra Pacific Cash Consideration.
See "Selected Historical and Pro Forma Data--Comparative Market Prices and
Dividends."
Because the total number of shares of Nevada Power Common Stock and the
total number of shares of Sierra Pacific Common Stock to be exchanged for cash
are each fixed, stockholders may not receive all of the cash or all of the stock
that they elect. If the market price per share of the Nevada Power Common Stock
at the time stockholders are making their elections exceeds the Nevada Power
Cash Consideration ($26.00) or the market price per share of the Sierra Pacific
Common Stock at such time exceeds the Sierra Pacific Cash Consideration
($37.55), it is likely that more stockholders will elect to receive stock (I.E.,
the Nevada Power Stock Consideration or the Sierra Pacific Stock Consideration),
as the case may be. To the extent more stockholders elect to receive stock
because of the market price of the Nevada Power Common Stock or the Sierra
Pacific Common Stock or otherwise, it is likely that the allocation formula
provided in the Merger Agreement will result in those stockholders nevertheless
receiving cash for a portion of their Nevada Power Common Stock or Sierra
Pacific Common Stock.
INCREASED LEVERAGE. It is currently anticipated that the full amount of the
$460 million necessary to fund the total of the Nevada Power Cash Consideration
and the Sierra Pacific Cash Consideration will be financed at the Sierra Pacific
holding company level through external sources. Sources of financing being
considered include, but are not limited to, commercial banks, investment banks,
institutional lenders and the public securities markets. Management of Sierra
Pacific and Nevada Power believe that Sierra Pacific will have access to many
sources and types of short-term and long-term capital at reasonable rates. There
can be no assurance that such financings will be on favorable terms. The terms
of such financings may contain covenants that adversely affect the financial
condition and flexibility of the combined company. It is not anticipated that
any debt will be retired by Nevada Power, Sierra Pacific or SPPC in connection
with the Mergers. As a result of the proposed financing and as shown in the Pro
Forma Combined Condensed Balance Sheets and under the heading "Unaudited Pro
Forma Combined Condensed Financial Statements," the consolidated capitalization
of Sierra Pacific after the Mergers will consist of approximately 39.5% common
equity and 60.5% long-term debt and preferred stock. After the proposed
financing is completed, total long term debt will amount to approximately $1,997
million or 54% of total capitalization. See "Merger Related Financing."
UNCERTAINTIES IN INTEGRATING THE COMPANIES AND ACHIEVING COST
SAVINGS. Nevada Power and Sierra Pacific have entered into the Merger Agreement
with the expectation that the Mergers will result in certain benefits,
including, without limitation, cost savings, operating efficiencies, cost
avoidances and other synergies. See "The Merger--Reasons for the Merger" and
"--Recommendations of the Boards of Directors." Achieving the benefits of the
Mergers will depend in substantial part upon the receipt of timely and favorable
regulatory approvals (see "Necessity of Receiving Governmental Approvals Prior
to the Merger" below) and upon the successful integration of the businesses of
Nevada Power and Sierra Pacific in an efficient manner, and there can be no
assurance that this will occur. The consolidation of operations will require
substantial attention from management. Any diversion of management's attention
and any difficulties encountered in the transition and integration process could
have a material adverse effect on the revenues, levels of expenses and operating
results of the combined company. There can be no assurance that the combined
company will realize any of the anticipated benefits of the Merger. For a
discussion of other factors and assumptions related to the synergy estimates,
see "The Merger--Reasons for the Merger" and "--Recommendations of the Boards of
Directors."
DILUTION OR ACCRETION. Nevada Power anticipates that the transactions
contemplated by the Mergers will not result in dilution in earnings per share to
current holders of Nevada Power Common Stock. Sierra Pacific anticipates that
the transactions will not result in dilution in earnings per share to current
holders of Sierra Pacific Common Stock. Estimates of dilution have been made
without taking into account any of the anticipated Mergers synergies referred to
in the preceding heading.
31
<PAGE>
NECESSITY OF RECEIVING GOVERNMENTAL APPROVALS PRIOR TO THE MERGER. The
approval of the SEC under the 1935 Act, of the Federal Energy Regulatory
Commission (the "FERC") under the Federal Power Act and of the Public Utilities
Commission of Nevada ("PUCN") under applicable state law, and the expiration or
termination of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), are required in
order to consummate the Mergers.
Under the Merger Agreement, Nevada Power and Sierra Pacific have agreed to
use all reasonable efforts to obtain all governmental authorizations necessary
or advisable to consummate or effect the transactions contemplated by the Merger
Agreement. Various parties may seek intervention in these proceedings to oppose
the Mergers or to have conditions imposed upon the receipt of necessary
approvals. While Nevada Power and Sierra Pacific believe that they will receive
the requisite regulatory approvals for the Mergers, there can be no assurance as
to the timing of such approvals or their ability to obtain such approvals on
satisfactory terms or otherwise. It is a condition to the consummation of the
Mergers that final orders approving the Mergers be obtained from the federal and
state commissions on terms and conditions which would not have, or would not be
reasonably likely to have, a material adverse effect on the business, assets,
financial condition or results of operations of Nevada Power or Sierra Pacific
and their respective subsidiaries taken as a whole, or which would be materially
inconsistent with the agreements of the parties contained in the Merger
Agreement. There can be no assurance that any such approvals will not contain
terms or conditions that cause such approvals to fail to satisfy such condition
to the consummation of the Mergers. Further, there can be no assurance that such
approvals will not contain conditions or limitations that will adversely affect
the ability of the combined company to achieve estimated cost savings and cost
avoidances. See "Regulatory Matters."
REFINANCING OF SECURITIES. The Merger Agreement provides that all
outstanding shares of Nevada Power Preferred Stock (approximately $3.68 million
in redemption amount) must be redeemed or otherwise retired prior to the
consummation of the Mergers. The Nevada Power Preferred Stock is redeemable at a
price of $21.00 per share for the 5.20% series and the 5.40% series and a price
of $20.25 per share for the 4.70% series at any time upon 30 days notice to the
holders. Nevada Power has not determined when or how it will retire the Nevada
Power Preferred Stock. All other securities of Nevada Power outstanding at the
time the Mergers are consummated will be assumed by the Surviving Corporation
without the need for any consent or approval of the holders thereof. In the case
of certain securities issued for the benefit of Nevada Power, the interest on
which is exempt from federal income taxation ($541 million outstanding), Nevada
Power must receive an opinion of nationally recognized bond counsel that the
Mergers will not have an adverse affect on such tax exemption. Nevada Power will
seek such opinions where required. In the event such opinions cannot be
obtained, it may be necessary to redeem or otherwise retire and refinance such
securities. If it should be necessary for Nevada Power to retire any of the tax
exempt securities, Nevada Power anticipates that it would, subject to approval
from the PUCN, issue taxable securities of similar maturities and use the
proceeds to retire the required amount of existing tax exempt securities.
Depending on market conditions, the interest cost of refunding securities could
be significantly higher than the interest cost of the current tax exempt
securities. Nevada Power believes it would have access to the capital markets to
effect such refinancing on reasonable terms.
None of the securities of SPPC, including its first mortgage bonds, junior
subordinated debentures, SPPC Preferred Stock or SPPC Class A Preferred Stock
will be affected by the Mergers and all such securities will remain outstanding
and unchanged. No approval of the holders of any security of SPPC is required as
a condition to consummation of the Mergers.
NECESSITY OF RECEIVING THIRD PARTY CONSENTS. As a result of the Mergers,
all contractual and other obligations and rights of Nevada Power will be assumed
by or transferred to the Surviving Corporation by operation of law.
Notwithstanding such assumption or transfer by operation of law, certain of
Nevada Power's agreements or arrangements (such as those relating to its joint
power projects, environmental permits, interconnection agreements, power
purchase and sales agreements, transmission agreements, loan agreements,
franchise agreements, easements and rights of way and similar instruments) may
by their
32
<PAGE>
terms require the consent of the other party or parties to such agreement or
arrangement. It is a condition to the consummation of the Mergers that Nevada
Power have obtained all such approvals, the absence of which would be material
to the continued operation of the Surviving Corporation. Nevada Power has agreed
to use its best efforts to obtain all required consents or approvals, but no
assurance can be made that it will be able to do so. See "The Merger
Agreement--Conditions to Consummation of the Mergers."
INTERESTS OF CERTAIN PERSONS IN THE MERGERS. In considering the
recommendations by the Nevada Power Board and the Sierra Pacific Board,
stockholders of Nevada Power and Sierra Pacific should be aware that certain
directors or officers of Nevada Power and Sierra Pacific may have interests that
may be deemed to be conflicts of interest with respect to the Mergers. Such
interests, which are set forth below, together with other relevant factors, were
considered by the Nevada Power Board and the Sierra Pacific Board, as
applicable, in approving the Merger Agreement.
DIRECTORSHIPS. The Merger Agreement provides that the Sierra Pacific Board
will, upon consummation of the Mergers, consist of 14 members, with seven to be
selected by Nevada Power and seven to be selected by Sierra Pacific. See "The
Mergers--Interests of Certain Persons in the Mergers--Board of Directors."
Except for Mr. Niggli and Mr. Malquist, the persons to be so selected have not
yet been identified.
EMPLOYMENT AGREEMENTS. Sierra Pacific has entered into employment
agreements with Mr. Niggli and Mr. Malquist (the "Employment Agreements"), which
are to become effective at the Effective Time of the Second Merger. See "The
Mergers--Interests of Certain Persons in the Mergers--Employment Agreements" and
"Sierra Pacific Following the Mergers--Management of Sierra Pacific After the
Mergers."
NEVADA POWER ARRANGEMENTS. The executive officers of Nevada Power have each
entered into an employment agreement with Nevada Power with a term ending in
2001 which provides for severance benefits upon termination if, during the term
of the agreement, Nevada Power terminates the employment of the executive
officer for reasons other than cause (as defined in such employment agreement),
death or disability or the executive officer terminates his or her employment
for good reason (as defined in such employment agreement). Under such
agreements, the term of each agreement is extended in the event of a change in
control, which includes the announcement of the signing of the Merger Agreement
as well as the consummation of the Mergers. See "The Mergers--Employee Plans and
Severance Arrangements-- Nevada Power."
Certain employees, including executive officers of Nevada Power, are
eligible to participate in the annual incentive plans, 1993 Long-Term Incentive
Plan and Supplemental Executive Retirement Plan of Nevada Power. The
consummation of the Mergers will constitute a change in control under such
plans. Participants will be entitled to payments in certain cases following the
change in control as described under "The Mergers--Employee Plans and Severance
Arrangements--Nevada Power."
Substantially all employees of Nevada Power, other than executive officers,
are covered under Nevada Power's Severance Allowance Plan, which provides change
in control severance benefits upon termination following a change in control. A
change in control (as defined in the Severance Allowance Plan) will result upon
the consummation of the Mergers. Except to the extent the Severance Allowance
Plan is modified, as permitted by its terms, participants in the Severance
Allowance Plan will be entitled to benefits in certain cases as described under
"The Mergers--Employee Plans and Severance Arrangements--Nevada Power."
SIERRA PACIFIC ARRANGEMENTS. Sierra Pacific has entered into change in
control agreements (the "Sierra Pacific Change in Control Agreements") with
eleven key executives. The Sierra Pacific Change in Control Agreements provide
that upon termination of any such executive's employment generally within 24
months following a change in control of Sierra Pacific (as defined in each
agreement) either (i) by Sierra Pacific for reasons other than cause (as defined
in each agreement), death or disability or (ii) by the executives for good
reason (as defined in each agreement), the executive will receive certain
payments and benefits, including vesting of or accelerated payment of benefits
under certain Sierra Pacific employee benefit plans.
33
<PAGE>
Consummation of the Mergers will constitute a "change in control" under the
Sierra Pacific Change in Control Agreements. See "The Mergers--Employee Plans
and Severance Arrangements--Sierra Pacific."
INDEMNIFICATION. The parties have agreed in the Merger Agreement that
Sierra Pacific and the Surviving Corporation (i) will indemnify, to the fullest
extent permitted by applicable law, the present and former officers, directors
and employees of each of the parties to the Merger Agreement or any of their
subsidiaries against certain liabilities arising out of actions or omissions
occurring at or prior to the Effective Time of the Second Merger that arise from
or are based on such service as an officer, director or employee or that are
based on or arise out of or pertain to the transactions contemplated by the
Merger Agreement and (ii) will maintain policies of directors' and officers'
liability insurance for a period of not less than six years after the Effective
Time of the Second Merger. See "The Mergers--Interests of Certain Persons in the
Mergers--Indemnification" and "The Merger Agreement--Indemnification."
RISKS RELATED TO THE BUSINESS AND OPERATIONS OF NEVADA POWER
AND SIERRA PACIFIC
COMPETITIVE AND REGULATORY CONDITIONS. The Mergers will combine two
companies that share a common regulatory environment as well as a number of
factors currently affecting certain electric utilities, including deregulation
and increased competition. The electric utility industry has been undergoing
dramatic structural change for several years, becoming increasingly competitive.
This evolution is due to, among other things, the Energy Policy Act of 1992 and
the issuance by FERC in 1996 of certain orders which have further opened the
transmission systems of electric utilities to use by third parties. In Nevada,
industry restructuring is expected to include retail customer choice of electric
supplier by 2000. In California, retail customer choice became effective in
1998. Both Nevada Power and Sierra Pacific are experiencing a rapid rate of
growth in customers and demand which requires the construction and financing of
additional facilities. As a result of the Mergers, these factors may affect the
combined company to a greater degree than would be the case for either Nevada
Power or Sierra Pacific on a stand-alone basis.
DIVESTITURE OF GENERATION. As part of the proposal to the PUCN for approval
of the Mergers, Nevada Power and Sierra Pacific have proposed that they each
sell all their existing generating capacity. Upon such sales, Nevada Power and
SPPC would no longer be responsible for providing adequate generating capacity
except possibly in limited circumstances as the "provider of last resort." The
uncertainties surrounding divestiture include the price that generation assets
will bring, the regulatory treatment of any gain or loss from the sale of assets
and the ability to effectively use the proceeds of sales in the companies'
businesses. No assurance can be given that the divestiture of generating
facilities will be successful or that Nevada Power or SPPC would not experience
operating or other business difficulties following such divestiture.
ENVIRONMENTAL MATTERS. Nevada Power's and SPPC are subject to regulation by
federal, state and local authorities with regard to air and water-quality
control and other environmental matters. The companies do not believe that
combining their operations would materially increase their exposure to
environmental liabilities.
34
<PAGE>
THE SPECIAL MEETINGS, VOTING AND PROXIES
This Joint Proxy Statement/Prospectus is being furnished to the holders of
Nevada Power Common Stock in connection with the solicitation of proxies by the
Nevada Power Board from the holders of Nevada Power Common Stock for use at the
Nevada Power Special Meeting and the holders of Sierra Pacific Common Stock in
connection with the solicitation of proxies by the Sierra Pacific Board from the
holders of Sierra Pacific Common Stock for use at the Sierra Pacific Special
Meeting.
THE NEVADA POWER SPECIAL MEETING
PURPOSE; TIME AND PLACE. The Nevada Power Special Meeting is scheduled to
be held on October 9, 1998, at 3:00 p.m., local time, at the Riviera Hotel &
Casino, Conference Center, 2901 Las Vegas Boulevard South, Las Vegas, Nevada and
at any adjournment or postponement thereof. The purpose of the Nevada Power
Special Meeting is to consider and vote upon a proposal to approve the Merger
Agreement.
THE NEVADA POWER BOARD, BY UNANIMOUS VOTE, HAS ADOPTED AND APPROVED THE
MERGER AGREEMENT, AND RECOMMENDS THAT NEVADA POWER STOCKHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
Certain members of the Nevada Power Board will become directors and/or
employees of Sierra Pacific following consummation of the Mergers and/or may
become entitled to severance benefits or vesting or acceleration of payment of
other benefits as a result of execution of the Merger Agreement or consummation
of the Mergers. Therefore, such directors and officers have interests in the
Merger Agreement that are in addition to the interests of stockholders of Nevada
Power generally and that could potentially represent conflicts of interest. The
Nevada Power Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement.
RECORD DATE; VOTING RIGHTS. Holders of record of shares of Nevada Power
Common Stock at the close of business on September 3, 1998, the Nevada Power
Record Date, will be entitled to notice of and to vote at the Nevada Power
Special Meeting. As of the Nevada Power Record Date, 51,264,965 shares of Nevada
Power Common Stock were issued and outstanding and entitled to vote. Each
outstanding share of Nevada Power Common Stock is entitled to one vote upon each
matter presented at the Nevada Power Special Meeting.
QUORUM. The holders of a majority of the shares of Nevada Power Common
Stock issued and outstanding must be present in person or represented by proxy
at the Nevada Power Special Meeting for a quorum to be present. Abstentions and
broker non-votes (i.e., proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owners or other
persons entitled to vote shares as to a matter with respect to which brokers or
nominees do not have discretionary power to vote) will be considered present for
the purpose of establishing a quorum.
REQUIRED VOTE. The affirmative vote of a majority of the outstanding voting
power entitled to be cast by the holders of the shares of Nevada Power Common
Stock is required for approval of the Merger Agreement. Abstentions and broker
non-votes will have the same effect as votes cast against approval of the Merger
Agreement. Any other matter properly brought before the Nevada Power Special
Meeting (including any proposal by the Nevada Power Board to postpone or adjourn
the Nevada Power Special Meeting) will be approved if a majority of the votes
cast are in favor of such matter. Abstentions and broker non-votes will not be
counted as votes cast on any such other matter. The directors and executive
officers of Nevada Power, together with their affiliates as a group, own
beneficially less than 1% of the issued and outstanding shares of Nevada Power
Common Stock. No person holds of record or, to the knowledge of Nevada Power,
owns beneficially more than 5% of the outstanding Nevada Power Common Stock.
PROXIES. Holders of Nevada Power Common Stock may vote either in person or
by properly executed proxy. The total number of shares represented by individual
proxies includes shares, if any,
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owned by stockholders and credited to their accounts under Nevada Power's Stock
Purchase and Dividend Reinvestment Plan. Each participant in the Nevada Power
401(k) savings plan will be provided with a proxy which will enable the
participant to instruct the trustee of such plan how to vote the shares of
Nevada Power Common Stock held in any account of such participant. If no
instructions are received by the trustee, the trustee can vote participant
shares according to its sole discretion, or refrain from voting. By completing
and returning the form of proxy, a Nevada Power stockholder authorizes the
persons named therein to vote all the Nevada Power stockholder's shares on his
or her behalf. All completed Nevada Power proxies returned will be voted in
accordance with the instructions indicated on such proxies. If no instructions
are given, the Nevada Power proxies will be voted FOR approval of the Merger
Agreement and FOR any proposal to postpone or adjourn the Nevada Power Special
Meeting, if proposed by the Nevada Power Board. In addition, the persons
designated in such proxies will have discretion to vote on any other matter
incident to the conduct of the Nevada Power Special Meeting.
A Nevada Power proxy may be revoked by voting in person at the Nevada Power
Special Meeting, by written notice to the Corporate Secretary of Nevada Power,
or by delivery of a later-dated proxy to Nevada Power's Corporate Secretary, in
each case prior to the voting at the Nevada Power Special Meeting. Attendance at
the Nevada Power Special Meeting will not in itself constitute revocation of a
proxy.
Nevada Power will bear the cost of the solicitation of proxies for the
Nevada Power Special Meeting, except that Nevada Power and Sierra Pacific shall
share equally expenses incurred in connection with printing and filing this
Joint Proxy Statement/Prospectus. See "The Merger Agreement--Expenses." Proxies
may be solicited by certain officers and employees of Nevada Power or its
subsidiaries by mail, by telephone, personally or by other communications,
without compensation apart from their normal salaries. Nevada Power has retained
INNISFREE M&A Incorporated to assist in the solicitation of proxies from Nevada
Power stockholders, including brokers' accounts, at a fee for such services of
$25,000 and reasonable out-of-pocket expenses.
IN CONNECTION WITH THE NEVADA POWER SPECIAL MEETING, HOLDERS OF NEVADA POWER
COMMON STOCK SHOULD NOT SEND TO NEVADA POWER ANY SHARE CERTIFICATE WITH THEIR
PROXY CARDS.
The Nevada Power Special Meeting may be adjourned to another date and/or
place for any proper purpose (including, without limitation, for the purpose of
soliciting additional proxies).
THE SIERRA PACIFIC SPECIAL MEETING
PURPOSE; TIME AND PLACE. This Joint Proxy Statement/Prospectus is being
furnished to holders of Sierra Pacific Common Stock in connection with the
solicitation of proxies by the Sierra Pacific Board for use at the Sierra
Pacific Special Meeting to be held at 9:00 a.m., local time, on October 9, 1998,
at the Peppermill Hotel & Casino, 2707 South Virginia Street, Reno, Nevada, and
any adjournment or postponement thereof.
At the Sierra Pacific Special Meeting, the stockholders of Sierra Pacific
will be asked to consider and vote upon a proposal to approve the Merger
Agreement, the Share Issuance and the Shares Amendment. Stockholders of Sierra
Pacific will also be asked to consider and vote upon all other matters as may
properly be brought before the Sierra Pacific Special Meeting.
The Sierra Pacific Board has unanimously determined that the Mergers and the
Share Issuance are in the best interests of Sierra Pacific and its stockholders
and has approved the Merger Agreement. THE SIERRA PACIFIC BOARD RECOMMENDS THAT
THE STOCKHOLDERS OF SIERRA PACIFIC VOTE IN FAVOR OF APPROVAL OF THE MERGER
AGREEMENT AND THE SHARE ISSUANCE AT THE SIERRA PACIFIC SPECIAL MEETING. IN
ADDITION, THE SIERRA PACIFIC BOARD RECOMMENDS THAT THE STOCKHOLDERS OF SIERRA
PACIFIC VOTE IN FAVOR OF APPROVAL OF THE SHARES AMENDMENT. See "The
Mergers--Reasons for the Mergers," and "Recommendations of the Boards of
Directors." For a discussion of the interests that certain directors and
executive officers of Sierra Pacific have with respect to the Mergers in
addition to their interests as stockholders of Sierra Pacific generally, see
"The Mergers--Interests of Certain Persons in the Mergers." Such interests,
together with other
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relevant factors, were considered by the Sierra Pacific Board in making its
recommendation and approving the Merger Agreement.
RECORD DATE; VOTING RIGHTS. Only holders of record of Sierra Pacific Common
Stock at the close of business on the Sierra Pacific Record Date, September 3,
1998, are entitled to receive notice of the Sierra Pacific Special Meeting. All
record holders of Sierra Pacific Common Stock on the date of the Sierra Pacific
Special Meeting are entitled to vote at the Sierra Pacific Special Meeting. On
the Sierra Pacific Record Date, there were outstanding 30,956,869 shares of
Sierra Pacific Common Stock held by 21,039 registered holders. Each such share
entitles the registered holder thereof to one vote.
QUORUM. The holders of a majority of the shares of Sierra Pacific Common
Stock issued and outstanding must be present in person or represented by proxy
at the Sierra Pacific Special Meeting in order for a quorum to be present.
Abstentions and broker non-votes will be counted for purposes of determining
whether a quorum is present.
REQUIRED VOTE. Approval of the Merger Agreement at the Sierra Pacific
Special Meeting requires the affirmative vote of the holders of a majority of
the outstanding voting power of Sierra Pacific Common Stock. Approval of the
Share Issuance at the Sierra Pacific Special Meeting requires the affirmative
vote of the holders of a majority of the outstanding voting power cast on the
Share Issuance; PROVIDED, HOWEVER, that the total number of votes cast on the
proposal represents at least a majority of the outstanding voting power of
Sierra Pacific Common Stock entitled to vote thereon at the Sierra Pacific
Special Meeting. Approval of the Shares Amendment requires the affirmative vote
of the holders of a majority of the outstanding voting power of Sierra Pacific
Common Stock. Abstentions and broker non-votes will have the same effect as
votes cast against the Merger Agreement and the Shares Amendment. Abstentions
and broker non-votes will not have the effect of votes cast against the Share
Issuance. Any other matter properly brought before the Sierra Pacific Special
Meeting (including any proposal by the Sierra Pacific Board to postpone or
adjourn the Sierra Pacific Special Meeting) will be approved if a majority of
the votes cast are in favor of such matter. Abstentions and broker non-votes
will not be counted as votes cast on any such other matter. As of the Sierra
Pacific Record Date, directors and executive officers of Sierra Pacific and
their affiliates were the beneficial owners in aggregate of approximately
178,683 of the shares of Sierra Pacific Common Stock then outstanding and
eligible to vote. It is expected that all of such shares will be voted for
approval of the Merger Agreement, the Share Issuance and the Shares Amendment.
PROXIES. All shares of Sierra Pacific Common Stock represented by properly
executed proxies that are received in time for the Sierra Pacific Special
Meeting and that have not been revoked will be voted in accordance with the
instructions indicated in such proxies. If no instructions are indicated, such
shares will be voted in favor of the Merger Agreement, the Share Issuance, the
Shares Amendment and any proposal to postpone or adjourn the Sierra Pacific
Special Meeting, if proposed by the Sierra Pacific Board. In addition, the
persons designated in such proxies will have discretion to vote on any other
matters incident to the conduct of the Sierra Pacific Special Meeting.
The grant of a proxy on the enclosed Sierra Pacific proxy card does not
preclude a stockholder from voting in person at the Sierra Pacific Special
Meeting. A stockholder may revoke a proxy at any time prior to its exercise by
written notice to the Secretary of Sierra Pacific by sending a later-dated proxy
or by revoking it in person at the Sierra Pacific Special Meeting. Attendance at
the Sierra Pacific Special Meeting will not in and of itself constitute the
revocation of a proxy.
Sierra Pacific will bear the cost of solicitation of proxies from its
stockholders, except that Nevada Power and Sierra Pacific intend to share
equally the cost of preparing and printing this Joint Proxy
Statement/Prospectus, including related filing fees. See "The Merger
Agreement--Expenses." In addition to solicitation by mail, proxies may be
solicited personally or by telephone by directors, officers and a few regular
employees of Sierra Pacific. Arrangements will also be made with brokerage
houses and other custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of
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shares held of record by such persons, and Sierra Pacific will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
in connection therewith.
In addition, Sierra Pacific has retained MacKenzie Partners, Inc. to assist
Sierra Pacific in the solicitation of proxies from stockholders in connection
with the Sierra Pacific Special Meeting. MacKenzie Partners, Inc. will receive a
fee of $10,000 as compensation for its services and reimbursement of its out-of-
pocket expenses in connection therewith. Sierra Pacific has agreed to indemnify
MacKenzie Partners, Inc. against certain liabilities arising out of or in
connection with its engagement.
IN CONNECTION WITH THE SIERRA PACIFIC SPECIAL MEETING, HOLDERS OF SIERRA
PACIFIC COMMON STOCK SHOULD NOT SEND TO SIERRA PACIFIC ANY SHARE CERTIFICATES
WITH THEIR PROXY CARDS.
THE MERGERS
BACKGROUND OF THE MERGERS
In recent years Nevada Power and Sierra Pacific have carefully followed
developments in energy regulatory policies at the federal level and in Nevada
and California that have substantially increased competition in the markets for
wholesale and retail electricity. Both companies recognized that significant
changes in the utility industry would result from these policy developments.
Nevada Power management continued to develop plans to respond to such
changes in the industry as they affected Nevada Power, and in September 1997
engaged PaineWebber to explore strategic alternatives, including possible
business combinations. In strategic planning discussions held during 1997 and
early 1998, Sierra Pacific's senior management reviewed the prospects for
effective competition in view of ongoing electric deregulation and rapidly
approaching competition for electric utilities. It concluded that industry
restructuring and economic forces were likely to exert tremendous pressure on
small and medium-sized electric utilities, making it difficult for them to
compete as effectively as larger utilities. Further, Sierra Pacific's management
concluded that Sierra Pacific's competitive position and growth prospects in
this new environment would be significantly enhanced by increasing the scale of
its operations, the size of its customer base, and by pursuing opportunities in
carefully selected lines of business. Thus, growth of Sierra Pacific to increase
service offerings, provide reasonable economies of scale, and leverage the
talents of a talented and motivated work force became an important strategic
focus of management.
Management of Sierra Pacific continually reviewed public information
concerning neighboring utilities in light of possible business combination
transactions. From time to time, the chief executive officer of Sierra Pacific
had conversations with chief executive officers of other utilities concerning
the strategic direction of the utility industry and business combinations in
general. Other than the unconsummated transaction with Washington Water Power
Company in 1994, prior to the discussions with Nevada Power, Sierra Pacific had
no material discussion concerning a business combination with any other company.
As neighboring utilities in the same state, Nevada Power and Sierra
Pacific's subsidiary, SPPC, have had a variety of working relationships at the
utility level on a wide range of issues over many years. Mr. Higgins, former
Chairman, President and Chief Executive Officer of Sierra Pacific and Mr.
Lenzie, current Chairman and Chief Executive Officer of Nevada Power (who will
retire upon consummation of the Mergers), had met each other numerous times at
industry functions and had discussed a variety of issues over several years. On
August 7 and 8, 1997, Mr. Higgins and Mr. Lenzie met to explore the potential
advantages of some form of strategic alliance between Sierra Pacific and Nevada
Power. Prior to that meeting, Nevada Power had had no material discussions with
any other company concerning a possible business combination. However, no
agreement to continue discussions between the companies was reached. In October
1997, after PaineWebber was engaged by Nevada Power to explore strategic
alternatives, Mr. Higgins approached PaineWebber concerning a potential business
combination between Sierra Pacific and Nevada Power.
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For several years Nevada Power management has been studying the strategic
direction of Nevada Power particularly in light of the financial and operational
demands placed on the company by the high rate of growth in its service
territory. As part of that process, PaineWebber made a presentation to the
Nevada Power Board at its January 8, 1998 meeting regarding Nevada Power's
strategic alternatives, including a potential business combination with Sierra
Pacific. After this presentation, Nevada Power had no material discussions with
any other company concerning a possible business combination.
On January 13, 1998, Mr. Niggli was elected President and Chief Operating
Officer of Nevada Power. On January 14, 1998, Mr. Malquist was elected President
and Chief Executive Officer of Sierra Pacific and SPPC, succeeding Mr. Higgins
who resigned from Sierra Pacific and SPPC in January 1998.
On January 16, 1998, Mr. Malquist contacted Mr. Niggli to offer his
congratulations on Mr. Niggli's recent election as President and Chief Operating
Officer of Nevada Power. During the ensuing discussion, Messrs. Niggli and
Malquist discussed the opportunities present in a newly restructured electric
utility market, the similarity in size and operations of Nevada Power and Sierra
Pacific and their shared vision of establishing a premier distribution,
transmission and energy services company in Nevada.
As part of its review of strategic alternatives, PaineWebber developed a
proposed structure and preliminary terms for a business combination with Sierra
Pacific that was presented to senior management of Nevada Power on February 9,
1998. During February 1998, Messrs. Niggli and Malquist talked again about their
shared visions for Nevada Power and Sierra Pacific and senior management of each
company began to discuss the potential benefits of a possible business
combination. The Nevada Power Board was advised of these discussions at its
regularly scheduled meeting held on February 12, 1998.
The Sierra Pacific Board was advised of these discussions at its regularly
scheduled meeting held on February 23, 1998. At such meeting, Sierra Pacific's
senior management also discussed its strategic conclusions with the Sierra
Pacific Board. Nevada Power was identified as the prime candidate to provide the
growth previously determined to be essential to stockholder value in the rapidly
changing utility industry. Following this presentation and the report of
executive conversations, the Sierra Pacific Board authorized management to
evaluate the prospects of various strategic alliances with Nevada Power.
On March 2, 1998, a meeting was scheduled for March 5 and 6 in San Francisco
between Nevada Power and Sierra Pacific along with representatives of
PaineWebber and SG Barr Devlin. At the meeting, discussions were held regarding
a proposal of Nevada Power that called for a total of $695 million of cash
financed with debt to be distributed as merger consideration to stockholders of
both companies. Based on a market for market transaction, this would have
resulted in the ownership and cash distribution being divided 53% Nevada Power
and 47% Sierra Pacific.
As a result, March 10, 1998, Sierra Pacific and Nevada Power entered into a
confidentiality agreement pursuant to which they agreed to exchange non-public
information.
Throughout early March 1998 there were further discussions, involving
Messrs. Malquist and Niggli and Mr. Steven C. Oldham, Vice President of
Transmission and Strategic Development of Sierra Pacific, Mr. Mark A. Ruelle,
Senior Vice President, Chief Financial Officer and Treasurer of Sierra Pacific,
and Mr. Steven W. Rigazio, Vice President, Finance and Planning, Treasurer and
Chief Financial Officer of Nevada Power, in order to establish a basis for
combining the business and operations of the two companies. The history of the
two companies was discussed, as well as the possibility of a business
combination structured as a "merger of equals." Representatives from SG Barr
Devlin and PaineWebber participated in these discussions. The parties identified
competitive positioning, potential synergies and regulatory treatment as
significant issues to be explored, and identified other significant points to be
agreed upon, including company valuation, dividend policies, combination
structure, management and board composition and headquarters location.
On March 12, 1998, at a meeting of the Nevada Power Board, Nevada Power's
senior management and representatives of PaineWebber made a detailed
presentation to the Nevada Power Board with regard
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to the potential "merger of equals" business combination with Sierra Pacific.
Also present at the meeting were representatives of Jones Day, Nevada Power's
legal advisor. At that meeting, PaineWebber gave a detailed presentation of a
possible business combination structure, the relative market valuations of the
companies, the proposed use of debt to finance the payment of cash as part of
the merger consideration and other matters. Mr. Niggli reported the preliminary
discussions concerning governance issues such as board size, headquarters
location and senior management composition. At the conclusion of the meeting,
the Nevada Power Board gave management authorization to continue to explore the
possible combination with Sierra Pacific.
On March 13, 1998, at a meeting of the Sierra Pacific Board, Sierra
Pacific's senior management and representatives of SG Barr Devlin briefed the
Sierra Board with regard to a potential "merger of equals" business combination
with Nevada Power. The Sierra Pacific Board authorized Mr. Malquist and Mr.
Oldham to continue discussions with Nevada Power regarding such business
combination.
On March 17, 1998, representatives of PaineWebber and SG Barr Devlin met in
New York City, New York, to discuss various issues with respect to structure,
corporate governance, valuation, due diligence and timing. On that same date,
Mr. Malquist and Mr. Niggli met in Las Vegas, Nevada to discuss governance
issues.
Following significant progress by Messrs. Malquist, Oldham, Niggli and
Rigazio regarding the matters described in the preceding paragraphs, the
companies established working groups comprised of representatives of both
companies to conduct due diligence and to examine various issues including
structure, financial modeling, regulatory considerations, integration of
employee benefit plans, communications and analysis of synergies. An
introductory meeting was held in Las Vegas, Nevada on March 18, 1998, and was
attended by representatives of Sierra Pacific and Nevada Power.
Throughout the remainder of March and April 1998, representatives of Sierra
Pacific and Nevada Power exchanged confidential financial and other information
and held numerous discussions which focused primarily on the issues of
valuation, dividend policy, management and headquarters locations. On March 25,
1998, representatives of Sierra Pacific met in New York City, New York with
legal and financial advisors of both companies to discuss proposed structures.
At a special meeting held on March 30, 1998, the Sierra Pacific Board was
briefed by management, SG Barr Devlin and Skadden Arps on the status of such
discussions and management was directed to pursue further discussions regarding
a potential business combination with Nevada Power. At such meeting, Mr. Niggli
was introduced to members of the Sierra Pacific Board and shared with them his
vision of establishing a premier distribution, transmission and energy services
company. Following this meeting, Merrill Lynch was retained to provide
additional financial advice and guidance to management and the Sierra Pacific
Board.
On April 1 and 2, 1998, representatives from each company and their
financial and legal advisors met in Chicago, Illinois to conduct due diligence
examinations on all financial and operational aspects of each other's respective
businesses. Legal and business due diligence continued over the next several
weeks in Las Vegas and Reno, Nevada.
On April 7, 1998, Messrs. Malquist and Niggli met to further discuss
financial issues and the Sierra Pacific proposals for modifying the structure
and terms previously suggested by Nevada Power. Mr. Malquist indicated that
Sierra Pacific was concerned regarding the amount of debt proposed to be
incurred to fund a cash payment to stockholders, the resulting ownership
percentage of each company's stockholders and the desire of Sierra Pacific to
provide its stockholders with relatively more stock and less cash. Sierra
Pacific suggested a structure that would involve cash merger consideration of
$400 million distributed only to Nevada Power stockholders resulting in Sierra
Pacific stockholders owning about 56% and Nevada Power stockholders owning about
44% of the outstanding stock of the combined company.
On April 9, 1998, the Nevada Power Board was briefed on the progress of
negotiations with Sierra Pacific, including a review of the steps that had been
taken regarding due diligence and transaction structure, as well as proposed
corporate names and headquarters locations, board representation and
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senior management positions. In addition, Mr. Malquist was introduced to the
Nevada Power Board and presented background information concerning Sierra
Pacific and its recent financial results as well as his strategic vision of the
utility industry and Sierra Pacific.
On April 9, 1998, representatives from each company and their financial
advisors met in Las Vegas, Nevada to further discuss potential modifications to
the structure and financial terms of the potential merger. Nevada Power
responded to Sierra Pacific's concerns, making a proposal involving a total of
$450 million of cash, financed with debt, being distributed to stockholders of
both companies with a greater amount weighted towards Nevada Power stockholders
resulting in a relative percentage ownership in the combined company of 50.5% to
Nevada Power stockholders and 49.5% to Sierra Pacific stockholders.
On April 14, 1998, the Sierra Pacific Board held a special meeting at which
management reviewed the progress of negotiations. Senior management discussed
the status of issues including governance, legal and financial structure,
synergies analysis and the results of due diligence investigations. In addition,
SG Barr Devlin and Merrill Lynch presented reports containing the results of
their preliminary analysis of the proposed transactions, including structure and
valuation. The Sierra Pacific Board authorized senior management to continue
negotiations with Nevada Power and to resolve remaining issues concerning the
potential merger.
During the next few weeks, the various joint working groups continued their
work with respect to synergies analysis, business plans, legal structures,
regulatory plans, due diligence and employee benefits. Plans for announcement of
a transaction, if approved, were also developed. In addition, the legal advisors
for Sierra Pacific and Nevada Power conducted detailed negotiations of the
Merger Agreement.
In response to the Sierra Pacific Board's continued concern over the amount
of debt in the transaction, Nevada Power proposed changing its quarterly
dividend beginning in November 1998 to the indicated annual dividend level
proposed for the combined company following to Mergers. This proposal included
$456.2 million of debt financed cash distributed to stockholders of both
companies and relative percentage ownership in the combined company of 50.2% to
Nevada Power stockholders and 49.8% to Sierra Pacific stockholders.
On April 20 and 21, 1998, a joint "all-hands" meeting was held in Las Vegas,
Nevada to resolve remaining issues. Senior and staff representatives of each
company and outside legal, financial and public relations representatives were
all present during this meeting to discuss and resolve as many issues as
possible. At this meeting, various working groups consisting of representatives
from both Nevada Power and Sierra Pacific, as well as outside legal counsel,
financial and communications advisors, addressed various issues including:
financial benefits and risks of the proposed transaction, estimated savings
which might accrue to the two companies by virtue of combining operations,
possible regulatory advantages of operating as a combined company and possible
unfavorable or adverse regulatory action that could be taken in light of the
proposed transaction, opportunities and disadvantages to employees which the
Mergers would present and identification of possible operational benefits and
difficulties of combining the two companies. Further negotiations concerning the
Merger Agreement were also conducted.
On April 21, 1998, the Nevada Power Board was updated by senior management
regarding the proposed business combination, including potential strategic
benefits and potential risks of the transaction, the status of negotiations on,
and key terms and conditions of, the proposed Merger Agreement, the regulatory
plan for the transaction and the status of Nevada Power's due diligence review
of Sierra Pacific. Representatives of PaineWebber presented a general overview
of the financial aspects of the transaction, including a presentation on the
methodology by which PaineWebber would conduct its fairness review. Legal
counsel provided advice regarding the Nevada Power Board's legal
responsibilities and fiduciary duties in considering the proposed transaction
and the status of negotiations regarding the Merger Agreement. Following lengthy
discussions, the Nevada Power Board authorized Nevada Power's senior management
to continue discussions with representatives of Sierra Pacific and provided
direction regarding certain remaining Merger Agreement issues.
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On April 22, 1998, Deloitte & Touche Consulting Group LLC was jointly
engaged by Sierra Pacific and Nevada Power to assist the managements of the two
companies in their identification and quantification of the potential cost
savings and cost avoidances resulting from a business combination of the two
companies.
On April 23, 1998, at a special meeting, the Sierra Pacific Board was
briefed on the progress of the discussions with Nevada Power. At this meeting,
SG Barr Devlin and Merrill Lynch made presentations to the Sierra Pacific Board
regarding financial aspects of the proposed transaction, including potential
financial and strategic benefits of the business combination and associated
potential risks. In addition, legal counsel described the duties and
responsibilities of the Sierra Pacific Board in considering a business
combination. In addition, results of due diligence work, synergies analysis,
working group discussions and legal and financial issues were all presented. A
status update of the draft Merger Agreement was also made. Following extensive
discussions, the Sierra Pacific Board authorized management to continue
discussions with Nevada Power and provided direction with respect to an
agreement for the business combination.
Over the next several days, daily phone conferences were held on the terms
of the Merger Agreement between in-house legal representatives from each company
and their outside legal advisors. The regulatory plans for the combined company
were also discussed by representatives of each company. Negotiations involving
management and their outside financial advisors continued on the terms and
pricing of the transaction, including the exchange ratios. Follow-up due
diligence issues were resolved by legal representatives.
On April 29, 1998, the Sierra Pacific Board held a special meeting to
consider the proposed mergers. Management and Sierra Pacific's financial and
legal advisors updated the Sierra Pacific Board as to the status of certain
previously unresolved issues. Matters discussed included the financial structure
of the transaction, exchange ratios, management issues and identification of
chief executive officer and chief operating officer positions, headquarters
locations and financial and strategic benefits and risks of the transaction to
the companies. In addition, management and legal advisors summarized the terms
and conditions of the Merger Agreement and SG Barr Devlin and Merrill Lynch
provided updated financial and other information concerning Sierra Pacific,
Nevada Power and the combined company. Each of SG Barr Devlin and Merrill Lynch
delivered its opinion to the Sierra Pacific Board to the effect that, as of the
date thereof, the Sierra Pacific Merger Consideration to be issued in the First
Merger, in light of the Nevada Power Merger Consideration to be issue in the
Second Merger, was fair from a financial point of view to the holders of Sierra
Pacific Common Stock. Following extensive discussion and consideration of the
presentations and analyses delivered at the meeting and prior meetings, as well
as the recommendation of Sierra Pacific's senior management, the Sierra Pacific
Board, by a unanimous vote, approved the Merger Agreement and the transactions
contemplated thereby and authorized the execution of the Merger Agreement.
On April 29, 1998, at a special meeting, the Nevada Power Board met and
received updates from its senior management and financial and legal advisors as
to the terms of the Merger Agreement and related agreements. Management and
Nevada Power's legal advisors updated the Nevada Power Board on certain
previously open issues, on the status of due diligence reviews and on benefits
and risks of the proposed transaction. In addition, legal advisors and
PaineWebber described certain minor changes to the Merger Agreement since the
last draft reviewed by the Nevada Power Board at its previous meeting. After the
various presentations, PaineWebber delivered its fairness opinion to the Nevada
Power Board, to the effect that, as of the date thereof, the Nevada Power Merger
Consideration to be received in connection with the Mergers is fair from a
financial point of view, to the holders of Nevada Power Common Stock. After
considering and discussing the various presentations at such meeting and at
prior meetings, as well as the recommendation of Nevada Power's senior
management, the Nevada Power Board approved, by a unanimous vote, the Merger
Agreement and the transactions contemplated thereby and authorized the execution
of the Merger Agreement.
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Following the meetings of their respective Boards of Directors, Sierra
Pacific and Nevada Power executed the Merger Agreement on April 29, 1998 and
publicly announced the Mergers on April 30, 1998.
REASONS FOR THE MERGERS
BENEFITS AND RISKS OF THE MERGERS. Nevada Power and Sierra Pacific view the
Mergers as a natural outgrowth of utility deregulation and restructuring that is
reshaping the electric industry in Nevada, California and throughout the nation.
The Mergers join two companies of similar market capitalization, with a common
vision of the future of the utility and energy industries and with complementary
operations that are primarily in one state. The Mergers are expected to provide
substantial strategic and financial benefits to the stockholders of the two
companies, as well as to their employees and customers and the communities which
they serve.
The Nevada Power Board and the Sierra Pacific Board believe that such
benefits, which apply to both companies, their stockholders and other
constituencies, include:
- SUPPORT FOR UTILITY DEREGULATION--The Mergers coincide with Nevada
electric utility deregulation and ongoing California electric utility
deregulation and are intended to establish a combined company that, by
providing customers multiple energy products and services and lower costs
than the companies could achieve individually, will have the ability to
compete more effectively in unregulated markets and serve customers more
cost-effectively in regulated markets. Through Nevada Power and SPPC, the
combined company will offer regulated electric service throughout most of
Nevada and portions of northern California and offer regulated gas and
water service in the Reno and Sparks areas of northern Nevada. Sierra
Pacific also will engage in unregulated natural gas and electricity
marketing and offer energy related products and services.
- COMPETITIVE AND STRATEGIC POSITION--The combination of the companies'
complementary expertise and vision, including Nevada Power's substantially
larger and more diverse electric customer base and its customer expertise
and Sierra Pacific's customer and marketing expertise in both electricity
and natural gas markets, provides the combined company with the size and
scope--having about 972,000 total customers--to be an effective competitor
in the emerging and increasingly competitive markets for transporting and
distributing energy and energy services. The Mergers will create a company
with the ability to develop and market competitive new products and
services and provide integrated energy solutions for wholesale and retail
customers.
- ABILITY TO BETTER MANAGE GROWTH--Nevada Power and SPPC have both
experienced high rates of service territory growth. Five-year average
increases in retail electric kwh sales and customers for the companies,
separately and as combined, compared to industry averages are as follows:
<TABLE>
<CAPTION>
5-YEAR AVERAGE RETAIL ELECTRIC 5-YEAR AVERAGE INCREASE IN
COMPANY KWH SALES INCREASES CUSTOMERS
- -------------------------------------------- ------------------------------- ---------------------------
<S> <C> <C>
Nevada Power................................ 8% 7%
SPPC........................................ 5% 3%
Combined Company............................ 7% 5%
Industry Average............................ 2% 1%
</TABLE>
The Nevada Power Board and the Sierra Pacific Board believe that the
combined company will be in a better position to finance and manage the
construction and operational changes required to meet the increasing needs
of customers in Southern and Northern Nevada while also maintaining
stronger earnings than either company could standing alone. The Mergers
are expected to have a positive effect on cash flow of the combined
companies.
- POTENTIAL COST SAVINGS AND COST AVOIDANCES RESULTING FROM THE
MERGERS. Nevada Power and Sierra Pacific believe that the Mergers will
result in significant cost savings and cost avoidances, described under
"Cost Savings" below, that will benefit customers and stockholders.
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In addition, the Nevada Power Board and the Sierra Pacific Board believe
that the Mergers will also have following positive results:
- EXPANDED MANAGEMENT RESOURCES AND EMPLOYMENT OPPORTUNITIES--The combined
company will be able to draw upon a larger and more diverse pool of
management for leadership in an increasingly competitive environment. As a
company more able to effectively respond to competitive pressures, Sierra
Pacific will offer better prospects for employees and be better able to
retain and attract the most qualified employees. Employees will benefit
from a larger and stronger company with job opportunities in additional
locations.
- COMMUNITY DEVELOPMENT--The combined company will continue to play a
leading role in the economic development of the communities served by
Nevada Power and SPPC and will continue their commitment to philanthropic
and volunteer programs currently maintained by the two companies and their
subsidiaries. These communities also will benefit from increased
competition and lower prices for regulated and deregulated natural gas and
electricity and energy related products and services.
The Nevada Power Board and Sierra Pacific Board each recognized that
entering into the transactions contemplated by the Merger Agreement would not be
without potential risks or detriments. In evaluating the benefits of the
transaction described above, the Boards considered various risks and possible
detriments to the companies and stockholders. In particular, the Boards were
aware that achieving the benefits of the transaction will depend on timely and
favorable regulatory approvals of the Mergers. Potential risks to stockholders
include the risk of unfavorable regulatory treatment, difficulties in
integrating the two companies and achieving estimated cost savings and cost
avoidances (see "Cost Savings" below) and the possibility of market fluctuations
in the price of the Nevada Power Common Stock and the Sierra Pacific Common
Stock subsequent to the time stockholder approval is sought and prior to
consummation of the Mergers. The consideration to be received in connection with
the Mergers is fixed and will not be changed based on market conditions.
Further, the transaction will result in increased leverage for Sierra Pacific.
These and other risk factors and other special considerations are discussed in
more detail under "Risk Factors and Other Considerations" and under
"Recommendations of the Boards of Directors."
In addition to the anticipated benefits and risks of the Mergers common to
Nevada Power and Sierra Pacific, in evaluating the proposed Mergers the Nevada
Power Board considered certain factors unique to Nevada Power and its
stockholders. Likewise, the Sierra Pacific Board considered factors applicable
to Sierra Pacific and its stockholders. These matters are discussed below under
"Recommendations of the Board of Directors."
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COST SAVINGS. As noted above, one of the more important potential benefits
of the Mergers is the cost savings expected to result from combining operations.
Unlike some of the other benefits mentioned above, estimates of potential costs
savings may be quantified and managements of Nevada Power and Sierra Pacific
developed analyses of potential cost savings as described below.
Estimated potential savings and avoidances expected to be achieved by the
two companies after the Mergers have been limited to quantifiable amounts, as
determined by the managements of Nevada Power and Sierra Pacific. Recognition
has been given to those costs to be incurred in achieving these potential
savings and avoidances and to the time required to implement plans designed to
integrate operations. These estimated savings and avoidances are attributable to
the Mergers and do not include other types of savings and avoidances that might
be achieved without a combination of the companies. In addition, Sierra Pacific
will continue efforts already underway by Nevada Power and SPPC to increase
productivity and reduce costs by redesigning and reengineering key business
processes. Calculations have been made assuming that Nevada Power and Sierra
Pacific each divest all their electric generating facilities as planned. See
"Regulatory Matters--State Approvals and Related Matters." Operating synergies
from the Mergers are estimated to generate total cost savings and cost
avoidances, net of $125 million estimated costs to achieve such savings and
avoidances, of $322 million over a ten-year period. In addition, the goodwill
recorded as a result of the Mergers (see "The Mergers--Accounting Treatment")
will be amortized over a forty-year period and will also represent a cost to
achieve such savings and avoidances. The final accounting treatment of the cost
savings and cost avoidances and costs of attaining them will depend upon the
regulatory treatment accorded by the PUCN. See "Regulatory Matters."
The major components of the anticipated cost savings and cost avoidances
identified by the managements of Nevada Power and Sierra Pacific are set forth
below.
- INTEGRATION OF CORPORATE FUNCTIONS--The combined company will have the
ability to eliminate redundant functions in a variety of areas, including
accounting and finance, human resources, information services, external
relations, legal and executive administration. The staffing levels for
these functions are relatively fixed and do not vary directly with changes
in the number of employees or customers.
- INTEGRATION OF CORPORATE PROGRAMS--The combined company will be able to
integrate various corporate and administrative functions, thereby reducing
certain non-labor costs in the areas of insurance, advertising,
professional services, benefits plan administration, credit facilities,
association dues, postage, research and development and shareholder
services. In addition, future expenditures in the area of information
systems that would be made by each company on a stand-alone basis will be
reduced for the combined company. Additional expenditures will be reduced
through the more efficient management of investment in other technology
areas, including personal computers, other hardware and related software,
and data center requirements.
- INTEGRATION OF CUSTOMER SUPPORT FUNCTIONS--The combined company will be
able to integrate related customer support functions in the areas of
customer service, marketing and sales, and other support services, such as
purchasing and materials management. The staffing levels in these
functions also do not increase or decrease linearly with the number of
customers.
- STREAMLINING OF INVENTORIES AND PURCHASING ECONOMICS--The combined company
will be able to centralize some purchasing and inventory functions.
Inventory may be shared across locations. Purchasing leverage of the
combined company is expected to lead to materials and services volume
discounts.
Most of the estimated cost savings and cost avoidances as described above
are expected to be achieved through personnel reductions involving the
elimination of approximately 250 duplicative positions. Nevada Power and Sierra
Pacific will jointly develop an integration management plan, which will examine
the manner in which to best organize and manage the businesses of Nevada Power
and Sierra Pacific following consummation of the Mergers and to identify
duplicative positions in corporate and administrative
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functions. Both companies are committed to achieving cost savings and avoidances
resulting from personnel reductions through attrition, strictly controlled
hiring, reassignment, retraining and voluntary separation programs.
The analyses employed by the managements of Nevada Power and Sierra Pacific
in order to develop estimates of potential savings as a result of the Mergers
were necessarily based upon various assumptions that involve judgments with
respect to, among other things, future national and regional economic and
competitive conditions, inflation rates, regulatory treatment, weather
conditions, financial markets and other uncertainties, all of which are
difficult to predict and are beyond the control of Nevada Power and Sierra
Pacific. Accordingly, while Nevada Power and Sierra Pacific believe that such
assumptions are reasonable for purposes of developing estimates of potential
savings and cost avoidances, there can be no assurance that such assumptions
will approximate actual experience or that such savings and cost avoidances will
be realized. See "Cautionary Statement Concerning Forward-Looking Statements."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
NEVADA POWER. The Nevada Power Board has determined that the terms of the
proposed Mergers are fair to, and in the best interests of, Nevada Power's
stockholders. At the meeting held on April 29, 1998, the Nevada Power Board
unanimously adopted and approved the Merger Agreement and the transactions
contemplated thereby. A description of the process of consideration by the
Nevada Power Board of the proposed transaction is included under "Background of
the Mergers."
The Nevada Power Board believes that the Mergers represent a significant
strategic opportunity for Nevada Power and should offer Nevada Power and its
stockholders better prospects for the future than would be available to Nevada
Power as a stand-alone entity.
In addition to the common benefits described above under "Reasons for the
Mergers," in considering the Mergers the Nevada Power Board took into account
the following benefits, risks and other factors more specifically related to
Nevada Power:
- The Merger Agreement provides Nevada Power stockholders an opportunity to
receive cash for their shares. The Nevada Power Board recognized that the
cash election would be financed through borrowing and thus would increase
the leverage of the combined company. Consolidated capitalization of the
combined company following the Mergers will be approximately 39.5% common
equity and 60.5% long-term debt and preferred stock.
- The Nevada Power Cash Consideration represented a 5% premium per share of
Nevada Power Common Stock, based on the 10 day trading average of Nevada
Power Common Stock through the day prior to approval of the Merger
Agreement. The Nevada Power Board considered that the market price of the
Nevada Power Common Stock would fluctuate between the time the Merger
Agreement was approved and the Mergers would be consummated.
- The cash election provided in the Merger Agreement should be a significant
benefit to certain stockholders in light of the Nevada Power Board's
determination, made simultaneously with its approval of the Merger
Agreement, to lower the dividend rate for Nevada Power Common Stock.
Stockholders for whom a relatively higher cash dividend may have been
important will be able to obtain a fixed amount of cash by making the cash
election.
- Those Nevada Power stockholders who elect to receive cash will be eligible
for favorable capital gains treatment for federal income tax purposes on
the cash received in exchange for their Nevada Power Common Stock.
- The anticipated level of the Sierra Pacific Common Stock dividend
following consummation of the Mergers is $1.00 per share, which is the
same as Nevada Power's dividend rate effective with the dividend payable
in November 1998. Thus, the Sierra Pacific dividend will represent a
continuation of the dividend per share level for Nevada Power stockholders
after the Mergers. The dividend level
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<PAGE>
actually adopted by Sierra Pacific after the Mergers is subject to
evaluation from time to time by the Sierra Pacific Board based on Sierra
Pacific's results of operations, financial condition, capital requirements
and other relevant considerations.
The Nevada Power Board also believes that the potential for growth in the
non-utility businesses currently conducted by Sierra Pacific's non-utility
subsidiaries provides an opportunity for Nevada Power stockholders to realize
the benefits of these diversified activities.
In considering the recommendation of the Nevada Power Board with respect to
the Merger Agreement, stockholders should be aware that certain members of the
Nevada Power Board will become directors and/or employees of Sierra Pacific and
certain officers of Nevada Power will become officers of Sierra Pacific
following consummation of the Mergers and/or such persons may become entitled to
severance benefits as a result of the Mergers. Therefore, such directors and
officers have interests in the Mergers that are different than, or in addition
to, the interests of stockholders of Nevada Power generally. The Nevada Power
Board was aware of these interests and considered them, along with other
matters, in approving the Merger Agreement. See "The Mergers--Interests of
Certain Persons in the Mergers."
In considering the Mergers, the Nevada Power Board was aware of and
considered the risks to Nevada Power and its stockholders presented by the
Mergers. The Nevada Power Board believes that, in light of these risks and the
potential benefits of the Mergers to Nevada Power and its stockholders, the
Mergers are fair to and in the best interests of Nevada Power's stockholders.
In reaching its decision to approve the Merger Agreement, and in addition to
the factors described above, the Nevada Power Board also considered the
following factors:
(i) the current and historical market prices and dividends on the Nevada
Power Common Stock and the Sierra Pacific Common Stock (as disclosed under
"Selected Historical and Pro Forma Data-- Comparative Market Prices and
Dividends");
(ii) information concerning the financial performance, condition, business
operations and prospects of each of Nevada Power and Sierra Pacific, which
indicate the compatibility of the two companies and the potential cost savings
which could be realized as a result of their combination;
(iii) the effects of the Mergers on Nevada Power's existing stockholders,
including the opportunity to share in the anticipated benefits of ownership of
the combined enterprise;
(iv) the composition of the Sierra Pacific Board at the Effective Time of
the Second Merger as contemplated by the Merger Agreement;
(v) the Employment Agreements of Messrs. Niggli and Malquist, which provide
that Mr. Niggli will serve as Chairman and Chief Executive Officer of Sierra
Pacific and Chairman of SPPC and the Surviving Corporation and Mr. Malquist will
serve as President and Chief Operating Officer of Sierra Pacific and President
and Chief Executive Officer of SPPC and the Surviving Corporation;
(vi) the employment agreements and the change in control provisions of
various severance and other employee plans of Nevada Power and Sierra Pacific;
(vii) the expected accounting treatment of the First Merger in a manner
similar to a pooling of interests and the Second Merger as a purchase (as
discussed under "Accounting Treatment");
(viii) the expected federal income tax treatment of the Mergers as a tax-free
reorganization to stockholders who receive only Nevada Power Stock Consideration
and the expected treatment of the Nevada Power Cash Consideration as being
eligible for capital gains treatment (as described under "Material Federal
Income Tax Consequences");
(ix) the proposed structure of the transaction as a "merger-of-equals,"
which provides for balanced treatment of Nevada Power and Sierra Pacific and
their respective stockholders and employees;
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<PAGE>
(x) the regulatory treatment to be requested in connection with the Mergers
(as discussed under "Regulatory Matters") and the likelihood of obtaining timely
and satisfactory regulatory approvals for the Mergers;
(xi) the favorable results of the due diligence review of Sierra Pacific and
its subsidiaries conducted by Nevada Power;
(xii) the likelihood that the combined company would be able to finance the
cash portion of the Merger Consideration on reasonable terms;
(xiii) the presentations of PaineWebber;
(xiv) the written opinion of PaineWebber (see "Opinions of Financial
Advisors--Nevada Power's Financial Advisor");
(xv) the presentations of Nevada Power's legal advisors;
(xvi) the projected pro forma ownership of Sierra Pacific by the stockholders
of Nevada Power (approximately 50.2%) implied by the Nevada Power Exchange Ratio
and the Sierra Pacific Exchange Ratio;
(xvii) the factors and considerations described under "Risk Factors and Other
Considerations;" and
(xviii) the terms of the Merger Agreement (as described under "The Merger
Agreement").
The foregoing discussion of the information and factors considered by the
Nevada Power Board is not intended to be exhaustive. In view of the variety of
factors considered in connection with its evaluation of the Mergers, the Nevada
Power Board did not find it practicable to and did not quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Nevada Power Board may
have given different weights to different factors.
THE NEVADA POWER BOARD HAS UNANIMOUSLY ADOPTED AND APPROVED THE MERGER
AGREEMENT AND BELIEVES THAT THE TERMS OF THE MERGERS ARE FAIR TO, AND IN THE
BEST INTERESTS OF, NEVADA POWER'S STOCKHOLDERS. THE NEVADA POWER BOARD
RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
SIERRA PACIFIC. The Sierra Pacific Board has determined that the terms of
the proposed Mergers are fair to, and in the best interest of, Sierra Pacific's
stockholders. At the meeting held on April 29, 1998, the Sierra Pacific Board
unanimously adopted and approved the Merger Agreement and the transactions
contemplated thereby. A description of the process of consideration by the
Sierra Pacific Board of the proposed transaction is included under "Background
of the Mergers."
The Sierra Pacific Board believes that a "merger of equals" of Sierra
Pacific and Nevada Power would provide a unique opportunity for stockholders of
Sierra Pacific to participate in the earnings growth of the combined company.
The Mergers represent a significant strategic opportunity for Sierra Pacific and
should offer Sierra Pacific and its stockholders better prospects for the future
than would be available to Sierra Pacific as a stand-alone entity.
In addition to the common benefits described above under "Reasons for the
Mergers," in considering the Mergers the Sierra Pacific Board took in to account
the following benefits, risks and other factors more specifically related to
Sierra Pacific:
- The combined companies will have an enhanced ability to compete in the
future utility market. The Sierra Pacific Board recognized that achieving
the advantages of the Mergers will be substantially dependent upon the
receipt of timely and favorable regulatory approvals.
- The growth anticipated to result from the Mergers is expected to derive
from, among other things, operating efficiencies obtained from economies
of scale, improved opportunities for cost reductions, revenue enhancements
made possible by the combination of Sierra Pacific and Nevada Power and
the long-term financial stability of a larger company. Achieving these
anticipated benefits will
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depend on the successful integration of the business of Nevada Power and
Sierra Pacific in an efficient manner and on timely receipt of favorable
regulatory approvals of the transactions.
- Based on the factors described above, the Mergers should provide
stockholders improved opportunities for earnings and dividend growth.
- The anticipated level of the Sierra Pacific Common Stock dividend
following consummation of the Mergers is $1.00 per share reflecting a
dividend payout ratio of between 50% and 55% of net income. Sierra Pacific
currently pays an annual dividend of $1.30 per share and the proposed
dividend of $1.00 per share (which would be $1.44 per share on an
equivalent basis taking into account the Sierra Pacific Exchange Ratio)
represents an 11% increase over Sierra Pacific's current dividend. The
dividend level actually adopted by Sierra Pacific after the Mergers is
subject to evaluation from time to time by the Sierra Pacific Board based
on Sierra Pacific's results of operations, financial condition, capital
requirements and other relevant considerations.
- The Sierra Pacific Cash Consideration represented a 5% premium per share
of Sierra Pacific Common Stock, based on the 10 day trading average of
Sierra Pacific Common Stock through the day prior to approval of the
Merger Agreement. The Sierra Pacific Board considered that the market
price of the Sierra Pacific Common Stock would fluctuate between the time
the Merger Agreement was approved and the Mergers would be consummated.
- Those Sierra Pacific stockholders who elect to receive cash will be
eligible for favorable capital gains treatment for federal income tax
purposes on the cash received in exchange for their Sierra Pacific Common
Stock.
- The Merger Agreement provides for stockholders of Sierra Pacific to
receive relatively more stock and relatively less cash as Sierra Pacific
Merger Consideration than the Nevada Power Merger Consideration. As a
result, the Sierra Pacific stockholders will own about 49.8% of the
combined company.
In considering the recommendation of the Sierra Pacific Board with respect
to the Merger Agreement, stockholders should be aware that certain members of
the Sierra Pacific Board will remain directors and/or employees of Sierra
Pacific and certain officers of Sierra Pacific will remain officers of Sierra
Pacific or become officers of the Surviving Corporation following consummation
of the Mergers and/or such persons may become entitled to severance benefits as
a result of the Mergers. Therefore, such directors
and officers have interests in the Merger that are different than, or in
addition to, the interests of stockholders of Sierra Pacific generally. The
Sierra Pacific Board was aware of these interests and considered them, along
with other matters, in approving the Merger Agreement. See "The Mergers--
Interests of Certain Persons in the Mergers."
In considering the proposed Mergers, the Sierra Pacific Board was aware of
and considered the risks to Sierra Pacific and its stockholders presented by the
Mergers. The Sierra Pacific Board believes that, in light of these risks and the
potential benefits of the Mergers to Sierra Pacific and its stockholders, the
Mergers are fair to and in the best interests of Sierra Pacific's stockholders.
In reaching its decision to approve the Merger Agreement, and in addition to
the factors described above, the Sierra Pacific Board also considered the
following factors:
(i) the prospective financial strength of each company individually and the
benefits of the combination discussed above, particularly in light of the Sierra
Pacific Board's familiarity with and review of Sierra Pacific's business,
operations, financial condition and earnings on both an historical and
prospective basis, and the Sierra Pacific Board's belief that the merger with
Nevada Power will provide opportunities to achieve benefits for stockholders and
customers of Sierra Pacific that would not be available if Sierra Pacific and
Nevada Power remained as separate enterprises;
(ii) current industry, economic and market conditions which encourage
consolidation to create new avenues for earnings growth and reduce risk;
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(iii) the proposed structure of the transaction as a "merger of equals"
between Sierra Pacific and Nevada Power and the terms of the Merger Agreement
which provide for reciprocal representations and warranties, conditions to
closing and rights to termination, and balanced rights and obligations;
(iv) other strategic options potentially available to Sierra Pacific, Nevada
Power and the combined company;
(v) the corporate governance aspects of the Mergers, including the fact that
the combined company's board of directors will consist of 14 members, seven of
whom will be selected by Sierra Pacific and seven of whom will be selected by
Nevada Power; Mr. Niggli, currently President and Chief Operating Officer of
Nevada Power, will serve as Chairman and Chief Executive Officer of the combined
company and Chairman of each of SPPC and the Surviving Corporation; and Mr.
Malquist, currently Chairman, Chief Executive Officer and President of Sierra
Pacific, will serve as President and Chief Operating Officer of the combined
company and President and Chief Executive Officer of the utility subsidiaries;
(vi) the opinion of counsel that the Mergers will be tax-free transactions
under the Code and that Sierra Pacific, Nevada Power, LAKE Merger Sub and DESERT
Merger Sub and the stockholders of Sierra Pacific and Nevada Power who exchange
their shares solely for Sierra Pacific Common Stock will recognize no gain or
loss for federal income tax purposes as a result of the consummation of the
Mergers and the expected treatment of the Sierra Pacific Cash Consideration as
being eligible for capital gains treatment;
(vii) presentations from, and discussions with, senior executives of Sierra
Pacific, representatives of its outside legal counsel and representatives of SG
Barr Devlin and Merrill Lynch regarding the business, financial, accounting and
legal due diligence with respect to Nevada Power and the terms and conditions of
the Merger Agreement;
(viii) the written opinion of each of SG Barr Devlin and Merrill Lynch to the
effect that, as of the date of the Merger Agreement, the Sierra Pacific Merger
Consideration to be issued in the First Merger, in light of the Nevada Power
Merger Consideration to be issued in the Second Merger, was fair from a
financial point of view to the holders of Sierra Pacific Common Stock;
(ix) the factors and considerations described under "Risk Factors and Other
Considerations;" and
(x) the ability to obtain regulatory approvals for the Mergers in the
current environment.
The foregoing discussion of the information and factors considered by the
Sierra Pacific Board is not intended to be exhaustive. In view of the variety of
factors considered in connection with its evaluation of the Mergers, the Sierra
Pacific Board did not find it practicable to and did not quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Sierra Pacific Board may
have given different weights to different factors.
THE SIERRA PACIFIC BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGERS AND THE
SHARE ISSUANCE ARE IN THE BEST INTERESTS OF SIERRA PACIFIC AND ITS STOCKHOLDERS
AND HAS APPROVED THE MERGER AGREEMENT. THE SIERRA PACIFIC BOARD UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS OF SIERRA PACIFIC VOTE IN FAVOR OF THE MERGER
AGREEMENT AND THE SHARE ISSUANCE AT THE SIERRA PACIFIC SPECIAL MEETING.
OPINIONS OF FINANCIAL ADVISORS
OPINION OF NEVADA POWER'S FINANCIAL ADVISOR. THE FULL TEXT OF THE OPINION
OF PAINEWEBBER, DATED THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS (THE
"PAINEWEBBER OPINION"), WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS
ATTACHED AS ANNEX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS. THE PAINEWEBBER
OPINION WILL NOT BE UPDATED PRIOR TO OR AT THE EFFECTIVE TIME OF THE SECOND
MERGER. NEVADA POWER STOCKHOLDERS ARE URGED TO READ SUCH OPINION CAREFULLY AND
IN ITS ENTIRETY. THE SUMMARY OF THE PAINEWEBBER OPINION SET FORTH IN THIS JOINT
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
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Nevada Power retained PaineWebber as its exclusive financial advisor in
connection with the Mergers. Under such engagement, Nevada Power requested
PaineWebber to render an opinion as to whether or not the Nevada Power Merger
Consideration to be received in connection with the Mergers is fair, from a
financial point of view, to the holders of Nevada Power Common Stock.
In connection with the Nevada Power Board's consideration of the Agreement,
PaineWebber delivered its opinion on April 29, 1998, to the effect that as of
such date, and based on its review and assumptions and subject to the
limitations set forth therein, the Nevada Power Merger Consideration to be
received in connection with the Mergers is fair, from a financial point of view,
to the holders of Nevada Power Common Stock. PaineWebber was subsequently asked
by Nevada Power to update its opinion and on September 4, 1998 such updated
opinion was rendered. The PaineWebber Opinion was prepared at the request and
for the information of the Nevada Power Board and does not constitute a
recommendation to any member of the Nevada Power Board or any holder of Nevada
Power Common Stock as to how to vote on the Mergers. The PaineWebber Opinion
does not address the relative merits of the Mergers and other transactions or
business strategies discussed by the Nevada Power Board as alternatives to the
Mergers or the decision of the Nevada Power Board to proceed with the Mergers.
The PaineWebber Opinion does not constitute an opinion as to the price at which
pro forma Sierra Pacific Common Stock will actually trade at any time. The
Nevada Power Merger Consideration was determined in arms'-length negotiations
between Nevada Power and Sierra Pacific. Nevada Power did not place any
limitations upon PaineWebber with respect to the procedures followed or factors
considered in rendering the PaineWebber Opinion.
In arriving at its opinion, PaineWebber, among other things: (i) reviewed,
among other public information, Nevada Power's Annual Reports, Forms 10-K and
related financial information for the four fiscal years ended December 31, 1997;
(ii) reviewed, among other public information, Sierra Pacific's Annual Reports,
Forms 10-K and related financial information for the four fiscal years ended
December 31, 1997; (iii) reviewed certain information, including financial
forecasts, relating to the business, earnings, cash flow, assets and prospects
of Nevada Power and Sierra Pacific, furnished to PaineWebber by Nevada Power and
Sierra Pacific, respectively; (iv) conducted discussions with members of senior
management of Nevada Power and Sierra Pacific concerning their respective
businesses and prospects; (v) compared the historical market prices and trading
activity for the Nevada Power Common Stock and the Sierra Pacific Common Stock
with those of certain publicly traded companies which PaineWebber deemed to be
relevant; (vi) compared the financial position and operating results of Nevada
Power and Sierra Pacific with those of certain publicly traded companies which
PaineWebber deemed to be relevant; (vii) considered the potential pro forma
results of the Mergers; (viii) reviewed the Merger Agreement; and (ix) reviewed
such other financial studies and analyses and performed such other
investigations and took into account such other matters as PaineWebber deemed to
be appropriate, including PaineWebber's assessment of regulatory, general
economic, market and monetary conditions.
In preparing the PaineWebber Opinion, PaineWebber relied on the accuracy and
completeness of all information that was publicly available or supplied or
otherwise communicated to PaineWebber by Nevada Power and Sierra Pacific, or was
otherwise reviewed by PaineWebber. PaineWebber has not independently verified
such information. PaineWebber has assumed that the financial forecasts examined
by it were reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments of the managements of Nevada Power and Sierra
Pacific as to the future performance of Nevada Power and Sierra Pacific,
respectively. PaineWebber has also relied upon assurances of the managements of
Nevada Power and Sierra Pacific that they are unaware of any facts that would
make the information or financial forecasts provided to PaineWebber incomplete
or misleading. PaineWebber has also assumed, with the consent of Nevada Power,
that (i) the Sierra Pacific Stock Consideration will be tax-free; (ii) the
Nevada Power Stock Consideration will be tax-free; and (iii) all material assets
and liabilities (contingent or otherwise, known or unknown) of Nevada Power and
Sierra Pacific are as set forth in their respective financial statements or
disclosed in the Merger Agreement. PaineWebber has not made an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Nevada Power or Sierra Pacific, nor has PaineWebber been furnished with any
such evaluations or appraisals. The PaineWebber
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Opinion is based upon regulatory, general economic, market and monetary
conditions existing on the date thereof. Furthermore, PaineWebber expresses no
opinion as to the price or trading ranges at which the Nevada Power Common Stock
or the Sierra Pacific Common Stock will trade subsequent to the date of the
PaineWebber Opinion. It should be understood that, although subsequent
developments may affect the PaineWebber Opinion, PaineWebber does not have any
obligation to update, revise or reaffirm its opinion.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analyses and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. PaineWebber did not place particular reliance or weight on any
individual analysis. Accordingly, PaineWebber believes that its analysis must be
considered as a whole and that considering any portion of such analysis and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying the PaineWebber
Opinion. In its analyses, PaineWebber made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Nevada Power and Sierra
Pacific. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses may actually be sold. Accordingly,
such analyses and estimates are inherently subject to substantial uncertainty
and neither Nevada Power nor PaineWebber assumes responsibility for the accuracy
of such analyses and estimates.
The following paragraphs summarize the presentation delivered to the Nevada
Power Board by PaineWebber in connection with rendering the PaineWebber opinion.
The following summary contains all material analyses presented to the Nevada
Power Board.
In its analysis, PaineWebber calculated the Nevada Power Merger
Consideration and the Sierra Pacific Merger Consideration based on the ten-day
average closing prices of Nevada Power Common Stock and Sierra Pacific Common
Stock ending on April 28, 1998 of $24.76 and $35.76 per share, respectively.
SELECTED COMPARABLE PUBLIC COMPANY ANALYSIS: Using publicly available
information, PaineWebber compared selected historical and projected operating
performance data of Nevada Power to the corresponding data of a group of
comparable companies. The comparable companies included eight electric utility
companies: Idaho Power Company; The Montana Power Company; Pinnacle West Capital
Corporation; Public Service Company of New Mexico; Puget Sound Energy, Inc.;
Sierra Pacific Resources; TNP Enterprises, Inc.; and The Washington Water Power
Company (collectively, the "Nevada Power Comparable Companies"). In addition,
PaineWebber compared selected historical and projected operating performance
data of Sierra Pacific to the corresponding data of a group of comparable
companies. The comparable companies included eight electric utility companies:
Idaho Power Company; The Montana Power Company; Nevada Power Company; Pinnacle
West Capital Corporation; Public Service Company of New Mexico; Puget Sound
Energy, Inc.; TNP Enterprises, Inc.; and The Washington Water Power Company
(collectively, the "Sierra Pacific Comparable Companies"). Finally, PaineWebber
compared selected pro forma historical and projected operating performance data
of pro forma Sierra Pacific (the combined company) to the corresponding data of
a group of comparable companies. The comparable companies included eight
electric utility companies: MidAmerican Energy Holdings Company; New Century
Energies, Inc.; NIPSCO Industries, Inc.; Northern States Power Company; Pinnacle
West Capital Corporation; Puget Sound Energy, Inc.; SCANA Corporation; and
Western Resources, Inc. (collectively, the "Pro Forma Sierra Pacific Comparable
Companies" and together with the Nevada Power Comparable Companies and the
Sierra Pacific Comparable Companies, the "Comparable Companies").
PaineWebber calculated the Comparable Companies' multiples of enterprise
value (market value, as hereinafter defined, plus preferred stock and debt less
cash and cash equivalents) to latest twelve months ("LTM") earnings before
interest, taxes, depreciation and amortization ("EBITDA"), LTM earnings before
interest and taxes ("EBIT") and calculated the Comparable Companies' multiples
of market value
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(share price multiplied by shares outstanding including in-the-money options and
warrants) to LTM earnings per share ("EPS"), LTM cash flow from operations (net
income plus depreciation and amortization) ("CFFO"), book value of equity, and
estimated 1998 and 1999 EPS (adjusted to reflect a December year end) as
estimated by First Call research earnings estimates.
As of April 24, 1998, the Nevada Power Comparable Companies' ranges of
multiples of LTM EBITDA, LTM EBIT, LTM EPS, LTM CFFO, book value of equity and
estimated 1998 and 1999 EPS were 5.7x-9.5x, 7.6x-13.7x, 10.3x-19.3x, 5.3x-10.1x,
1.20x-1.97x, 11.5x-16.5x and 11.1x-15.6x, respectively. PaineWebber calculated
comparable multiples of Nevada Power LTM EBITDA, LTM EBIT, LTM EPS, LTM CFFO,
book value of equity and estimated 1998 and 1999 EPS (estimated by Nevada Power
management) to be 9.2x (as compared to 5.7x-9.5x), 12.5x (as compared to
7.6x-13.7x), 14.9x (as compared to 10.3x-19.3x), 8.3x (as compared to
5.3x-10.1x), 1.47x (as compared to 1.20x-1.97x), 14.5x (as compared to
11.5x-16.5x) and 14.6x (as compared to 11.1x-15.6x), respectively. As of April
24, 1998, the Sierra Pacific Comparable Companies' ranges of multiples of LTM
EBITDA, LTM EBIT, LTM EPS, LTM CFFO, book value of equity and estimated 1998 and
1999 EPS were 5.7x-9.5x, 7.6x-13.7x, 10.3x-19.3x, 5.3x-10.1x, 1.20x-1.97x,
11.5x-16.5x and 11.1x-15.6x, respectively. PaineWebber calculated comparable
multiples of Sierra Pacific LTM EBITDA, LTM EBIT, LTM EPS, LTM CFFO, book value
of equity and estimated 1998 and 1999 EPS (estimated by Sierra Pacific
management) to be 8.7x (as compared to 5.7x-9.5x), 12.2x (as compared to
7.6x-13.7x), 14.7x (as compared to 10.3x-19.3x), 7.9x (as compared to
5.3x-10.1x), 1.73x (as compared to 1.20x-1.97x), 14.5x (as compared to
11.5x-16.5x) and 14.4x (as compared to 11.1x-15.6x), respectively.
As of April 24, 1998, the Pro Forma Sierra Pacific Comparable Companies'
ranges of multiples of LTM EBITDA, LTM EBIT, LTM EPS, LTM CFFO, book value of
equity and estimated 1998 and 1999 EPS were 6.5x-10.4x, 11.3x-22.0x,
15.3x-19.0x, 5.5x-9.4x, 1.24x-2.61x, 13.7x-16.3x and 13.4x-15.1x, respectively.
After considering the potential pro forma results of the Mergers, PaineWebber
calculated comparable multiples of pro forma Sierra Pacific LTM EBITDA, LTM
EBIT, LTM EPS, LTM CFFO, book value of equity and estimated 1998 and 1999 EPS to
be 9.2x (as compared to 6.5x-10.4x), 13.2x (as compared to 11.3x-22.0x), 15.2x
(as compared to 15.3x-19.0x), 7.3x (as compared to 5.5x-9.4x), 1.29x (as
compared to 1.24x-2.61x), 16.3x (as compared to 13.7x-16.3x) and 15.8x (as
compared to 13.4x-15.1x), respectively. In calculating these comparable
multiples of pro forma Sierra Pacific, PaineWebber assumed (i) the Sierra
Pacific Cash Number would be 4,037,809 shares; (ii) the Nevada Power Cash Number
would be 11,715,084 shares; (iii) the Sierra Pacific Exchange Ratio would be
1.44; (iv) the Nevada Power Exchange Ratio would be 1.00; and (v) no synergies
would be achieved in the Mergers (collectively, the "Assumptions"). PaineWebber
applied the Assumptions and combined the historical and projected operating
results of Nevada Power provided to PaineWebber with the corresponding
historical and projected operating results of Sierra Pacific provided to
PaineWebber to arrive at the pro forma Sierra Pacific LTM EBITDA, LTM EBIT, LTM
EPS, LTM CFFO, book value of equity and estimated 1998 and 1999 EPS.
CONTRIBUTION ANALYSIS: PaineWebber noted that based on the Merger
Agreement, Nevada Power total consideration (Nevada Power Merger Consideration
multiplied by Nevada Power Common Stock outstanding) will represent
approximately 53.2% of the total consideration (Nevada Power total consideration
plus Sierra Pacific total consideration, as hereinafter defined). Furthermore,
Nevada Power will own approximately 50.2% of the fully-diluted pro forma Sierra
Pacific Common Stock outstanding. PaineWebber analyzed Nevada Power's and Sierra
Pacific's relative contribution with respect to 1997 revenue, 1997 EBITDA, 1997
EBIT, 1997 net income, net utility plant, total assets and electric customers of
pro forma Sierra Pacific assuming the Mergers were consummated at the beginning
of fiscal 1997 and no adjustments were made with respect to the Mergers. Nevada
Power would have contributed to 1997 revenue, 1997 EBITDA, 1997 EBIT, 1997 net
income, net utility plant, total assets and electric customers, 54.6%, 52.7%,
53.5%, 52.4%, 55.1%, 54.7% and 64.4%, respectively. PaineWebber also analyzed
the relative contribution of (i) Nevada Power's and Sierra Pacific's market
values as of April 28, 1998; and (ii) Nevada Power's and Sierra Pacific's
enterprise values as of April 28, 1998. Nevada Power would have contributed to
combined market value (Nevada Power market value plus Sierra Pacific market
value), 53.4% and combined
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enterprise value (Nevada Power enterprise value plus Sierra Pacific enterprise
value), 54.4%. The results of this contribution analysis are not necessarily
indicative of the contributions that the respective businesses may have in the
future.
DISCOUNTED CASH FLOW ANALYSIS: PaineWebber analyzed Nevada Power and Sierra
Pacific based on an unleveraged discounted cash flow analysis of the projected
financial performance of Nevada Power and Sierra Pacific, respectively. Such
projected financial performance was based upon five-year forecasts for Nevada
Power and Sierra Pacific provided to PaineWebber. The discounted cash flow
analysis determined the discounted present value of the unleveraged after-tax
cash flows generated over the five-year period and then added a terminal value
based upon ranges of multiples of EBITDA and EBIT of 8.0x-9.5x and 11.5x-13.0x,
respectively. The unleveraged after-tax cash flows and terminal value were
discounted using a range of discount rates of 7.5%-9.0%.
PaineWebber also analyzed pro forma Sierra Pacific based on an unleveraged
discounted cash flow analysis of the projected financial performance of pro
forma Sierra Pacific. Such projected financial performance was based upon a
five-year forecast for pro forma Sierra Pacific developed by PaineWebber that
considers the potential pro forma results of the Mergers. In developing this
forecast, PaineWebber applied the Assumptions and combined the projected
operating results of Nevada Power provided to PaineWebber with the corresponding
projected operating results of Sierra Pacific provided to PaineWebber. The
discounted cash flow analysis determined the discounted present value of the
unleveraged after-tax cash flows generated over the five-year period and then
added a terminal value based upon ranges of multiples of EBITDA and EBIT of
8.0x-9.5x and 11.5x-13.8x, respectively. The unleveraged after-tax cash flows
and terminal value were discounted using a range of discount rates of 7.0%-8.5%.
PRO FORMA MERGERS ANALYSIS: PaineWebber performed an analysis of the
potential pro forma results of the Mergers for the fiscal years beginning 1999
through 2003. In performing this analysis, PaineWebber applied the Assumptions
and combined the projected operating results of Nevada Power provided to
PaineWebber with the corresponding projected operating results of Sierra Pacific
provided to PaineWebber to arrive at the pro forma Sierra Pacific projected net
income. PaineWebber divided this by the pro forma Sierra Pacific Common Stock
outstanding to arrive at the pro forma Sierra Pacific EPS. PaineWebber then
compared the pro forma Sierra Pacific EPS to Nevada Power's projected
stand-alone EPS provided to PaineWebber. This analysis suggested that the
Mergers should result in accretion to holders of Nevada Power Common Stock that
elected or were deemed to have elected Nevada Power Stock Consideration, as
specified in the Merger Agreement, in 1999 and thereafter, assuming the Mergers
were consummated at the beginning of 1999.
Nevada Power selected PaineWebber to be its exclusive financial advisor in
connection with the Mergers because PaineWebber is a prominent investment
banking and financial advisory firm with experience in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and valuations for corporate purposes.
Pursuant to an engagement letter between Nevada Power and PaineWebber dated
September 5, 1997, Nevada Power has agreed to pay PaineWebber for its services
in connection with the Mergers an aggregate fee of 0.54% of Sierra Pacific total
consideration (Sierra Pacific Merger Consideration multiplied by Sierra Pacific
Common Stock outstanding), payable as follows: (i) $100,000 payable upon
execution of the engagement letter; (ii) $1.2 million payable upon the rendering
of the PaineWebber Opinion; (iii) $750,000 payable upon the signing of the
Merger Agreement; and (iv) 0.54% of Sierra Pacific total consideration, payable
upon the Effective Time of the Second Merger, against which the previously paid
fees are credited. In addition, PaineWebber will be reimbursed for all of its
related out-of-pocket expenses. Nevada Power also agreed, under separate
agreement, to indemnify PaineWebber, its affiliates and each of its directors,
officers, agents and employees and each person, if any, controlling PaineWebber
or any of its affiliates against certain liabilities, including liabilities
under federal securities laws. The terms of the fee arrangement with PaineWebber
were negotiated at arms'-length between Nevada Power and PaineWebber and the
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Nevada Power Board of Directors was aware of such arrangement, including the
fact that a significant portion of the aggregate fee payable to PaineWebber is
contingent upon consummation of the Mergers.
In the past, PaineWebber and its affiliates have provided financial advisory
services and financing services for Nevada Power, and have received fees for the
rendering of these services. PaineWebber may provide financial advisory services
to, and may act as underwriter or placement agent for, Nevada Power, Sierra
Pacific and pro forma Sierra Pacific in the future. In the ordinary course of
PaineWebber's business, PaineWebber may actively trade the securities of Nevada
Power, Sierra Pacific and pro forma Sierra Pacific for its own account and for
the accounts of its customers and, accordingly, may at any time hold long or
short positions in such securities.
OPINION OF SIERRA PACIFIC'S FINANCIAL ADVISORS. Sierra Pacific received
opinions from its financial advisors SG Barr Devlin and Merrill Lynch as more
fully described below.
OPINION OF SG BARR DEVLIN.
On March 1, 1994, Sierra Pacific entered into an engagement letter with SG
Barr Devlin pursuant to which SG Barr Devlin was retained to act as Sierra
Pacific's financial and strategic advisor with respect to assisting Sierra
Pacific in developing and implementing future strategic and financial courses of
action. On March 1, 1998, such letter was revised to include a potential
business combination with Nevada Power. SG Barr Devlin has delivered its written
opinions to the Sierra Pacific Board, dated April 29, 1998 and the date of this
Joint Proxy Statement/Prospectus, to the effect that, on and as of the dates of
the opinions, and based upon assumptions made, matters considered, and limits of
the review, as set forth in the opinions, the Sierra Pacific Merger
Consideration to be issued in the First Merger, in light of the Nevada Power
Merger Consideration to be issued in the Second Merger, was and is fair, from a
financial point of view, to the holders of Sierra Pacific Common Stock. A copy
of the opinion of SG Barr Devlin, dated the date of this Joint Proxy
Statement/Prospectus, is attached to this Joint Proxy Statement/Prospectus as
Annex C and is incorporated herein by reference. The April 29, 1998 opinion is
substantially identical to the opinion attached hereto. Holders of Sierra
Pacific Common Stock are urged to read carefully the opinion in its entirety for
assumptions made, matters considered and the limits of the review undertaken by
SG Barr Devlin.
In connection with rendering its opinion dated the date of this Joint Proxy
Statement/Prospectus, SG Barr Devlin (i) reviewed the Annual Reports, Forms 10-K
and the related financial information for the three-year period ended December
31, 1997, and the Form 10-Q and the related unaudited financial information for
the quarterly periods ended March 31, 1998 and June 30, 1998 for Sierra Pacific
and SPPC; (ii) reviewed the Annual Reports, Forms 10-K and the related financial
information for the three-year period ended December 31, 1997, and the Forms
10-Q and the related unaudited financial information for the quarterly periods
ended March 31, 1998 and June 30, 1998 for Nevada Power; (iii) reviewed certain
other filings with the SEC and other regulatory authorities made by Sierra
Pacific, SPPC and Nevada Power during the last three years, including proxy
statements, FERC Forms 1 and 2, Forms 8-K and registration statements; (iv)
reviewed certain internal information, including financial forecasts, relating
to the business, earnings, capital expenditures, cash flow, assets and prospects
of Sierra Pacific and Nevada Power furnished to SG Barr Devlin by Sierra Pacific
and Nevada Power; (v) conducted discussions with members of senior management of
Sierra Pacific and Nevada Power concerning their respective businesses,
regulatory environments, prospects, strategic objectives and possible operating
and administrative synergies and other benefits which might be realized for the
benefit of the combined company following the Mergers; (vi) reviewed the
historical market prices and trading activity for shares of Sierra Pacific
Common Stock and Nevada Power Common Stock and compared them with those of
certain publicly traded companies deemed by SG Barr Devlin to be relevant; (vii)
compared the results of operations of Sierra Pacific and Nevada Power with those
of certain companies deemed by SG Barr Devlin to be relevant; (viii) compared
the proposed financial terms of the First Merger, in light of the Second Merger,
with the financial terms of certain business combinations deemed by SG Barr
Devlin to be relevant;
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(ix) analyzed the respective contributions in terms of assets, earnings, cash
flow and shareholders' equity of Sierra Pacific and Nevada Power to the combined
company; (x) analyzed the valuation of shares of Sierra Pacific Common Stock and
Nevada Power Common Stock using various valuation methodologies deemed by SG
Barr Devlin to be appropriate; (xi) considered the pro forma capitalization,
earnings and cash flow of the combined company; (xii) compared the pro forma
capitalization ratios, earnings per share, dividends per share, cash flow per
share and payout ratio of the combined company with each of the corresponding
current and projected values for Sierra Pacific and Nevada Power on a
stand-alone basis; (xiii) reviewed the Merger Agreement; (xiv) reviewed the
Joint Proxy Statement/Prospectus and (xv) reviewed such other studies, conducted
such other analyses, considered such other financial, economic and market
criteria, performed such other investigations and taken into account such other
matters as SG Barr Devlin deemed necessary or appropriate for purposes of this
opinion.
In preparing its opinions, SG Barr Devlin relied, without independent
verification, on the accuracy and completeness of all financial and other
information publicly available or otherwise furnished or made available to it by
Sierra Pacific and Nevada Power, and upon the assurances of management of Sierra
Pacific and Nevada Power that they were not aware of any facts that would make
such information inaccurate or misleading. With respect to the financial
projections of Sierra Pacific and Nevada Power, SG Barr Devlin relied upon
assurances of management of Sierra Pacific and Nevada Power that such
projections were reasonably prepared and reflected the best currently available
estimates and judgments of the managements of Sierra Pacific and Nevada Power as
to the future financial performance of Sierra Pacific and Nevada Power and as to
the projected outcomes of legal, regulatory, and other contingencies. SG Barr
Devlin assumed that the estimated operating synergies (the "synergies") were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of Sierra Pacific and Nevada Power as to the
future financial performance of Sierra Pacific and Nevada Power and as to the
projected outcomes of legal, regulatory, and other contingencies. SG Barr Devlin
was not provided with and did not undertake an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Sierra
Pacific or Nevada Power, nor did SG Barr Devlin make any physical inspection of
the properties or assets of Sierra Pacific or Nevada Power.
In arriving at its opinions, SG Barr Devlin assumed that the Mergers will be
tax-free reorganizations as described in Section 368 of the Code and the
regulations thereunder, and that Sierra Pacific, Nevada Power, LAKE Merger Sub,
DESERT Merger Sub and holders of Sierra Pacific Common Stock and Nevada Power
Common Stock who exchange their shares solely for the stock of the combined
company will recognize no gain or loss for federal income tax purposes as a
result of the consummation of the First Merger or the Second Merger, as the case
may be. In addition, SG Barr Devlin has assumed that the combination will be
accounted for by the purchase method of accounting. SG Barr Devlin's opinions
are based upon general financial, stock market and other conditions and
circumstances as they existed and could be evaluated, and the information made
available to it, as of the respective dates of the opinions. SG Barr Devlin's
opinions are directed to the Sierra Pacific Board and the fairness, from a
financial point of view, of the Sierra Pacific Merger Consideration taken as a
whole (in light of the Nevada Power Merger Consideration taken as a whole), and
not to the fairness of the Sierra Pacific Stock Consideration or the Sierra
Pacific Cash Consideration individually, as to which SG Barr Devlin is
expressing no opinion; and does not address any other aspect of the Mergers and
do not constitute a recommendation to any holder of Sierra Pacific Common Stock
as to how such holder should vote at the Sierra Pacific Special Meeting.
Although SG Barr Devlin evaluated the fairness of the Sierra Pacific Merger
Consideration taken as a whole to the holders of Sierra Pacific Common Stock,
the specific Sierra Pacific Merger Consideration was determined by Sierra
Pacific and Nevada Power through arm's-length negotiations. Sierra Pacific did
not place any limitations upon SG Barr Devlin with respect to the procedures
followed or factors considered by SG Barr Devlin in rendering its opinions.
SG Barr Devlin has advised Sierra Pacific that, in its view, the preparation
of a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of those methods
to the particular circumstances, and, therefore, such an opinion is not
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readily susceptible to summary description. Furthermore, in arriving at its
fairness opinions, SG Barr Devlin did not attribute any particular weight to any
analysis or factor considered by it, nor did SG Barr Devlin ascribe a specific
range of fair values to Sierra Pacific; rather, SG Barr Devlin made its
determination as to the fairness of the Sierra Pacific Merger Consideration
taken as a whole on the basis of qualitative judgments as to the significance
and relevance of each of the financial and comparative analyses and factors
described below. Accordingly, notwithstanding the separate factors summarized
below, SG Barr Devlin believes that its analyses must be considered as a whole
and that considering any portions of these analyses and factors, without
considering all analyses and factors, could create a misleading or incomplete
view of the evaluation process underlying its opinions. In its analyses, SG Barr
Devlin made many assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
Sierra Pacific's and Nevada Power's control. Any estimates in these analyses do
not necessarily indicate actual values or predict future results or values,
which may be significantly more or less favorable than as set forth therein. In
addition, analyses relating to the value of businesses do not purport to be
appraisals or reflect the prices at which businesses actually may be sold.
In connection with rendering its opinions dated April 29, 1998 and the date
of this Joint Proxy Statement/Prospectus and preparing its various written and
oral presentations to the Sierra Pacific Board, SG Barr Devlin performed a
variety of financial and comparative analyses and considered a variety of
factors of which the material analyses and factors are summarized below. While
this summary describes the material analyses performed and factors considered,
it does not purport to be a complete description of the analyses performed or
factors considered by SG Barr Devlin. The results of the analyses described in
this summary were discussed with the Sierra Pacific Board at its meeting on
April 29, 1998. SG Barr Devlin derived implied exchange ratios based upon what
these analyses, when considered in light of the judgment and experience of SG
Barr Devlin, suggested about the relative value of Sierra Pacific Common Stock
to Nevada Power Common Stock. SG Barr Devlin's opinions are based upon its
consideration of the collective results of all such analyses, together with the
other factors referred to in its opinions. In connection with the opinion dated
the date hereof, SG Barr Devlin performed certain procedures to update its
analyses made for its April 29, 1998 opinion and reviewed with the management of
Sierra Pacific and Nevada Power the assumptions upon which such analyses were
based. The results of such analyses were substantially the same as those for the
April 29, 1998 opinion of SG Barr Devlin.
STOCK TRADING HISTORY. SG Barr Devlin reviewed the performance of the per
share market prices and trading volumes of Sierra Pacific Common Stock and
Nevada Power Common Stock and compared such per share market price movements to
movements in (i) the Standard and Poor's Utility Index and (ii) the Standard and
Poor's 500 Composite Index to provide perspective on the current and historical
stock price performance of Sierra Pacific and Nevada Power relative to one
another and selected market indices. SG Barr Devlin also calculated the ratio of
the per share weekly closing market price of Sierra Pacific to the per share
weekly closing market price of Nevada Power for the period January 1, 1993 to
April 24, 1998. This analysis showed that over this period Sierra Pacific Common
Stock traded at a price as high as 1.52 times, as low as 0.79 times and at an
average of 1.11 times the then-current per share market price of Nevada Power
Common Stock. For the 10-day and 16-month periods ended April 28, 1998, Sierra
Pacific Common Stock traded at an average of 1.44 times the then-current per
share market price of Nevada Power Common Stock. This analysis was utilized to
provide historical background for the manner in which the public trading market
had valued Sierra Pacific and Nevada Power in absolute terms and relative to
each other.
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DISCOUNTED CASH FLOW ANALYSIS. To determine an implied exchange ratio based
upon a discounted cash flow ("DCF") analysis, SG Barr Devlin prepared and
reviewed the results of unleveraged DCF analyses for both Sierra Pacific and
Nevada Power, assuming that Sierra Pacific and Nevada Power performed in
accordance with the operating and financial projections provided by their
respective managements for the period 1998 through 2002 (the "Projection
Period"), as revised by SG Barr Devlin to reflect certain adjustments it deemed
appropriate (collectively, the "Projections"). The purpose of the DCF analysis
was to determine the present value of each of Sierra Pacific and Nevada Power.
To calculate the present value, the projected unleveraged free cash flows for
each year during the Projection Period, together with the estimated value of the
business in the final year of the Projection Period, were discounted to the
present. SG Barr Devlin estimated terminal values for Sierra Pacific and Nevada
Power by applying multiples to (i) the projected earnings before interest and
taxes ("EBIT") in 2002, (ii) the projected earnings before interest, taxes,
depreciation and amortization ("EBITDA") in 2002, (iii) the projected book value
of common equity as of year-end 2002 and (iv) the projected net income for 2002.
The multiples applied were based on analyses of the corresponding multiples of
certain public companies comparable to Sierra Pacific and Nevada Power. For the
purposes of these analyses, the terminal multiple ranges used for both Sierra
Pacific and Nevada Power were 10.5x-12.5x with respect to EBIT, 7.5x-8.5x with
respect to EBITDA, 1.50x-1.90x with respect to book value and 14.0x-16.5x with
respect to net income. The cash flow streams and terminal values were then
discounted to present value using discount rates that ranged from 6.0% to 7.0%
for both Sierra Pacific and Nevada Power. This analysis produced reference
values of $35.41 to $45.38 per share in the case of Sierra Pacific and $23.74 to
$32.33 per share in the case of Nevada Power. The implied range of exchange
ratios resulting from these reference values was 1.10 to 1.91, with a midpoint
value of 1.44.
DISCOUNTED DIVIDEND ANALYSIS. SG Barr Devlin prepared and reviewed the
results of discounted dividend analyses of Sierra Pacific and Nevada Power based
on certain financial assumptions relating to projected dividends per share for
each year in the Projection Period. To calculate the value of a stock using
discounted dividend analysis, the projected dividend per share for each fiscal
year together with the estimated share price as of fiscal year-end 2002 are
discounted to the present at an estimated cost of equity capital rate. SG Barr
Devlin estimated the fiscal year-end 2002 share price by dividing (x) the
estimated annualized fiscal year-end dividend in 2002 by (y) the estimated cost
of equity capital rate less the estimated sustainable rate of growth in the
respective company's dividends after fiscal year 2002. SG Barr Devlin considered
market-derived cost of equity capital rates ranging from 9.25% to 10.25% and
sustainable dividend growth rates ranging from 5.50% to 6.50% for Sierra Pacific
and market-derived cost of equity capital rates ranging from 8.00% to 9.25% and
sustainable dividend growth rates ranging from 4.50% to 5.25% for Nevada Power.
This analysis produced reference values of $25.82 to $42.43 per share in the
case of Sierra Pacific and $18.05 to $29.60 per share in the case of Nevada
Power. The implied range of exchange ratios resulting from these reference
values was 0.87 to 2.35, with a midpoint value of 1.43.
COMPARABLE TRANSACTION ANALYSIS. SG Barr Devlin reviewed certain
transactions involving mergers between regulated electric or electric and gas
utilities or holding companies for regulated electric or electric and gas
utilities (the "Comparable Transactions"). The Comparable Transactions were
selected because they were strategic combinations of electric, or electric and
gas, utility companies (or their holding companies) which possessed general
business, operating and financial characteristics representative of companies in
the industries in which Sierra Pacific and Nevada Power operate. The Comparable
Transactions included Enova Corporation/Pacific Enterprises, Delmarva Power &
Light Company/Atlantic Energy, Inc., Kansas City Power & Light Company/UtiliCorp
United, WPL Holdings, Inc./IES Industries Inc./Interstate Power Company,
Baltimore Gas and Electric Company/Potomac Electric Power Company, Public
Service Company of Colorado/Southwestern Public Service Company, Wisconsin
Energy Corporation/Northern States Power Company, Midwest Resources
Inc./Iowa-Illinois Gas and Electric Company, The Washington Water Power
Company/Sierra Pacific Resources and The Cincinnati Gas & Electric Company/PSI
Resources, Inc.
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SG Barr Devlin calculated the implied equity consideration for each of the
Comparable Transactions as a multiple of each company's respective latest
12-month net income available to common stock, latest 12-month cash flow, and
book value of common equity for the most recently available fiscal quarter
preceding the transaction. In addition, SG Barr Devlin calculated the "implied
total consideration" (defined as the sum of the implied equity consideration
plus the liquidation value of preferred stock, the principal amount of debt,
capitalized lease obligations and minority interests, minus cash and option
proceeds, if any) for each of the Comparable Transactions as a multiple of each
company's respective latest 12-month EBIT and EBITDA. The implied range of
exchange ratios resulting from this analysis was 1.13 to 2.02, with a midpoint
value of 1.51.
Because the reasons for and circumstances surrounding each of the Comparable
Transactions analyzed were diverse and because of the inherent differences
between the operations of Sierra Pacific, Nevada Power and the companies in the
selected transactions, SG Barr Devlin believed that a purely quantitative
comparable transaction analysis would not be particularly meaningful in the
context of the Mergers. SG Barr Devlin believed that an appropriate use of a
comparable transaction analysis in this instance would involve qualitative
judgments concerning differences between the characteristics of these
transactions and the Mergers which would affect the relative values of Sierra
Pacific and Nevada Power.
PUBLICLY TRADED COMPARABLE COMPANY ANALYSIS. Using publicly available
information, SG Barr Devlin compared selected financial information and ratios
for Sierra Pacific and Nevada Power with the corresponding financial information
and ratios for a group of electric or electric and gas utilities (or their
holding companies) deemed by SG Barr Devlin to be comparable to Sierra Pacific
and Nevada Power (the "Comparable Companies"). The Comparable Companies were
selected on the basis of being companies which possessed general business,
operating and financial characteristics representative of companies in the
industries in which Sierra Pacific and Nevada Power operate. The Comparable
Companies included Black Hills Corporation, Central Louisiana Electric Company,
Inc., The Empire District Electric Company, Idaho Power Company, The Montana
Power Company, Orange and Rockland Utilities, Inc., PacificCorp, PG&E
Corporation, Potomac Electric Power Company, Puget Sound Energy, Inc. and The
Washington Water Power Company.
In evaluating the current market values of Sierra Pacific Common Stock and
Nevada Power Common Stock, SG Barr Devlin determined ranges of multiples for
selected financial ratios for the Comparable Companies, including (i) the market
value of outstanding common stock as a multiple of (a) net income available to
common stock for the latest 12-month period ended December 31, 1997 (the "LTM
Period"), (b) projected net income available to common stock for the 12-month
period ended December 31, 1998, (c) after-tax cash flow from operations for the
LTM Period and (d) book value of common equity for the most recently available
fiscal quarter ended December 31, 1997; and (ii) the "aggregate market value"
(defined as the sum of the market value of common stock, plus the liquidation
value of preferred stock, the principal amount of debt, capitalized lease
obligations and minority interests, minus cash and cash equivalents) as a
multiple of (a) EBIT for the LTM Period and (b) EBITDA for the LTM Period. This
analysis produced reference values of $31.10 to $38.91 per share in the case of
Sierra Pacific and $21.31 to $26.90 per share in the case of Nevada Power. The
implied range of exchange ratios resulting from these reference values was 1.16
to 1.83, with a midpoint value of 1.45.
SG Barr Devlin also evaluated the projected year-end market values of shares
of Sierra Pacific Common Stock and Nevada Power Common Stock for the years 1998
through 2000. These projected year-end market values were based on selected
ranges of multiples for the Comparable Companies and (i) net income available to
common stock, (ii) after-tax cash flow from operations, (iii) book value of
common equity and (iv) dividends on common stock. The implied range of exchange
ratios resulting from these market values was 1.23 to 1.86, with a midpoint
value of 1.50.
Because of the inherent differences between the operations of Sierra
Pacific, Nevada Power and the Comparable Companies, SG Barr Devlin believed that
a purely quantitative comparable company analysis would not be particularly
meaningful in the context of the Mergers. SG Barr Devlin believed that an
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appropriate use of a comparable company analysis in this instance would involve
qualitative judgments concerning differences between the characteristics of the
Comparable Companies, Sierra Pacific and Nevada Power.
CONTRIBUTION ANALYSIS. SG Barr Devlin calculated the relative contribution
of Sierra Pacific and Nevada Power to the combined company with respect to (i)
net income available to common stock, (ii) after-tax cash flow from operations,
(iii) book value of common equity, (iv) EBIT and (v) EBITDA, for each of the
years 1997 through 2001. These contribution indices yielded implied exchange
ratios ranging from 1.35 to 1.60, with a midpoint value of 1.48.
PRO FORMA MERGER ANALYSIS. SG Barr Devlin analyzed certain pro forma
effects to the holders of Sierra Pacific Common Stock resulting from the
Mergers, based on the Sierra Pacific Merger Consideration and the Nevada Power
Merger Consideration, for the period 1999 through 2002. This analysis was based
upon the Projections, with an adjustment for the retention of a portion of the
synergies. For holders of Sierra Pacific Common Stock receiving the Sierra
Pacific Stock Consideration, the analysis showed meaningful accretion in
earnings per share and cash flow per share, with slight accretion in dividends
per share.
SG Barr Devlin was selected as Sierra Pacific's financial advisor because SG
Barr Devlin and principals of SG Barr Devlin have significant experience in the
investment banking and electric and gas utility industries. SG Barr Devlin is a
division of Societe Generale specializing in strategic and merger advisory
services to the electric and gas utility industries, the energy industry and
selected other industries. In this capacity, SG Barr Devlin and principals of SG
Barr Devlin have been involved as advisors in numerous transactions and advisory
assignments in the electric, gas and energy industries and are constantly
engaged in the valuation of businesses and securities in those industries.
Pursuant to the terms of SG Barr Devlin's engagement, Sierra Pacific has
agreed to pay SG Barr Devlin for its services in connection with the Mergers (i)
a financial advisory retainer fee of $50,000 per quarter commencing March 1,
1998; (ii) an initial financial advisory progress payment of $1,095,781 payable
upon execution of the Merger Agreement; (iii) a second financial advisory
progress payment estimated at $1,133,438 payable upon approval by the holders of
Sierra Pacific Common Stock of the First Merger; and (iv) a transaction fee
based on the aggregate size of the Sierra Pacific Merger Consideration, ranging
from 0.45% of such aggregate consideration (for a transaction with an aggregate
consideration of $1,000,000,000) to 0.41% of such aggregate consideration (for a
transaction with an aggregate consideration of $2,000,000,000). All financial
advisory progress payments, up to a total of $200,000 of financial advisory
retainer fees and an additional amount estimated at $503,750 would be credited
against any transaction fee payable to SG Barr Devlin. Sierra Pacific has agreed
to reimburse SG Barr Devlin for its out-of-pocket expenses, including fees and
expenses of legal counsel and other advisors engaged with the consent of Sierra
Pacific, and to indemnify SG Barr Devlin against certain liabilities, including
liabilities under the federal securities laws, relating to or arising out of its
engagement.
SG Barr Devlin has rendered from time to time various investment banking and
other financial advisory services to Sierra Pacific for which SG Barr Devlin
received customary compensation. Since January 1, 1997, SG Barr Devlin has
earned compensation from Sierra Pacific with respect to such services of
approximately $250,000, excluding compensation with respect to its services
related to the Mergers.
OPINION OF MERRILL LYNCH
On April 29, 1998, Merrill Lynch delivered its oral opinion, which opinion
was subsequently confirmed in written opinions dated as of such date and as of
the date of this Joint Proxy Statement/ Prospectus, to the Sierra Pacific Board
to the effect that, as of such dates, and based upon the assumptions made,
matters considered and limits of review set forth in such opinions, the Sierra
Pacific Merger Consideration to be issued in the First Merger, in light of the
Nevada Power Merger Consideration to be issued in the Second Merger, was fair
from a financial point of view to the holders of the Sierra Pacific
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Common Stock. References herein to the "Merrill Lynch Opinion" refer to the
written opinion of Merrill Lynch dated as of the date of this Joint Proxy
Statement/Prospectus.
A COPY OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY
MERRILL LYNCH, IS ATTACHED AS ANNEX D TO THIS JOINT PROXY STATEMENT/PROSPECTUS.
SIERRA PACIFIC STOCKHOLDERS ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY. THE
MERRILL LYNCH OPINION WAS DIRECTED ONLY TO THE FAIRNESS OF THE SIERRA PACIFIC
MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SIERRA PACIFIC STOCKHOLDER AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE AT THE SIERRA PACIFIC MEETING. THE SUMMARY OF THE MERRILL LYNCH
OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/ PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION, WHICH IS ATTACHED AS
ANNEX D HERETO.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other things:
(i) reviewed certain publicly available business and financial information
relating to Nevada Power and Sierra Pacific that Merrill Lynch deemed to be
relevant; (ii) reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and prospects
of Nevada Power and Sierra Pacific, as well as the amount and timing of the cost
savings and related expenses and synergies estimated to result from the Mergers
(the "Estimated Synergies") furnished to Merrill Lynch by Nevada Power and
Sierra Pacific, respectively; (iii) conducted discussions with members of senior
management and representatives of Nevada Power and Sierra Pacific concerning the
matters described in clauses (i) and (ii) above, as well as their respective
businesses and prospects before and after giving effect to the Mergers and the
Estimated Synergies; (iv) reviewed the market prices and valuation multiples for
the Nevada Power Common Stock and the Sierra Pacific Common Stock and compared
them with those of certain publicly traded companies that Merrill Lynch deemed
to be relevant; (v) reviewed the results of operations of Nevada Power and
Sierra Pacific and compared them with those of certain publicly traded companies
that Merrill Lynch deemed to be relevant; (vi) compared the proposed financial
terms of the Mergers with the financial terms of certain other transactions that
Merrill Lynch deemed to be relevant; (vii) participated in certain discussions
and negotiations among representatives of Nevada Power and Sierra Pacific and
their financial and legal advisors; (viii) reviewed the potential pro forma
impact of the Mergers; (ix) reviewed the Merger Agreement; and (x) reviewed such
other financial studies and analyses and took into account such other matters as
Merrill Lynch deemed necessary, including Merrill Lynch's assessment of general
economic, market and monetary conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to Merrill Lynch, discussed with or reviewed by or for Merrill Lynch,
or publicly available, and Merrill Lynch did not assume any responsibility for
independently verifying such information or undertake an independent evaluation
or appraisal of any of the assets or liabilities of Nevada Power or Sierra
Pacific and was not furnished with any such evaluation or appraisal. In
addition, Merrill Lynch did not assume any obligation to conduct any physical
inspection of the properties or facilities of Nevada Power or Sierra Pacific.
With respect to the financial forecast information and the Estimated Synergies
furnished to or discussed with Merrill Lynch by Nevada Power or Sierra Pacific,
Merrill Lynch assumed that they were reasonably prepared and reflected the best
currently available estimates and judgment of Nevada Power's or Sierra Pacific's
management as to the expected future financial performance of Nevada Power or
Sierra Pacific, as the case may be, and the Estimated Synergies. Merrill Lynch
further assumed that the First Merger will constitute a tax-free transaction to
Sierra Pacific and that the Second Merger will qualify as a tax-free
reorganization, respectively, for U.S. federal income tax purposes.
The Merrill Lynch Opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch, as of the date
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of the Merrill Lynch Opinion. Merrill Lynch assumed that in the course of
obtaining the necessary regulatory or other consents or approvals (contractual
or otherwise) for the Mergers, no restrictions, including any divestiture
requirements or amendments or modifications, will be imposed that will have a
material adverse effect on the contemplated benefits of the Mergers.
Because different holders of Sierra Pacific Common Stock may receive
different combinations of cash and Sierra Pacific Common Stock pursuant to the
First Merger, the Merrill Lynch Opinion addressed the fairness from a financial
point of view of the Sierra Pacific Merger Consideration to be issued to the
holders of Sierra Pacific Common Stock pursuant to the First Merger as a group,
rather than the fairness of the Sierra Pacific Merger Consideration to be issued
to any individual holder of Sierra Pacific Common Stock.
In connection with the preparation of the Merrill Lynch opinions, Merrill
Lynch was not authorized by Sierra Pacific or the Sierra Pacific Board of
Directors, to solicit, nor did Merrill Lynch solicit, third-party indications of
interest for the acquisition of all or any part of Sierra Pacific.
The following is a summary of the material financial and comparative
analyses performed by Merrill Lynch in arriving at the Merrill Lynch opinion
delivered to the Sierra Pacific Board of Directors on April 29, 1998.
DISCOUNTED CASH FLOW ANALYSIS. Merrill Lynch derived estimated valuation
ranges for Sierra Pacific and Nevada Power by performing discounted cash flow
("DCF") analyses.
In the case of Sierra Pacific, the DCF was calculated assuming discount
rates ranging from 7.25% to 8.25% and was comprised of the sum of the present
values of (i) the projected unlevered free cash flows for the years 1999 to 2002
as estimated by Sierra Pacific and (ii) the year 2002 terminal value based upon
(a) a range of multiples of projected year 2002 net income of from 14.0x to
16.0x and (b) a range of multiples of projected year 2002 book value of from
1.60x to 2.00x. This analysis resulted in an implied equity value (net of
outstanding debt) per share of Sierra Pacific Common Stock of from $32.40 to
$39.25 under the net income method and an implied equity value per share of
Sierra Pacific Common Stock of from $33.16 to $43.78 under the book value
method. In the case of Nevada Power, the DCF was calculated assuming discount
rates ranging from 7.25% to 8.25% and was comprised of the sum of the present
values of (i) the projected unlevered free cash flows for the years 1999 to 2001
as estimated by Nevada Power, and (ii) the year 2001 terminal value based upon
(a) a range of multiples of projected year 2001 net income of from 15.0 to 17.0x
and (b) a range of multiples of projected year 2001 book value of from 1.60x to
2.0x. This analysis resulted in an implied equity value (net of outstanding
debt) per Nevada Power Share of from $21.29 to $25.66 under the net income
method and an implied equity value per Nevada Power Share of from $23.93 to
$31.71 under the book value method.
Based upon the estimated valuation ranges of Sierra Pacific and Nevada Power
set forth above, Merrill Lynch calculated a range of implied exchange ratios
(net of cash distributions of $151.6 million to Sierra Pacific stockholders and
$304.6 million to Nevada Power stockholders) of shares of Sierra Pacific Common
Stock per each Nevada Power Share ranging from 0.445x to 0.715x under the net
income method and 0.461x to 0.910x under the book value method (as compared to
an implied pro rata ratio of 0.769x in the Second Merger).
COMPARABLE PUBLICLY TRADED COMPANY ANALYSIS. Using publicly available
information, Merrill Lynch compared certain financial and operating information
and ratios (described below) for Sierra Pacific and Nevada Power, respectively,
with the corresponding financial and operating information and ratios for
separate groups of publicly traded companies that Merrill Lynch deemed to be
reasonably comparable to Sierra Pacific and Nevada Power, respectively. The
companies included in the Sierra Pacific comparable company analyses were: Idaho
Power Company, The Montana Power Company, New Century Energies, Inc., Nevada
Power and Washington Water Power Company (collectively, the "Sierra Pacific
Comparables"). The companies included in the Nevada Power analyses were: Idaho
Power Company, The
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Montana Power Company, New Century Energies, Inc., Sierra Pacific and Washington
Water Power Company (collectively, the "Nevada Power Comparables").
Merrill Lynch derived an estimated valuation range for Sierra Pacific by
comparing: (i) current trading value to estimated 1998 earnings per share for
the Sierra Pacific Comparables, which estimates were obtained from International
Brokers Estimate System ("IBES") (as of April 16, 1998) and ranged from 13.5x to
16.6x with a mean of 14.8x (as compared to a multiple of 13.8x for the Sierra
Pacific Common Stock); (ii) current trading value to estimated 1999 earnings per
share for the Sierra Pacific Comparables, which estimates were obtained from
IBES (as of April 16, 1998) and ranged from 13.2x to 15.9x with a mean of 14.2x
(as compared to a multiple of 13.3x for the Sierra Pacific Common Stock); and
(iii) current trading value to book value for the Sierra Pacific Comparables,
which ranged from 1.46x to 2.19x with a mean of 1.84x (as compared to a multiple
of 1.67x for the Sierra Pacific Common Stock). These three analyses resulted in
an implied per share range of values of the Sierra Pacific Common Stock (based
on 30.9 million shares outstanding) of $34.03 to $41.85, $34.98 to $42.14 and
$29.89 to $41.15, respectively.
Merrill Lynch derived an estimated valuation range for Nevada Power by
comparing: (i) current trading value to estimated 1998 earnings per share for
the Nevada Power Comparables, which estimates were obtained from IBES (as of
April 16, 1998) and ranged from 13.8x to 16.6x with a mean of 14.8x (as compared
to a multiple of 13.5x for the Nevada Power Common Stock); (ii) current trading
value to estimated 1999 earnings per share for the Nevada Power Comparables,
which estimates were obtained from IBES (as of April 16, 1998) and ranged from
13.3x to 15.9x with a mean of 14.2x (as compared to a multiple of 13.2x for the
Nevada Power Common Stock); and (iii) current trading value to book value for
the Nevada Power Comparables, which ranged from 1.67x to 2.19x with a mean of
1.88x (as compared to a multiple of 1.46x for the Nevada Power Common Stock).
These three analyses resulted in an implied per share range of values of the
Nevada Power Common Stock (based on 50.7 million shares outstanding) of $25.24
to $30.36, $26.55 to $31.74 and $27.46 to $33.06, respectively.
Based upon the estimated valuation ranges of Sierra Pacific and Nevada Power
set forth above, Merrill Lynch calculated a range of implied exchange ratios
(net of cash distributions of $151.6 million to Sierra Pacific stockholders and
$304.6 million to Nevada Power stockholders) of shares of Sierra Pacific Common
Stock per each Nevada Power Share ranging from 0.520x to 0.836x based on the
estimated 1998 earnings analysis, 0.552x to 0.855x based on the estimated 1999
earnings analysis and 0.592x to 1.082x based on the current trading value to
book value analysis (as compared to an implied pro rata ratio of 0.769x in the
Second Merger).
No public company utilized as a comparison in the analyses described above
is identical to Sierra Pacific or Nevada Power. Accordingly, an analysis of
publicly traded comparable companies is not mathematical; rather it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the comparable companies and other factors that
could affect the public trading value of the comparable companies or company to
which they are being compared.
PRO FORMA COMBINATION ANALYSIS. Merrill Lynch also analyzed certain pro
forma effects resulting from the Mergers, including the potential impact to
Sierra Pacific's projected stand-alone earnings per share, dividends per share,
and cash flow from operations. Using the projected earnings for the years 1999
through 2001 provided by the respective managements of Sierra Pacific and Nevada
Power, Merrill Lynch compared the projected earnings per share of Sierra Pacific
Stock on a stand-alone basis (assuming the Mergers do not occur) to the per
share earnings of a Sierra Pacific stockholder assuming the Mergers occur with
the exchange ratios contemplated by the Merger Agreement. In addition, Merrill
Lynch considered certain estimated synergies expected to be achieved as a result
of the Mergers. For the pro forma analysis, it was assumed that $20 million of
pre-tax synergies would be realized by the stockholders of the combined company.
Assuming inclusion of the synergies as detailed above, the analysis
indicated that the Mergers would be (i) accretive to the projected earnings per
share of a Sierra Pacific stockholder by7.8% in 1999, 4.7% in
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2000 and 3.8% in 2001; (ii) accretive to projected dividends per share of a
Sierra Pacific stockholder by5.9% in 1999, 7.5% in 2000 and 9.0% in 2001; and
(iii) accretive to cash flow from operations by 14.7% in 1999, 17.3% in 2000 and
18.0% in 2001.
In addition, Merrill Lynch performed an analysis assuming the exchange
ratios contemplated by the Merger Agreement with no synergies. The analysis
indicated that the Mergers would be dilutive to the projected earnings per share
of a Sierra Pacific stockholder by 1.7% in 1999, 3.9% in 2000 and 4.8% in 2001
and accretive to cash flow from operations by 10.2% in 1999, 13.0% in 2000 and
13.6% in 2001.
In connection with the Merrill Lynch Opinion, Merrill Lynch performed
certain procedures to update its analyses made for its April 29, 1998 opinion
and reviewed with the management of both Sierra Pacific and Nevada Power the
assumptions upon which such analyses were based. The results of such analyses
were substantially the same as those of the April 29, 1998 opinion of Merrill
Lynch.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at the Merrill Lynch
opinions. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial or summary description. Merrill Lynch
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all such factors and analyses, could create a misleading view of the
process underlying its analyses set forth in the Merrill Lynch opinions. In its
analyses, Merrill Lynch made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond Sierra Pacific's, Nevada Power's and Merrill Lynch's control.
Any estimates contained in Merrill Lynch's analyses are not necessarily
indicative of actual values, which may be significantly more or less favorable
than as set forth therein. Estimated values do not purport to be appraisals and
do not necessarily reflect the prices at which businesses or companies may be
sold in the future, and such estimates are inherently subject to uncertainty.
The Sierra Pacific Board of Directors selected Merrill Lynch to act as its
financial advisor because of Merrill Lynch's reputation as an internationally
recognized investment banking firm with substantial experience in transactions
similar to the Mergers and because it is familiar with Sierra Pacific and its
business. As part of its investment banking business, Merrill Lynch is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, secondary distributions of listed and unlisted securities and
private placements.
Pursuant to a letter agreement dated April 8, 1998, Sierra Pacific has
agreed to pay Merrill Lynch (i) a $250,000 retainer fee and (ii) a transaction
fee (the "Transaction Fee") of approximately $4,180,000 against which the amount
referred to in clause (i) will be credited. The Transaction Fee is payable in
three installments as follows: (a) 25% upon the execution of the Merger
Agreement, (b) 25% upon the approval of the Mergers by the Sierra Pacific
stockholders and (c) any remaining unpaid portion upon the closing of the
Mergers. Sierra Pacific has also agreed to reimburse Merrill Lynch for its
reasonable out-of-pocket expenses (including the reasonable fees and
disbursements of legal counsel), subject to certain limitations, and to
indemnify Merrill Lynch and certain related parties from and against certain
liabilities, including liabilities under the federal securities laws arising out
of its engagement.
Merrill Lynch has, in the past, provided financial advisory and financing
services to Sierra Pacific and financing services to Nevada Power and has
received fees for the rendering of such services. In addition, in the ordinary
course of Merrill Lynch's business, Merrill Lynch may actively trade the
securities of Sierra Pacific or Nevada Power for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
In considering the recommendations of the Boards of Directors of Nevada
Power and Sierra Pacific with respect to the Mergers, stockholders should be
aware that certain members of Nevada Power's and Sierra Pacific's management and
Boards of Directors have interests in the Mergers that are in addition to
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the interests of stockholders of Nevada Power and Sierra Pacific generally. The
Board of Directors of each of Nevada Power and Sierra Pacific was aware of such
interests and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby.
EMPLOYMENT AGREEMENTS. The Employment Agreements with each of Messrs.
Niggli and Malquist will become effective only at the Effective Time of the
Second Merger. The Employment Agreement of Mr. Niggli will replace his existing
employment agreement that became effective as of February 2, 1998 and Mr.
Malquist's Employment Agreement will supersede his existing Sierra Pacific
Change in Control Agreement. The Employment Agreements are described in greater
detail under "--Employment Agreements" below. See "Sierra Pacific Following The
Mergers--Management of Sierra Pacific After the Mergers."
EMPLOYEE PLANS AND SEVERANCE ARRANGEMENTS. Under certain benefit plans,
severance arrangements and other employee agreements maintained, or entered
into, by Sierra Pacific and Nevada Power, certain benefits may become vested,
and certain payments may become payable, in connection with the Mergers. See
"--Employee Plans and Severance Arrangements" below.
BOARD OF DIRECTORS. As provided in the Merger Agreement, at the Effective
Time of the Second Merger, the Sierra Pacific Board will consist of 14 members,
with seven to be selected by Nevada Power and seven to be selected by Sierra
Pacific. Except for Messrs. Niggli and Malquist, the individuals who will be so
designated have not been selected. See "Sierra Pacific Following the
Mergers--Management of Sierra Pacific After the Mergers."
INDEMNIFICATION. Pursuant to the Merger Agreement, from and after the
Effective Time of the Second Merger, Sierra Pacific and the Surviving
Corporation (i) will, to the fullest extent permitted by applicable law,
indemnify, defend and hold harmless each person who, prior to the Effective Time
of the Second Merger, was an officer, director or employee of Sierra Pacific or
Nevada Power or any of their subsidiaries against all losses, expenses
(including reasonable attorneys' fees), claims, damages or liabilities or,
subject to certain restrictions, amounts paid in settlement, (x) arising out of
actions or omissions occurring at or prior to the Effective Time of the Second
Merger that are in whole or in part based on, or arising out of, the fact that
such person is or was a director, officer or employee of such party, or (y)
based on, arising out of or pertaining to the transactions contemplated by the
Merger Agreement and (ii) maintain policies of directors' and officers'
liability insurance for a period of not less than six years after the Effective
Time of the Second Merger. See "The Merger Agreement--Indemnification."
CERTAIN ARRANGEMENTS REGARDING THE DIRECTORS AND MANAGEMENT OF SIERRA PACIFIC
FOLLOWING THE MERGERS
Except for Messrs. Niggli and Malquist, to date, Nevada Power and Sierra
Pacific have not determined which individuals will be designated to serve as
directors of Sierra Pacific as of the Effective Time of the Second Merger.
The Merger Agreement provides that during the three year period commencing
at the Effective Time of the Second Merger, certain provisions thereof
(including provisions relating to existing employee agreements and workforce
matters) may be enforced on behalf of the officers, directors and employees of
Sierra Pacific and Nevada Power, as the case may be, by the directors of Sierra
Pacific designated by Nevada Power and Sierra Pacific, respectively (or their
successors).
EMPLOYMENT AGREEMENTS
Forms of the Employment Agreements of Messrs. Niggli and Malquist are
included in Annex A as Exhibits 7.15.1 and 7.15.2 to the Merger Agreement,
respectively. Messrs. Niggli and Malquist are sometimes hereinafter individually
referred to as the "Executive." The Employment Agreements will become effective
only at the Effective Time of the Second Merger and will have an initial term of
three years commencing at the Effective Time of the Second Merger, which term
would automatically be
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extended in the event of a Change in Control (as defined below) to the third
anniversary of the Change in Control (or the consummation of the Change in
Control, if later). The extended term is subject to further extension on the
occurrence of an additional Change in Control event.
Pursuant to the Employment Agreements, from the Effective Time of the Second
Merger, Mr. Niggli will serve as Chairman and Chief Executive Officer of Sierra
Pacific and Chairman of the Surviving Corporation and SPPC, and Mr. Malquist
will serve as President and Chief Operating Officer of Sierra Pacific and
President and Chief Executive Officer of the Surviving Corporation and SPPC.
Each Executive's Employment Agreement provides that he will receive annual
base salary commensurate with his position and level of responsibility, as
determined by the Sierra Pacific Board (or compensation committee thereof), but
not less than the Executive's annual base salary as in effect immediately prior
to the Effective Time of the Second Merger. Base salary may not be decreased.
Each Employment Agreement also provides that the Executive will be eligible to
participate in any annual incentive and long-term cash incentive plans
applicable to executive and management employees that are authorized by the
Sierra Pacific Board (or compensation committee thereof), with such
participation, subject to achievement of applicable performance measures, to be
at annual target payout or grant levels, respectively, of not less than a
percentage of the Executive's annual base salary equal to the corresponding
target percentage of annual base salary in effect for the Executive under the
Nevada Power or Sierra Pacific plans in which the Executive participated
immediately prior to the Effective Time of the Second Merger; provided, however,
that the target percentages for one Executive shall in no event be less than the
target percentages for the other Executive. The Executives also are entitled to
participate in all employee benefit plans in which senior executives of Sierra
Pacific are entitled to participate, in certain fringe benefits and in the
supplemental retirement plans in which they participated immediately prior to
the Effective Time of the Second Merger.
If during the term of the Employment Agreement Sierra Pacific terminates the
employment of the Executive for reasons other than cause (as defined in each
Employment Agreement), death or disability or the Executive terminates his
employment for good reason (as defined in each Employment Agreement), the
Executive will receive, in addition to all compensation earned through the date
of termination and coverage and benefits under all benefit and incentive
compensation plans to which he is entitled pursuant to the terms thereof, a
severance payment equal to three times the sum of his annual base salary and
target annual bonus. In addition, the Executive will continue to receive health
benefits (i.e., medical insurance, etc.) and life benefits on the same terms and
conditions as prior to his termination for 36 months following his termination
(the "Continuation Period").
The Executive has no duty to mitigate, but the health and life benefits
listed above will be offset by any benefits payable to the Executive during the
Continuation Period from another employer. Under the Employment Agreements,
Sierra Pacific will pay any additional amounts sufficient to hold the Executive
harmless for any excise tax that might be imposed as a result of the Executive
being subject to the federal excise tax on "excess parachute payments" or
similar taxes imposed by state or local law in connection with receiving any
compensation or benefits pursuant to his Employment Agreement or otherwise that
is considered contingent on a change in control. If the Executive dies, is
terminated due to permanent disability, is terminated for cause or terminates
for other than good reason, in each case during the term of the Employment
Agreement, Sierra Pacific will pay to the Executive or the Executive's
beneficiaries or estate, as the case may be, all compensation earned through the
date of termination and benefits payable under applicable benefit and incentive
compensation plans.
A Change in Control for purposes of the Employment Agreements occurs (i) if
Sierra Pacific merges or consolidates, or sells all or substantially all of its
assets, and less than 65% of the voting power of the surviving corporation is
owned by those stockholders who were stockholders of Sierra Pacific immediately
prior to such merger or sale; (ii) any person acquires 20% or more of Sierra
Pacific's voting stock; (iii) Sierra Pacific enters into an agreement or Sierra
Pacific or any person announces an intent to take any action, the consummation
of which would otherwise result in a Change in Control, or the Board of
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Directors of Sierra Pacific adopts a resolution to the effect that a Change in
Control has occurred; (iv) within a two year period, a majority of the directors
of Sierra Pacific at the beginning of such period cease to be directors; or (v)
the stockholders of Sierra Pacific approve a complete liquidation or dissolution
of Sierra Pacific.
A Change in Control will not be deemed to have occurred under the Employment
Agreements by reason of entering into the Merger Agreement or the announcement
thereof or the consummation of the Mergers or any other transactions
contemplated by the Merger Agreement.
EMPLOYEE PLANS AND SEVERANCE ARRANGEMENTS
NEVADA POWER. Executive officers of Nevada Power have entered into
employment agreements for a three-year term which would automatically be
extended in the event of a change in control to the third anniversary of the
change in control (or the consummation of the change in control, if later). The
extended term is subject to further extension on the occurrence of a further
change in control event. The announcement of the execution of the Merger
Agreement constituted a change in control under the employment agreements, and
the consummation of the Mergers will constitute an additional change in control
event. If during the term of an employment agreement Nevada Power (or the
Surviving Corporation following the Mergers) terminates the employment of an
executive officer covered by an employment agreement for reasons other than
cause (as defined in each employment agreement), death or disability or the
executive officer terminates his or her employment for good reason (as defined
in each employment agreement), the executive officer will receive, in addition
to all compensation earned through the date of termination and coverage and
benefits under all benefit and incentive compensation plans to which the
executive officer is entitled pursuant to the terms thereof, a severance payment
equal to two times (or three times for Messrs. Lenzie and Niggli) the sum of his
or her annual base salary and target annual bonus. In addition, the executive
officer will continue to receive health benefits (I.E., medical insurance, etc.)
and life benefits on the same terms and conditions as prior to his or her
termination for 24 months (36 months for Messrs. Lenzie and Niggli) following
termination. The executive has no duty to mitigate, but the health and life
benefits listed above will be offset by any benefits payable to the executive
officer during the applicable benefit continuation period from another employer.
Under the employment agreements, the executive officer will receive additional
amounts sufficient to hold the executive harmless for any excise tax that might
be imposed as a result of the executive being subject to the federal excise tax
on "excess parachute payments" or similar taxes imposed by state or local law in
connection with receiving any compensation or benefits pursuant to the
employment agreement or otherwise that is considered contingent on a change in
control. Mr. Niggli's employment agreement described in this paragraph will be
replaced, at the Effective Time of the Second Merger, by the Employment
Agreement described above under "--Employment Agreements." Mr. Lenzie's
voluntary retirement at the Effective Time of the Second Merger will not entitle
him to severance benefits under his employment agreement.
The annual incentive plans, 1993 Long-Term Incentive Plan and the
Supplemental Executive Retirement Plan of Nevada Power contain provisions
relating to change in control. Under the annual incentive plans, after a change
in control, eligible participants, whether or not the participants are
terminated, including executive officers and participants who terminated prior
to the change in control by reason of normal or early retirement or death, will
have a right to an immediate cash payment of their annual awards, on a pro-rated
basis, based on annual base salary and on the assumption that established
targets at the 100% achievement level for the year had been met. Under the 1993
Long-Term Incentive Plan, after a change in control, incentive compensation unit
awards for outstanding performance periods will be immediately paid to
participating executive officers in the amount of one share of Nevada Power
Common Stock for each incentive compensation unit. Under the Supplemental
Executive Retirement Plan, the accrued benefit of each executive officer
participating therein will become fully vested on the occurrence of a change in
control. The consummation of the Mergers will constitute a "change in control"
under all the plans described above.
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If the Mergers were to occur on December 31, 1998 and all executive officers
covered by the plans and employment agreements described above were terminated
immediately thereafter, it is estimated that, based on currently effective
compensation levels, valuation factors, interest rates and a Nevada Power Common
Stock price of $24.88, the aggregate after-tax cost of the additional benefits
payable to executive officers under the above plans and employment agreements
(other than under those employment agreements applicable to Messrs. Lenzie and
Niggli) as a result of the Mergers and subsequent terminations would be
approximately $7.9 million.
In addition to the above plans and employment agreements, Nevada Power
maintains a Severance Allowance Plan (the "Nevada Power Severance Plan") which
covers substantially all employees other than executive officers. Participants
are eligible for severance benefits thereunder upon involuntary termination
within three years following a change in control for reasons other than cause,
retirement or death. In such circumstances, a participant will be entitled to a
severance payment of up to 18 months' pay depending on seniority. In addition,
the eligible participant will be entitled to continuation of health and life
coverage for the same period. Benefits will be reduced to the extent necessary
to meet the applicable limitations of Section 280G of the Code. Except to the
extent the Nevada Power Severance Plan is amended as permitted by its terms,
consummation of the Mergers will constitute a change in control thereunder.
SIERRA PACIFIC. The Sierra Pacific Change in Control Agreements, entered
into with 11 key executives, provide that, upon termination of the executive's
employment generally within 24 months following a change in control of Sierra
Pacific (as defined in each agreement) either (a) by Sierra Pacific for reasons
other than cause (as defined in each agreement), death or disability, or (b) by
the executive for good reason (as defined in each agreement), the executive will
receive certain payments and benefits. These severance payments and benefits
include (i) a lump sum payment equal to three times the sum of the executive's
annual base salary and target annual bonus, (ii) a lump sum payment equal to the
present value of the additional benefits the executive would have accrued had he
continued to participate in Sierra Pacific's retirement plans for an additional
three years (or, in the case of Sierra Pacific's Supplemental Executive
Retirement Plan only, the greater of three years or the period from the date of
termination until the executive's early retirement date, as defined in such
plan), (iii) continuation of life, disability, accident, and health insurance
benefits for a period of 36 months immediately following termination of
employment, (iv) a lump sum payment of the executive's awards, on a pro-rated
basis, under the annual and long-term incentive plans for uncompleted periods
assuming target goals were met and of unpaid awards earned for completed periods
which are contingent only on continued employment to a subsequent date, and (v)
post-retirement health care and life benefits to which the executive would have
been entitled had the executive terminated within three years following the date
of his or her actual termination. Except for Mr. Malquist, the agreements also
provide that if any compensation paid, or benefit provided, to the executive,
whether or not pursuant to the Change in Control Agreements, would be subject to
the federal excise tax on "excess parachute payments," payments and benefits
provided pursuant to the agreement will be cut back to the largest amount that
would not be subject to such excise tax, if such cutback results in a higher
after-tax payment to the executive. In the case of Mr. Malquist, the agreement
provides that Sierra Pacific will pay an additional amount sufficient to hold
him harmless from such tax. The executive has no duty to mitigate, but the
welfare benefits described in clause (iii) above will be offset by any such
benefits received or made available to the executives during the 36 month period
following termination. Mr. Malquist's Change in Control Agreement will be
superseded at the Effective Time of the Second Merger by his Employment
Agreement described above under "--Employment Agreements."
The Mergers will constitute a change in control for the purpose of the
Sierra Pacific Change in Control Agreements. In addition, if following the
signing of the Merger Agreement and prior to the consummation of the Mergers the
executive is terminated by Sierra Pacific without cause at the request of Nevada
Power or otherwise in anticipation of the Mergers or the executive terminates
for good reason and the circumstance or event constituting good reason occurs at
the request or direction of Nevada Power or is otherwise in anticipation of the
Mergers, the executive will be deemed to have terminated after a change in
control.
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If the Mergers were to occur on December 31, 1998 and the employment of all
executives were terminated immediately thereafter, entitling them to benefits
under the Sierra Pacific Change in Control Agreements (other than that
applicable to Mr. Malquist), it is estimated that, based on current compensation
levels, valuation factors, interest rates and a Sierra Pacific Common Stock
price of $36.50, the aggregate after-tax cost of the benefits payable at the
time of termination under the above plans and agreements would be approximately
$5.6 million.
Severance Allowance Plans (the "Sierra Pacific Severance Allowance Plans")
adopted in 1986 exist for all employees of Sierra Pacific and its subsidiaries
which provide for severance benefits if, within three years after a change in
control of Sierra Pacific, there is a termination of employment by Sierra
Pacific related to such change in control, or a termination of employment by the
employee for good reason, in each case as described in the Sierra Pacific
Severance Allowance Plans. In these circumstances, employees, including the
currently employed officers of Sierra Pacific, are entitled to a severance
payment not to exceed an amount equal to 24 months of the employee's base salary
and any bonus depending on position and seniority and the continuation for up to
24 months of participation in Sierra Pacific's group medical and life insurance
plans. In addition, non-bargaining unit employees who are at least age 55 and
have at least three years of service, would be eligible on termination in these
circumstances for retiree medical and life coverage. Change in control is
defined in the plan as, among other things, a dissolution or liquidation, a
reorganization, merger or consolidation in which Sierra Pacific is not the
surviving corporation, the sale of all or substantially all the assets of Sierra
Pacific (not the sale of a work unit) or the acquisition by any person or entity
of 20% or more of the voting power of Sierra Pacific. Benefits will be reduced
to the extent necessary to meet the applicable limitation of Section 280G of the
Code or, in the case of non-bargaining unit employees, to the extent necessary
to maximize the aggregate after-tax amounts receivable by the employee. Benefits
under the Sierra Pacific Change in Control Agreements are in lieu of, and not in
addition to, any benefits available under the Sierra Pacific Severance Allowance
Plans. Neither execution of the Merger Agreement nor consummation of the Mergers
will constitute a change in control under the Sierra Pacific Severance Allowance
Plans.
SIERRA PACIFIC RESOURCES' COMMON STOCK REINVESTMENT PLAN
Sierra Pacific Resources' Common Stock Reinvestment Plan (the "Stock
Reinvestment Plan") as in effect at the Effective Time of the Second Merger will
continue as the dividend reinvestment and stock purchase plan of Sierra Pacific
following the Mergers. Participants in Sierra Pacific's dividend reinvestment
plan immediately prior to the Effective Time of the Second Merger will continue
to participate in such plan after the Effective Time of the Second Merger.
Following the Effective Time of the Second Merger, former common stockholders of
Nevada Power will be eligible to participate in the Stock Reinvestment Plan with
respect to the shares of Sierra Pacific Common Stock that they receive in the
Second Merger. In addition, all accounts under the Nevada Power dividend
reinvestment plan will be automatically transferred to the Stock Reinvestment
Plan when the Nevada Power Common Stock held therein is exchanged for Sierra
Pacific Common Stock in the Mergers.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL. The following discussion is a summary description of the material
United States federal income tax consequences of the Mergers and is not intended
to be a complete discussion of all potential tax effects that might be relevant
to the Mergers. In particular, this summary may not address federal income tax
consequences that may be important to a stockholder in light of that
stockholder's particular circumstances or to stockholders subject to special
rules, such as a stockholder that, at the Effective Time of the Second Merger,
is not a U.S. person or is a tax-exempt entity or an individual who acquired
Nevada Power Common Stock or Sierra Pacific Common Stock pursuant to the
exercise of options or similar securities or otherwise as compensation.
Stockholders who elect to receive cash in connection with the Mergers may
recognize taxable gains. Such gains will under most circumstances be treated as
capital gains. Complicated rules, certain of which are summarized below, apply
for determining the character of any
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gains so recognized. In addition, no information is provided with respect to the
tax consequences of the Mergers under foreign, state or local laws. This summary
assumes that Sierra Pacific stockholders and Nevada Power stockholders hold
their respective stock interests in Sierra Pacific and Nevada Power as capital
assets within the meaning of Section 1221 of the Code. Finally, this summary is
based on the Code, regulations, rulings, practice, and judicial decisions as in
effect on the date of this Joint Proxy Statement/ Prospectus, without
consideration of the particular facts or circumstances of any stockholder.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements or conclusions set forth
herein. Any such changes or interpretations may be retroactive and could affect
the tax consequences to stockholders described herein. CONSEQUENTLY, EACH
STOCKHOLDER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES TO HIM OR HER OF THE MERGERS.
THE MERGERS. The consummation of the Mergers is conditioned upon the
receipt by Nevada Power of an opinion from Jones Day and the receipt by Sierra
Pacific of an opinion from Skadden Arps substantially to the effect that (i) the
First Merger will be a tax-free transaction under the Code and Sierra Pacific,
LAKE Merger Sub and the stockholders of Sierra Pacific who exchange their shares
solely for the stock of Sierra Pacific will recognize no gain or loss for
federal income tax purposes as a result of the consummation of the First Merger,
and (ii) the Second Merger will be a tax-free reorganization under the Code and
that Nevada Power, DESERT Merger Sub and the stockholders of Nevada Power who
exchange their shares solely for the shares of Sierra Pacific will recognize no
gain or loss for federal income tax purposes as a result of the consummation of
the Second Merger. The opinions will be based upon certain customary assumptions
and representations of fact, including representations of fact contained in
certificates of officers of Sierra Pacific and Nevada Power, all of which must
be true and accurate in all material respects as of the Effective Time of the
Second Merger. No ruling has been sought from the Internal Revenue Service as to
the federal income tax consequences of the Mergers, and the opinions of counsel
are not binding upon the Internal Revenue Service or any court.
FIRST MERGER. In accordance with counsels' opinions to the effect that the
First Merger is a tax-free transaction, a U.S. holder of Sierra Pacific Common
Stock who exchanges his stock solely for Sierra Pacific Stock Consideration
pursuant to the First Merger will not recognize any gain or loss. The aggregate
adjusted tax basis of Sierra Pacific Stock received in the exchange will equal
such U.S. holder's aggregate adjusted tax basis in the Sierra Pacific Common
Stock surrendered. The holding period for shares of Sierra Pacific Common Stock
received solely in exchange for shares of Sierra Pacific Common Stock pursuant
to the First Merger will include the holding period of the shares of Sierra
Pacific Common Stock surrendered, provided such surrendered shares were held as
capital assets by the U.S. holder at the Effective Time of the First Merger.
The exchange by a U.S. holder of some or all of his Sierra Pacific Common
Stock for Sierra Pacific Cash Consideration pursuant to the First Merger will
generally be treated as a taxable transaction for federal income tax purposes.
As a consequence of the exchange, such U.S. holder will, depending on such U.S.
holder's particular circumstances, be treated either as having sold some or all
of his Sierra Pacific Common Stock for the Sierra Pacific Cash Consideration or
as having received a dividend distribution from Sierra Pacific. A U.S. holder
which exchanges Sierra Pacific Common Stock for cash pursuant to the First
Merger will be treated as having sold the Sierra Pacific Common Stock
surrendered in exchange for the Sierra Pacific Cash Consideration, and thus will
recognize gain or loss if the exchange (a) results in a "complete termination"
of such U.S. holder's equity interest in Sierra Pacific, (b) results in
"substantially disproportionate" reduction in such U.S. holder's equity interest
or (c) is not "essentially equivalent to a dividend" with respect to such U.S.
holder. In applying these tests, a U.S. holder will be treated as owning shares
actually or constructively owned by certain related individuals and entities and
shares which the U.S. holder has the right to acquire by exercise of an option.
An exchange of Sierra Pacific Common Stock for cash will be "substantially
disproportionate" with respect to a U.S. holder if the percentage of the
outstanding shares of Sierra Pacific Common Stock
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actually and constructively owned by such U.S. holder immediately after the
transaction is less than 80% of the percentage of the shares of Sierra Pacific
Common Stock actually and constructively owned by such U.S. holder immediately
before the transaction.
A U.S. holder will satisfy the "not essentially equivalent to a dividend"
test if the reduction in such U.S. holder's proportionate interest in Sierra
Pacific as a result of the transaction constitutes a "meaningful reduction" in
his interest given such U.S. holder's particular facts and circumstances. The
Internal Revenue Service has indicated in published rulings that any reduction
in the percentage interest of a shareholder whose relative stock interest in a
publicly held corporation is minimal (an interest of less than 1% should satisfy
this requirement) and who exercises no control over corporate affairs should
constitute such a "meaningful reduction."
While the matter is not free from doubt and there is no authoritative
precedent for the transactions contemplated by the Mergers, both the First and
Second Mergers should be considered a single integrated transaction for purposes
of the foregoing tests with respect to the First Merger. Thus, it is the view of
counsel to Sierra Pacific that the tests will likely be applied by comparing a
U.S. holder's proportionate interest in Sierra Pacific before the Mergers with
his interest in Sierra Pacific after both of the Mergers, giving full effect to
any dilution resulting from the issuance of Sierra Pacific Common Stock to
former Nevada Power stockholders in the Second Merger. Moreover, other sales and
dispositions effected by a U.S. holder as part of an overall plan to reduce or
terminate such holder's proportionate interest in Sierra Pacific may, for United
States Federal income tax purposes, be integrated with the U.S. holder's
exchange of Sierra Pacific Common Stock pursuant to the First Merger and, if
integrated, should be taken into account in determining whether the U.S. holder
satisfies any of the three tests described above.
If a U.S. holder is treated as having sold his shares of Sierra Pacific
Common Stock under the tests described above, he or she will recognize gain or
loss equal to the difference between the amount of cash received and his tax
basis in the Sierra Pacific Common Stock exchanged therefor. Any such gain or
loss will be capital gain or loss and will be long-term capital gain or loss if
the holding period of such shares of Sierra Pacific Common Stock exceeds one
year as of the date of the exchange. Long-term capital gain will be eligible for
a maximum tax rate of 20%.
If a U.S. holder who exchanges Sierra Pacific Common Stock pursuant to the
First Merger is not treated under the foregoing tests as having sold his Sierra
Pacific Common Stock for cash, the entire amount of cash received will be
treated as a dividend distribution to the extent of Sierra Pacific's current and
accumulated earnings and profits (which Sierra Pacific anticipates will be
sufficient to cover the amount of any such distribution) and will be includible
in the U.S. holder's gross income as ordinary income in its entirety, without
reduction for the tax basis of the shares exchanged. The U.S. holder's tax basis
in the shares exchanged generally will be added to such holder's tax basis in
his remaining shares of Sierra Pacific Common Stock. To the extent that the cash
received in exchange for shares of Sierra Pacific Common Stock is treated as a
dividend to a corporate U.S. holder, such holder will be (i) eligible for a
dividends-received deduction (subject to applicable limitations) and (ii)
subject to the "extraordinary dividend" provisions of the Code. To the extent,
if any, that the cash received by a U.S. holder exceeds Sierra Pacific's current
and accumulate earnings and profits, it will be treated first as a tax-free
reduction of such U.S. holder's tax basis in the Sierra Pacific Common Stock and
thereafter as capital gain.
SECOND MERGER. In accordance with counsels' opinions to the effect that the
Second Merger is a tax-free reorganization, a U.S. holder of Nevada Power Common
Stock who exchanges that stock solely for Nevada Power Stock Consideration
pursuant to the Second Merger will not recognize any gain or loss on that
exchange. The aggregate adjusted tax basis of Sierra Pacific Common Stock
received will equal the holder's adjusted tax basis in the Nevada Power Common
Stock surrendered.
A U.S. holder of Nevada Power Common Stock who exchanges that stock solely
for Nevada Power Cash Consideration pursuant to the Second Merger will generally
recognize capital gain or loss in an amount equal to the difference between the
amount of Nevada Power Cash Consideration received and
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the holder's adjusted tax basis in the Nevada Power Common Stock surrendered
therefor. The capital gain or loss thus recognized will be long-term capital
gain or loss if the U.S. holder's holding period for the Nevada Power Common
Stock so surrendered is more than one year, and will be eligible for a maximum
tax rate of 20%.
A U.S. holder of Nevada Power Common Stock who exchanges that stock for both
Nevada Power Cash Consideration and Nevada Power Stock Consideration pursuant to
the Second Merger will generally realize gain or loss in an amount equal to the
difference between the fair market value of the Nevada Power Merger
Consideration received and the holder's adjusted tax basis in the Nevada Power
Common Stock surrendered. The U.S. holder's gain, if any, will be recognized,
however, only to the extent of the amount of Nevada Power Cash Consideration
received by the U.S. holder; any loss will go unrecognized. Complicated rules
apply for purposes of determining the character of any gain so recognized.
However, any gain recognized by a U.S. holder who receives both Nevada Power
Cash Consideration and Nevada Power Stock Consideration will under most
circumstances be treated as capital gain. The aggregate adjusted tax basis of
the Sierra Pacific Common Stock received will equal the U.S. holder's adjusted
tax basis in the Nevada Power Common Stock surrendered, decreased by the amount
of Nevada Power Cash Consideration received by the U.S. holder and increased by
the amount of gain recognized by the U.S. holder, if any. The holding period of
the Sierra Pacific Common Stock received by each U.S. holder of Nevada Power
Common Stock pursuant to the Second Merger will include the holding period of
the Nevada Power Common Stock surrendered therefor.
BACKUP WITHHOLDING. Unless a U.S. holder complies with certain reporting
and/or certification procedures or is an exempt recipient under applicable
provisions of the Code and Treasury Regulations promulgated thereunder, such
stockholder may be subject to backup withholding of 31% with respect to any
payments received in the First Merger. U.S. holders should contact their brokers
to ensure compliance with such procedures.
ACCOUNTING TREATMENT
Nevada Power and Sierra Pacific believe that the First Merger will be
treated in a manner similar to a pooling of interests for accounting purposes.
The Second Merger will be treated for accounting purposes in accordance with the
rules for purchase accounting. In connection with the Second Merger, for
accounting purposes, the assets and liabilities of Sierra Pacific will be
recorded on the books of Nevada Power (as if it were the surviving parent of the
consolidated entity) at their estimated fair market values with the remaining
purchase price reflected as goodwill. The transaction will be treated as a
reverse acquisition with Nevada Power being the acquirer for accounting
purposes. Accordingly, the historical financial information of the Surviving
Corporation will reflect that of Nevada Power. See the Notes to the Unaudited
Pro Forma Combined Condensed Financial Statements included elsewhere in this
Joint Proxy Statement/Prospectus.
STOCK EXCHANGE LISTING OF SIERRA PACIFIC COMMON STOCK
Application will be made to list on the NYSE the shares of the Sierra
Pacific Common Stock, together with the associated Sierra Pacific Rights, to be
issued pursuant to the terms of the Merger Agreement. The listing of such shares
and Sierra Pacific Rights on the NYSE, subject to notice of issuance, is a
condition precedent to the consummation of the Mergers. As long as Nevada Power
and Sierra Pacific continue to meet the requirements of the NYSE, Nevada Power
Common Stock and Sierra Pacific Common Stock, as the case may be, will continue
to be listed on the NYSE until the Effective Time of the Second Merger. As long
as Nevada Power continues to meet the requirements of the PE, Nevada Power
Common Stock will continue to be listed on the PE until the Effective Time of
the Second Merger.
DELISTING AND DEREGISTRATION OF NEVADA POWER COMMON STOCK
If the Mergers are consummated, the Nevada Power Common Stock will be
delisted from the NYSE and the PE and will be deregistered under the Exchange
Act. The 8.2% Cumulative Quarterly Income
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Preferred Securities, Series A guaranteed by Nevada Power will continue to be
listed on the NYSE and the Surviving Corporation (Nevada Power) will continue to
be a reporting company under the Exchange Act.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Sierra Pacific Common Stock received by Nevada Power
stockholders in the Mergers will be freely transferable, except that shares of
Sierra Pacific Common Stock received by persons who are deemed to be
"affiliates" (as such term is defined under the Securities Act) of Nevada Power
or Sierra Pacific prior to the Mergers may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act (or Rule 144, in the case of such persons who become
affiliates of Sierra Pacific) or as otherwise permitted under the Securities
Act. Persons who may be deemed to be affiliates of Nevada Power or Sierra
Pacific generally include individuals or entities that control, are controlled
by, or are under common control with, such party and may include certain
officers and directors of such party as well as principal stockholders of such
party. The Merger Agreement requires each of Nevada Power and Sierra Pacific to
use all reasonable efforts to cause each of its affiliates to execute a written
agreement to the effect that such affiliate will not offer or sell or otherwise
dispose of (i) any shares of Nevada Power or Sierra Pacific during the period
beginning 30 days prior to the Effective Time of the Second Merger and
continuing until such time as results covering at least 30 days of
post-effective time operations of Sierra Pacific have been published or (ii) any
of the shares of the Sierra Pacific Common Stock issued to such affiliate in or
pursuant to the Mergers in violation of the Securities Act or the rules and
regulations promulgated by the SEC thereunder.
This Joint Proxy Statement/Prospectus does not cover resales of Sierra
Pacific Power Common Stock received by any person who may be deemed to be an
affiliate of Nevada Power or Sierra Pacific.
ABSENCE OF DISSENTERS' RIGHTS
Under the NGCL, neither holders of Sierra Pacific Common Stock nor holders
of Nevada Power Common Stock are entitled to dissenters' rights with respect to
the First Merger or the Second Merger.
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REGULATORY MATTERS
As indicated below, consummation of the Mergers is subject to numerous
regulatory approvals, which are presently anticipated to be received by
mid-1999. Set forth below is a summary of the material regulatory requirements
affecting the Mergers.
GENERAL
Under the Merger Agreement, Nevada Power and Sierra Pacific have agreed to
use all reasonable efforts to obtain all necessary material permits, licenses,
franchises and other governmental authorizations necessary or advisable to
consummate or effect the transactions contemplated by the Merger Agreement.
Various parties may seek intervention in these proceedings to oppose the Mergers
or to have conditions imposed upon the receipt of necessary approvals. While
Nevada Power and Sierra Pacific believe that they will receive the requisite
regulatory approvals for the Mergers, there can be no assurance as to the timing
of such approvals or the ability of such parties to obtain such approvals on
satisfactory terms or otherwise. It is a condition to the consummation of the
Mergers that final orders approving the Mergers be obtained from the various
federal and state commissions described below on terms and conditions which
would not have, or would not be reasonably likely to have, a material adverse
effect on the business, assets, financial condition or results of operations of
Sierra Pacific and its prospective subsidiaries taken as a whole, or of Nevada
Power or Sierra Pacific or which would be materially inconsistent with the
agreements of the parties contained in the Merger Agreement. There can be no
assurance that any such approvals will not contain terms or conditions that
cause such approvals to fail to satisfy such condition to the consummation of
the Mergers.
STATE APPROVALS AND RELATED MATTERS
Both Nevada Power and SPPC are currently subject to the jurisdiction of the
PUCN. SPPC also is subject to the jurisdiction of the Public Utility Commission
of California ("PUCC"). No approval of the PUCC is required for the consummation
of the Mergers.
Nevada Power and SPPC made a joint application to the PUCN on July 7, 1998
seeking the necessary approvals of the Merger Agreement and certain related
matters. To approve the Mergers under applicable law, the PUCN must, in general,
find that the Mergers are in the public interest. The PUCN may attach such
conditions to its approval as it deems to be appropriate or necessary. Under
applicable law, the PUCN has 180 days to rule on the application.
As part of the filing, Nevada Power and SPPC presented a joint regulatory
plan to the PUCN. The plan calls for a long-term electric rate freeze, an
incentive mechanism through which net merger-related benefits are shared equally
between investors and customers, which includes provisions designed to protect
customers from absorbing any merger costs in excess of merger benefits and a
mechanism to help ensure that service quality will not decline as a result of
the Mergers. Under the proposal, electric service rates for both companies would
remain frozen from consummation of the Mergers and for at least two years
following the introduction in Nevada of customer choice of electric supplier
(retail open access) which is scheduled for January 1, 2000. (Rates will be
frozen at the level in effect at the time of the Mergers adjusted, if necessary,
to reflect changes approved by the PUCN relating to the move to a competitive
industry). After the two-year rate freeze, the companies will file for rate
review based on actual operational experience as related companies. The proposed
incentive mechanism would result in a sharing, 50% to customers and 50% to
shareholders, of earnings in excess of a 12% return on the equity invested in
assets providing regulated service.
Under existing rate orders, SPPC's rates for gas service are frozen until
January 1, 2000. No change to gas rates are proposed. Likewise, no change to
SPPC's rates for water service or its rates in California are proposed.
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As part of the application seeking approval of the Mergers, Nevada Power and
SPPC also propose selling all of their generating plants. Under the proposal,
amounts raised by the sale will be reinvested primarily in new transmission and
distribution facilities. Portions of the sale proceeds could also be used to
reduce long-term debt. Nevada Power and SPPC believe that divestiture of their
generating capacity will facilitate the move to a competitive market for
electricity in Nevada. Under the proposal, any after-tax gain on the sale of
generation assets will be amortized over three years and first used to offset
stranded costs related to the designation of energy as a potentially competitive
service and transition costs incurred during the move to open access. If, after
satisfying the above obligations in any one year of the three year amortization
period, a net gain is experienced, the companies propose that such gain will be
calculated separately for SPPC and Nevada Power and will flow through an
earnings sharing calculation as a credit to cost of service. The proposal of
Nevada Power and SPPC to sell their electric generation is contingent upon
consummation of the Mergers following approval by the PUCN of the Mergers.
Neither Nevada Power nor Sierra Pacific can predict what action the PUCN
will take with respect to approval of the Mergers, the rate plan or the
divestiture of generating assets or whether any approvals may be subject to
conditions or restrictions. The companies cannot predict when necessary PUCN
approvals will be obtained.
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Section 9(a)(2) of the 1935 Act provides that it is unlawful for any person
to acquire any security of any public utility company if that person owns, or by
virtue of that transaction will come to own, 5% or more of the voting securities
of that public utility company and of any other public utility company, without
the prior approval of the SEC. As a result of the Mergers, Sierra Pacific, which
is currently an exempt holding company under the 1935 Act, will be deemed to
acquire directly or indirectly all of the common stock of Nevada Power, which is
a public utility. Accordingly, Sierra Power is required to obtain SEC approval
under Section 9(a)(2) of the 1935 Act to consummate the Mergers. An application
for approval of the Mergers will be filed by Sierra Pacific at the appropriate
time. Under the applicable standards of the 1935 Act, the SEC is directed to
approve a proposed acquisition unless it finds that (1) the acquisition would
tend towards detrimental interlocking relations or a detrimental concentration
of control, (2) the consideration to be paid in connection with the acquisition
is not reasonable, (3) the acquisition would unduly complicate the capital
structure of the applicant's holding company system or would be detrimental to
the proper functioning of the applicant's holding company system, or (4) the
acquisition would violate applicable state law. In order to approve a proposed
acquisition, the SEC must also find that the acquisition would tend towards the
development of an integrated public utility system and would otherwise conform
to the 1935 Act's integration and corporate simplification standards.
Nevada Power is not currently a "holding company" as defined in the 1935
Act. Sierra Pacific is currently exempt from the registration and other
requirements of the 1935 Act, other than from Section 9(a)(2) thereof, pursuant
to the rules of the SEC under Section 3(a)(1) of the 1935 Act. The basis of the
exemption under Section 3(a)(1) is that Sierra Pacific and its public utility
subsidiary are predominantly intrastate in character and carry on their
businesses substantially in a single state in which they are organized (i.e.,
Nevada). Sierra Pacific and Nevada Power believe that the Section 3(a)(1)
exemption under which Sierra Pacific currently operates will continue to be
available to Sierra Pacific after consummation of the Mergers.
FEDERAL POWER ACT
Section 203 of the Federal Power Act provides that no public utility shall
sell or otherwise dispose of its jurisdictional facilities or, directly or
indirectly, merge or consolidate such facilities with those of any other person
or acquire any security of any other public utility without first having
obtained authorization from the FERC. The approval of the FERC is required in
order to consummate the Mergers. Under Section 203 of the Federal Power Act, the
FERC will approve a merger if it finds the mergers "consistent
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with the public interest." FERC has stated in a recent Policy Statement that, in
analyzing a merger under Section 203, it will evaluate the following criteria:
(i) the effect of the mergers on competition in electric power markets,
utilizing an initial screening approach derived from the Department of
Justice/Federal Trade Commission Horizontal Mergers Guidelines to determine if a
merger will result in an increase in an applicant's market power; (ii) the
effect of the mergers on the applicants' wholesale sales and transmission
customers; and (iii) the effect of the mergers on state and federal regulation
of the applicants. Nevada Power and Sierra Pacific will file, at the earliest
practicable date, a combined application with the FERC requesting that the FERC
approve the Mergers under Section 203 of the Federal Power Act (the "FERC
Application").
ANTITRUST CONSIDERATIONS
The HSR Act and the rules and regulations promulgated thereunder provide
that certain transactions (including the Mergers) may not be consummated until
certain information has been submitted to the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the Federal Trade
Commission (the "FTC") and specified HSR Act waiting period requirements have
been satisfied. The expiration or earlier termination of the HSR Act waiting
period would not preclude the Antitrust Division or the FTC from challenging the
Mergers on antitrust grounds. Neither Nevada Power nor Sierra Pacific believes
that the Mergers will violate federal antitrust laws. If the Mergers are not
consummated within 12 months after the expiration or earlier termination of the
initial HSR Act waiting period, Nevada Power and Sierra Pacific would be
required to submit new information to the Antitrust Division and the FTC, and a
new HSR Act waiting period would have to expire or be earlier terminated before
the Mergers could be consummated. Nevada Power and Sierra Pacific intend to file
their premerger notifications pursuant to the HSR Act at such time as they
believe will result in the expiration or termination of the waiting period
thereunder within 12 months before the anticipated consummation of the Mergers.
OTHER
Nevada Power and SPPC each have environmental permits and licenses that may
need to be renewed or replaced as a result of the Mergers. Nevada Power and
Sierra Pacific do not anticipate any difficulties at the present time in
obtaining such renewals or replacements.
THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER
AGREEMENT. THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, WHICH IS
ATTACHED AS ANNEX A HERETO AND IS INCORPORATED HEREIN BY REFERENCE. CAPITALIZED
TERMS USED AND NOT OTHERWISE DEFINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS OR
IN THE FOLLOWING SUMMARY SHALL HAVE THE MEANINGS SET FORTH ELSEWHERE IN THE
MERGER AGREEMENT.
STRUCTURE OF THE MERGERS
Pursuant to the Merger Agreement, at the Effective Time of the First Merger,
LAKE Merger Sub will be merged with and into Sierra Pacific, with Sierra Pacific
continuing as the surviving corporation, and at the Effective Time of the Second
Merger, Nevada Power will be merged with and into DESERT Merger Sub, with DESERT
Merger Sub continuing as the Surviving Corporation and a wholly-owned subsidiary
of Sierra Pacific. In the Mergers, each share of Sierra Pacific Common Stock and
each share of Nevada Power Common Stock, other than shares held by Sierra
Pacific and Nevada Power or any of their respective wholly-owned subsidiaries
(which will be canceled), will be converted into the right to receive cash or
Sierra Pacific Common Stock (including associated Sierra Pacific Rights).
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CLOSING; EFFECTIVE TIME
The closing of the Mergers (the "Closing") will take place on the second
business day immediately following the date on which the last of the conditions
set forth in the Merger Agreement, and summarized below, is fulfilled or waived
at such place and at such time as Nevada Power and Sierra Pacific mutually
agree, or on such other date as Nevada Power and Sierra Pacific mutually agree
(the "Closing Date").
On the Closing Date, articles of mergers complying with the requirements of
the NGCL will be executed and filed with the Secretary of State of the State of
Nevada with respect to the Mergers. The Mergers will become effective upon
filing the respective articles of mergers or upon such later date as is agreed
upon by the parties and specified in the respective articles of mergers. The
First Merger will occur immediately prior to the Second Merger.
There can be no assurance as to if or when the Mergers will be completed. If
the Mergers have not been completed by October 29, 1999, subject to extension
under certain circumstances, the Merger Agreement may be terminated by either
Nevada Power or Sierra Pacific, unless the failure to complete the Mergers by
such date is due to the failure by the party seeking to terminate the Merger
Agreement to fulfill any obligation under the Merger Agreement. See
"--Conditions to Consummation of the Mergers" and "--Termination; Fees and
Expenses" below.
EFFECTS OF THE MERGERS
At the Effective Time of the First Merger, (i) the Sierra Pacific Restated
Charter (which will be amended and restated in a form agreed to by Nevada Power
and Sierra Pacific) will be the articles of incorporation of Sierra Pacific (the
"Articles of Incorporation"), as the surviving corporation in the First Merger,
until thereafter amended as provided by law and the Articles of Incorporation,
and (ii) the by-laws of Sierra Pacific, as in effect immediately prior to the
First Merger (which will be amended and restated in a form agreed to by Nevada
Power and Sierra Pacific), will be the by-laws of Sierra Pacific (the
"By-laws"), as the surviving corporation in the First Merger, until thereafter
amended as provided by law, the Articles of Incorporation and the By-laws.
Subject to the foregoing, the additional effects of the First Merger shall be as
provided in the applicable provisions of the NGCL.
At the Effective Time of the Second Merger, (i) the articles of
incorporation of DESERT Merger Sub, as in effect immediately prior to the Second
Merger (which will be amended and restated in a form agreed to by Nevada Power
and Sierra Pacific), will be the articles of incorporation of the Surviving
Corporation until thereafter amended as provided by law and such articles of
incorporation, and (ii) the by-laws of DESERT Merger Sub, as in effect
immediately prior to the Second Merger (which will be amended and restated in a
form agreed to by Nevada Power and Sierra Pacific), will be the by-laws of the
Surviving Corporation until thereafter amended as provided by law, the articles
of incorporation of the Surviving Corporation and such by-laws. Subject to the
foregoing, the additional effects of the Second Merger shall be as provided in
the applicable provisions of the NGCL.
CONVERSION OF SHARES; ELECTION
In the First Merger, holders of 4,037,809 shares of Sierra Pacific Common
Stock will receive cash for their shares (the "Sierra Pacific Cash Number"). In
the Second Merger, holders of 11,715,084 shares of Nevada Power Common Stock
will receive cash for their shares (the "Nevada Power Cash Number"). Pursuant to
the Merger Agreement, a total of $151.6 million in cash will be paid to Sierra
Pacific stockholders and a total of $304.6 million in cash will be paid to
Nevada Power stockholders. The holders of the remaining outstanding shares of
Sierra Pacific Common Stock (the "Sierra Pacific Stock Number") and the
remaining outstanding shares of Nevada Power Common Stock (the "Nevada Power
Stock Number") will receive Sierra Pacific Common Stock for their shares.
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In the First Merger, subject to the allocation procedures summarized below,
each holder of Sierra Pacific Common Stock will be entitled to elect to receive
for each share of Sierra Pacific Common Stock owned by such holder (i) the
Sierra Pacific Cash Consideration, (ii) the Sierra Pacific Stock Consideration,
or (iii) a combination of cash and Sierra Pacific Common Stock or may indicate
that such holder has no preference as to the receipt of cash or Sierra Pacific
Common Stock. Notwithstanding the foregoing, if any Sierra Pacific stockholder
(i) owns less than 100 shares of Sierra Pacific Common Stock at the time such
election is made or (ii) elects to receive the Sierra Pacific Stock
Consideration in respect of less than 100 shares of Sierra Pacific Common Stock
(the "Sierra Pacific Deminimis Shares"), such stockholder will be deemed to have
elected to receive the Sierra Pacific Cash Consideration for such stockholder's
shares of Sierra Pacific Common Stock, and such stockholder will cease to be a
stockholder of Sierra Pacific. If, however at the Election Deadline (as defined
herein), the per share value of the Sierra Pacific Common Stock to be received
in the First Merger, as determined by multiplying the 20-day average of the
closing prices per share of the Sierra Pacific Common Stock, as reported in the
WALL STREET JOURNAL'S NYSE Composite Transactions Reports, as of such date, by
the Sierra Pacific Exchange Ratio, exceeds $45.06, which is equal to 120% of the
per share Sierra Pacific Cash Consideration to be received in the First Merger,
Sierra Pacific will have the option, with Nevada Power's prior consent, to more
closely follow such stockholder's election.
In the Second Merger, subject to the allocation procedures summarized below,
each holder of Nevada Power Common Stock will be entitled to elect to receive
for each share of Nevada Power Common Stock owned by such holder (i) the Nevada
Power Cash Consideration, (ii) the Nevada Power Stock Consideration, or (iii) a
combination of cash and Sierra Pacific Common Stock or may indicate that such
holder has no preference as to the receipt of cash or Sierra Pacific Common
Stock. Notwithstanding the foregoing, if any Nevada Power stockholder (i) owns
less than 100 shares of Nevada Power Common Stock at the Nevada Power Cash
Consideration the time such election is made or (ii) elects to receive the
Nevada Power Stock Consideration in respect of less than 100 shares of Nevada
Power Common Stock (the "Nevada Power Deminimis Shares"), such stockholder will
be deemed to have elected to receive the Nevada Power Cash Consideration for
such stockholder's shares of Nevada Power Common Stock, and such stockholder
will not become a stockholder of Sierra Pacific. If, however, at the Election
Deadline, the per share value of the Sierra Pacific Common Stock to be received
in the Second Merger, as determined by multiplying the 20-day average of the
closing prices per share of the Sierra Pacific Common Stock, as reported in the
WALL STREET JOURNAL'S NYSE Composite Transactions Reports, as of such date, by
the Nevada Power Exchange Ratio, exceeds $31.20, which is equal to 120% of the
per share Nevada Power Cash Consideration to be received in the Second Merger,
Nevada Power will have the option, with Sierra Pacific's prior consent, to more
closely follow such stockholder's election.
A FORM OF ELECTION (AS DESCRIBED HEREIN) AND COMPLETE INSTRUCTIONS FOR
PROPERLY MAKING AN ELECTION TO RECEIVE CASH OR SIERRA PACIFIC COMMON STOCK (OR A
COMBINATION OF CASH AND STOCK) WILL BE MAILED TO STOCKHOLDERS UNDER SEPARATE
COVER SHORTLY BEFORE THE CLOSING DATE, WHICH IS CURRENTLY ANTICIPATED TO BE
MID-1999.
ALLOCATION PROCEDURES
If the number of shares of Sierra Pacific Common Stock or Nevada Power
Common Stock for which cash was elected exceeds the Sierra Pacific Cash Number
or the Nevada Power Cash Number, respectively, then (i) unless clause (ii)
applies, those stockholders who elected to receive Sierra Pacific Common Stock
or who made no election will receive Sierra Pacific Common Stock, (ii) those
stockholders holding Sierra Pacific Deminimis Shares or Nevada Power Deminimis
Shares, as the case may be, will receive all cash for their shares, unless
Sierra Pacific and Nevada Power mutually agree to follow such stockholders'
elections as described above, and (iii) the remaining cash will be prorated
among the remaining stockholders who elected cash; provided that those remaining
stockholders who, after such proration, would receive less than 100 shares of
Sierra Pacific Common Stock, will receive cash first and any remaining cash will
be allocated
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pro rata among those holders who will hold 100 or more shares of Sierra Pacific
Common Stock after such pro rationing. Those shares not converted into cash or
Sierra Pacific Common Stock as described above will be converted into Sierra
Pacific Common Stock, with cash in lieu of fractional shares.
If the number of shares of Sierra Pacific Common Stock or Nevada Power
Common Stock for which stock was elected exceeds the Sierra Pacific Stock Number
or the Nevada Power Stock Number, respectively, then (i) those stockholders who
elected to receive cash or who made no election will receive cash, (ii) those
stockholders holding Sierra Pacific Deminimis Shares or Nevada Power Deminimis
Shares, as the case may be, will receive all cash for their shares, unless
Sierra Pacific and Nevada Power mutually agree to follow such stockholders'
elections as described above, and (iii) the remaining cash will be prorated
among those stockholders who elected to receive Sierra Pacific Common Stock.
Those shares not converted into cash or Sierra Pacific Common Stock as described
above will be converted into Sierra Pacific Common Stock, with cash in lieu of
fractional shares.
If neither the number of shares of Sierra Pacific Common Stock or Nevada
Power Common Stock for which cash was elected exceeds the Sierra Pacific Cash
Number or Nevada Power Cash Number, respectively, nor the number of shares of
Sierra Pacific Common Stock or Nevada Power Common Stock for which Sierra
Pacific Common Stock was elected exceeds the Sierra Pacific Stock Number or
Nevada Power Stock Number, respectively, then (i) those stockholders holding
Sierra Pacific Deminimis Shares or Nevada Power Deminimis Shares, as the case
may be, will receive all cash for their shares, unless Sierra Pacific and Nevada
Power mutually agree to follow such stockholders' elections as described above,
(ii) all stockholders who elected to receive cash will receive cash, (iii) all
stockholders who elected to receive Sierra Pacific Common Stock will receive
Sierra Pacific Common Stock and (iv) all stockholders who made no election will
receive cash, Sierra Pacific Common Stock or a combination of cash and Sierra
Pacific Common Stock, as mutually determined by Sierra Pacific and Nevada Power.
Cash will be paid in lieu of any fractional shares.
EXCHANGE OF STOCK CERTIFICATES
EXCHANGE AGENT. As of the Effective Time of the First Merger, Sierra
Pacific will enter into an agreement with such bank or trust company as may be
designated by Sierra Pacific, with the prior consent of Nevada Power (the
"Exchange Agent"), which will provide that Sierra Pacific will deposit with the
Exchange Agent as of the Effective Time of the First Merger, for the benefit of
the holders of shares of Sierra Pacific Common Stock and Nevada Power Common
Stock for exchange in accordance with the Merger Agreement, through the Exchange
Agent, cash equal to the sum of the total aggregate Sierra Pacific Cash
Consideration and Nevada Power Cash Consideration, cash in lieu of fractional
shares and certificates representing the shares of Sierra Pacific Common Stock
issuable pursuant to the Merger Agreement in exchange for outstanding shares of
Sierra Pacific Common Stock or Nevada Power Common Stock, as the case may be.
EXCHANGE PROCEDURES. Not more than 90 days nor fewer than 30 days prior to
the Closing Date, the Exchange Agent will mail a form of election (a "Form of
Election") to holders of record of shares of Sierra Pacific Common Stock and to
the holders of record of shares of Nevada Power Common Stock (as of a record
date as close as practicable to the date of mailing and mutually agreed to by
Sierra Pacific and Nevada Power). In addition, the Exchange Agent will use its
best efforts to make the Form of Election available to all persons who become
stockholders of Sierra Pacific or Nevada Power during the period between such
record date and the Closing Date. Any election to receive the Merger
Consideration will have been properly made only if the Exchange Agent shall have
received at its designated office or offices, by 5:00 p.m., New York City time,
5 business days immediately preceding the Closing Date (the "Election
Deadline"), a Form of Election properly completed and accompanied by a Sierra
Pacific Certificate or a Nevada Power Certificate, as the case may be, for the
shares to which such Form of Election relates, duly endorsed in blank or
otherwise acceptable for transfer on the books of Sierra Pacific or Nevada
Power, as the case may be (or an appropriate guarantee of delivery), as set
forth in such Form of Election. An
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election may be revoked only by written notice received by the Exchange Agent
prior to 5:00 p.m., New York City time, on the Election Deadline. In addition,
all elections shall automatically be revoked if the Exchange Agent is notified
in writing by Sierra Pacific and Nevada Power that either of the Mergers has
been abandoned. If an election is so revoked, the Certificate(s) (or guarantee
of delivery, as appropriate) to which such election relates will be promptly
returned to the person submitting the same to the Exchange Agent.
Two or more holders of Sierra Pacific Common Stock or Nevada Power Common
Stock who are determined to constructively own the shares of Sierra Pacific
Common Stock or Nevada Power Common Stock, as the case may be, owned by each
other by virtue of Section 318(a) of the Code, and who so certify to Sierra
Pacific's and Nevada Power's satisfaction, and any single holder of shares of
Sierra Pacific Common Stock or Nevada Power Common Stock who holds his shares in
two or more different names and who so certifies to Sierra Pacific's and Nevada
Power's satisfaction, may submit a joint Form of Election covering the aggregate
shares of Sierra Pacific Common Stock or Nevada Power Common Stock, as the case
may be, owned by all such holders or by such single holder, as the case may be.
Each such group of holders that, and each such single holder who, submits a
joint Form of Election shall be treated as a single holder of Sierra Pacific
Common Stock or Nevada Power Common Stock, as the case may be.
Record holders of Sierra Pacific Common Stock or Nevada Power Common Stock
who are nominees only may submit a separate Form of Election for each beneficial
owner for whom such record holder is a nominee; PROVIDED, HOWEVER, that on the
request of Sierra Pacific or Nevada Power, such record holder shall certify to
the satisfaction of Sierra Pacific or Nevada Power that such record holder holds
such Sierra Pacific Common Stock or Nevada Power Common Stock, as the case may
be, as nominee for the beneficial owner thereof. Each beneficial owner for which
a Form of Election is submitted will be treated as a separate holder of Sierra
Pacific Common Stock or Nevada Power Common Stock, as the case may be, subject,
however, to the immediately preceding paragraph dealing with joint Forms of
Election and the immediately following paragraph dealing with dividend
reinvestment plans.
Record or beneficial holders may submit a form of election indicating an
election for cash for a portion of their shares and an election of stock for a
portion of their shares.
Any dividend reinvestment plan of either Sierra Pacific or Nevada Power will
be treated as a single holder of Sierra Pacific Common Stock or Nevada Power
Common Stock, respectively, for the purposes of paying cash in lieu of
fractional shares.
As soon as reasonably practicable after the Effective Time of the First
Merger, with respect to the First Merger, and the Effective Time of the Second
Merger, with respect to the Second Merger (together or as applicable, the
"Effective Time"), the Exchange Agent will mail to each holder of record of a
Certificate, whose shares of Sierra Pacific Common Stock or Nevada Power Common
Stock (collectively, the "Shares"), were converted into the right to receive the
Merger Consideration and who failed to return a properly completed Form of
Election, (i) a letter of transmittal (which will specify that delivery will be
effected, and risk of loss and title to the Certificates will pass, only upon
delivery of the Certificates to the Exchange Agent and will be in such form and
have such other provisions as Sierra Pacific and Nevada Power may specify
consistent with this Agreement) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Consideration.
At the Effective Time, with respect to elections properly made prior to the
Election Deadline and with respect to shares for which elections were not
properly made prior to the Election Deadline upon surrender of a Certificate for
cancellation to the Exchange Agent together with a letter of transmittal, duly
executed, and such other documents as may reasonably be required by the Exchange
Agent, the holder of such Certificate will be entitled to receive in exchange
therefor the Merger Consideration that such holder has the right to receive and
the Certificate so surrendered will forthwith be canceled. In the event of a
transfer of ownership of Shares that are not registered in the transfer records
of Sierra Pacific or Nevada Power, as the case may be, payment may be issued to
a Person other than the Person in whose name the
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Certificate so surrendered is registered if such Certificate is properly
endorsed or otherwise in proper form for transfer and the Person requesting such
issuance pays any transfer or other taxes required by reason of such payment to
a Person other than the registered holder of such Certificate or establishes to
the satisfaction of Sierra Pacific and Nevada Power that such tax has been paid
or is not applicable. Until surrendered as contemplated above, each Certificate
will be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the Merger Consideration that the holder thereof
has the right to receive in respect of such Certificate. No interest will be
paid or will accrue on any cash payable to holders of Certificates.
STOCKHOLDERS SHOULD NOT FORWARD CERTIFICATES TO THE EXCHANGE AGENT, SIERRA
PACIFIC OR NEVADA POWER UNTIL THEY HAVE RECEIVED A FORM OF ELECTION.
STOCKHOLDERS SHOULD NOT RETURN CERTIFICATES WITH THE ENCLOSED PROXY. A FORM OF
ELECTION AND COMPLETE INSTRUCTIONS FOR PROPERLY MAKING AN ELECTION TO RECEIVE
CASH OR SIERRA PACIFIC COMMON STOCK WILL BE MAILED TO STOCKHOLDERS UNDER
SEPARATE COVER SHORTLY BEFORE THE CLOSING DATE, WHICH IS CURRENTLY ANTICIPATED
TO BE MID-1999.
NO FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Sierra Pacific
Common Stock will be issued upon the surrender for exchange of Certificates, no
dividend or distribution of Sierra Pacific will relate to such fractional share
interests and such fractional share interests will not entitle the owner thereof
to vote or to any rights of a stockholder of Sierra Pacific. Notwithstanding any
other provision of this Agreement, each holder of Shares converted pursuant to
the Mergers who would otherwise be entitled to receive a fraction of a share of
Sierra Pacific Common Stock (after taking into account all Shares held at the
Effective Time by such holder) shall receive, in lieu thereof, an amount in cash
(without interest) equal to the product obtained by multiplying (A) the
fractional share interest to which such holder would otherwise be entitled by
(B) the average closing price for a share of Sierra Pacific Common Stock as
reported on the NYSE Composite Combination Tape (as reported in the WALL STREET
JOURNAL, or, if not reported thereby, any other authoritative source) for the
ten trading days prior to the Closing Date.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties by
each of Nevada Power, Sierra Pacific, LAKE Merger Sub, SPPC and DESERT Merger
Sub relating to, among other things, (a) their respective organization, the
organization of their respective subsidiaries and similar corporate matters; (b)
their respective capital structures; (c) authorization, execution, delivery,
performance and enforceability of the Merger Agreement and related matters; (d)
regulatory approvals; (e) compliance with applicable laws and agreements; (f)
reports and financial statements filed with the SEC and the accuracy of
information contained therein; (g) absence of material adverse changes and
undisclosed liabilities; (h) litigation; (i) the accuracy of information
supplied by each of Nevada Power and Sierra Pacific for use in the Registration
Statement, of which this Joint Proxy Statement/Prospectus forms a part, filed by
Sierra Pacific in connection with the issuance of Sierra Pacific Common Stock;
(j) tax matters; (k) retirement and other employee benefit plans and matters
relating to the Employee Retirement Income Security Act of 1974, as amended; (l)
labor issues; (m) environmental matters; (n) regulation of Nevada Power and SPPC
and their respective subsidiaries as utilities; (o) the Nevada Power and Sierra
Pacific stockholder votes required in connection with the Merger Agreement and
the transactions contemplated thereby; (p) applicability of certain Nevada law;
(q) opinions of PaineWebber, SG Barr Devlin and Merrill Lynch; (r) insurance;
(s) beneficial ownership; and (t) the absence of any rights under the Sierra
Pacific Rights Agreement and the Nevada Power Rights Agreement resulting from
the transactions contemplated under the Merger Agreement.
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CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME
Pursuant to the Merger Agreement, Nevada Power and Sierra Pacific have each
agreed, as to itself and its subsidiaries, that, during the period from the date
of the Merger Agreement until the Effective Time of the Second Merger, except as
permitted by the Merger Agreement or as otherwise consented to in writing by the
other parties, it will (and each of its subsidiaries will) among other things:
(a) carry on its business in the ordinary course consistent with prior practice;
(b) not declare or pay any dividends on or make other distributions in respect
of any of its capital stock, other than to such party or its wholly-owned
subsidiaries and other than dividends required to be paid on any series of
Nevada Power or Sierra Pacific Power Preferred Stock and regular quarterly
dividends to be paid on Nevada Power and Sierra Pacific Common Stock not to
exceed, with respect to Sierra Pacific Common Stock, 105% of the dividends per
share declared during the prior year and, with respect to Nevada Power Common
Stock, $0.40 per share payable on or about May 1 and August 3, 1998, and $0.25
per share thereafter; (c) not effect certain other changes in its capitalization
other than specified exceptions; (d) not issue capital stock, rights, warrants,
options or convertible or similar securities other than (i) intercompany
issuances of capital stock, (ii) employee stock options in the ordinary course
of business consistent with past practice, (iii) with respect to Sierra Pacific
and its subsidiaries, issuances in connection with the refunding of certain
shares of preferred stock, par value $50 per share, of SPPC (the "Sierra Pacific
Power Preferred Stock") with preferred stock at a lower cost of funds, issuances
of up to 300,000 shares of Sierra Pacific Common Stock, issuance of up to,
together with long-term debt, $200 million in the aggregate of Sierra Pacific
Power Preferred Stock and open market purchases, (iv) with respect to Nevada
Power, issuances in connection with the refunding of shares of preferred stock,
par value $20 per share, of Nevada Power (the "Nevada Power Preferred Stock")
with preferred stock at a lower cost of funds, issuances of up to 500,000 shares
of Nevada Power Common Stock, issuances of up to, together with long-term debt,
$350 million in the aggregate of Nevada Power Preferred Stock and open market
purchases, and (v) issuance of capital stock under the Sierra Pacific Rights
Agreement or the Nevada Power Rights Agreement; (e) not amend its articles of
incorporation or by-laws, except as contemplated by the Merger Agreement; (f)
with certain exceptions, not engage in material acquisitions, not make any
capital expenditures and not commence construction of any additional facilities
or obligate itself to purchase any additional facilities in excess of $25
million in any individual transaction or $100 million in the aggregate
(excluding the amounts budgeted through December 31, 2000); (h) not sell, lease,
encumber or otherwise dispose of assets in an amount greater than or equal to
$25 million individually or in the aggregate, subject to certain exceptions; (i)
not incur indebtedness for money borrowed (or guarantees thereof), other than
(i) short-term indebtedness in the ordinary course of business consistent with
prior practice, (ii) the issuance of long-term indebtedness, not aggregating,
together with any preferred stock issuances, more than $200 million with respect
to Sierra Pacific and its subsidiaries or $350 million with respect to Nevada
Power and its subsidiaries, (iii) arrangements between Sierra Pacific and its
wholly-owned subsidiaries or among its wholly-owned subsidiaries, (iv) amounts
scheduled by Sierra Pacific, (v) in connection with the refunding of Sierra
Pacific Power Preferred Stock or Nevada Power Preferred Stock or (vi) as may be
necessary in connection with acquisitions and capital expenditures; (j) subject
to certain exceptions, not enter into, adopt or amend, or increase, accelerate
or otherwise extend or enhance (i) the amount or vesting of any benefit or
amounts payable or awards granted under any benefit plan, agreement or other
arrangement or (ii) the compensation, fringe benefits or employment or any
related rights, with respect to any director, officer or other employee, other
than in the ordinary course of business consistent with prior practice that, in
the aggregate, do not result in a material increase in benefits or compensation
expense; (k) subject to certain exceptions, not enter into or amend any
employment, severance or other similar contract with any director or officer,
other than the execution of certain employment agreements substantially in the
form previously delivered to the other parties; (l) not engage in any activity
which would cause a change in its status under the Public Utility Holding
Company Act of 1935, as amended; (m) not make any changes in their accounting
methods other than required by law or in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis; (n) not take any
action that would adversely affect the
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status of the Mergers as tax-free transactions, except with respect to any cash
received; (o) not enter into certain agreements with affiliates; (p) cooperate
with the other parties and notify the other parties of any significant changes;
(q) discuss with the other party any proposed changes in its rates, charges,
standards of service or other regulatory matters; (r) use all commercially
reasonable efforts to obtain certain third-party consents to the Mergers; (s)
not take any action that would, or is reasonably likely to, result in a material
breach of any provision of the Merger Agreement or any representation or
warranty of such party; (t) not take any action that is likely to jeopardize the
qualification of the outstanding revenue bonds of Nevada Power or Sierra Pacific
or any subsidiary of either as tax-exempt industrial revenue bonds; (u) with
certain exceptions, not modify, amend, terminate, renew or fail to use
reasonable efforts to renew any material contract; and (v) with certain
exceptions, not discharge any material liabilities.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that the parties and their respective
subsidiaries will not authorize or permit any of their respective officers,
directors, employees, accountants, counsel, investment bankers, financial
advisors, representatives and agents (collectively, "Representatives") to,
directly or indirectly, solicit or encourage (including by way of furnishing
information), or take any other action to facilitate knowingly any inquiries or
the making of any offer or proposal which constitutes or is reasonably likely to
lead to any Business Combination (as defined below), or, in the event of an
unsolicited Business Combination proposal, engage in negotiations or provide any
information or data to any person relating to any Business Combination;
PROVIDED, HOWEVER, that notwithstanding any other provision hereof, Sierra
Pacific or Nevada Power may, at any time prior to the time at which the required
approvals of the Sierra Pacific stockholders, in the case of Sierra Pacific, or
the required approvals of the Nevada Power stockholders, in the case of Nevada
Power, have been obtained, (i) engage in discussions or negotiations with a
third party who (without any solicitation, initiation, encouragement, discussion
or negotiation, directly or indirectly, by or with the party or its
Representatives after the date of the Merger Agreement) seeks to initiate such
discussions or negotiations, furnish such third party information concerning
itself and its business, properties and assets and accept a Business Combination
proposal from such third party if, and only to the extent that, (A)(x) such
third party shall first have made an unsolicited Business Combination proposal
to Sierra Pacific or Nevada Power that the Sierra Pacific Board of Directors or
the Nevada Power Board of Directors, as the case may be, reasonably believes in
good faith, after consultation with its financial advisors, may be more
favorable to the stockholders of such party than the Mergers and (y) the Board
of Directors of Sierra Pacific or Nevada Power, as the case may be, shall have
determined in good faith, after consultation with its financial advisors and
outside counsel, that failing to take such action could reasonably be expected
to be a breach of its fiduciary duties under applicable law and (B) prior to
furnishing such information to, entering into negotiations with or accepting the
Business Combination proposal from, such third party, Sierra Pacific or Nevada
Power, as the case may be, (x) provides prompt notice to Sierra Pacific or
Nevada Power, as the case may be, to the effect that it is furnishing
information to or entering into discussions or negotiations with such third
party and (y) receives from such third party an executed confidentiality
agreement in reasonably customary form on terms not materially more favorable to
such third party than the terms contained in the Confidentiality Agreement, and,
prior to accepting the Business Combination proposal from such third party,
terminates the Merger Agreement pursuant to the provisions thereof, as
applicable and (ii) comply with Rules 14d-9 and 14e-2 promulgated under the
Exchange Act. The Merger Agreement provides that each party shall promptly
notify the other orally and in writing of any such inquiries, offers or
proposals within 24 hours, keep the other party informed of the status and
details of any such inquiry, offer or proposal and provide the other party with
five day's advance notice before entering into any agreement with or supplying
information to a third party. As used in the Merger Agreement, "Business
Combination" means any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving a party thereto or any of
its subsidiaries, or any proposal or offer to acquire in any manner a
substantial equity interest in or a substantial portion of the assets of any
party to the Merger Agreement or any of its subsidiaries, other than
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pursuant to the transactions contemplated by the Merger Agreement. See "The
Merger Agreement-- Termination; Fees and Expenses."
INDEMNIFICATION
The Merger Agreement provides that, from and after the Effective Time of the
Second Merger, Sierra Pacific and the Surviving Corporation shall, to the
fullest extent permitted by applicable law, indemnify, defend and hold harmless
the present and former officers, directors and employees of Sierra Pacific and
Nevada Power or any of their subsidiaries (each an "Indemnified Party" and
collectively, the "Indemnified Parties") against all losses, expenses (including
reasonable attorneys' fees), claims, damages or liabilities
or, subject to the proviso of the next succeeding sentence, amounts paid in
settlement arising out of actions or omissions occurring at or prior to the
Effective Time of the Second Merger (and whether asserted or claimed prior to,
at or after the Effective Time of the Second Merger) that are, in whole or in
part, based on or arising out of the fact that such person is or was a director,
officer or employee of such party or arising out of or pertaining to the
transactions contemplated by the Merger Agreement. The Merger Agreement further
provides that in the event of any such loss, expense, claim, damage or liability
(whether or not arising before the Effective Time of the Second Merger), (i)
Sierra Pacific or the Surviving Corporation, as the case may be, promptly upon
receipt of statements or documented expenses, shall pay the reasonable fees and
expenses of counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to Sierra Pacific or the Surviving Corporation, as the
case may be, (ii) Sierra Pacific or the Surviving Corporation, as the case may
be, will cooperate in the defense of any such matter and (iii) any determination
required to be made with respect to whether an Indemnified Party's conduct
complies with the standards set forth under Nevada law and the articles of
incorporation or by-laws shall be made by independent counsel mutually
acceptable to Sierra Pacific or the Surviving Corporation, as the case may be,
and the Indemnified Party; PROVIDED, HOWEVER, that neither Sierra Pacific nor
the Surviving Corporation, as the case may be, shall be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld). The Merger Agreement further requires that the
Indemnified Parties as a group may retain only one law firm with respect to each
related matter except to the extent there is, in the opinion of counsel to an
Indemnified Party, under applicable standards of professional conduct, a
conflict on any significant issue between positions of any two or more
Indemnified Parties.
To the fullest extent permitted by law, from and after the Effective Time of
the Second Merger, all rights to indemnification existing as of the date of the
Merger Agreement in favor of the employees, agents, directors or officers of
Sierra Pacific or Nevada Power and their respective subsidiaries with respect to
their activities as such prior to the Effective Time of the Second Merger, as
provided in their respective articles of incorporation or by-laws in effect on
the date of the Merger Agreement, shall survive the Mergers and shall continue
in full force and effect for a period of not less than six years from the
Effective Time of the Second Merger.
In addition, the Merger Agreement requires that for a period of six years
after the Effective Time of the Second Merger, Sierra Pacific and the Surviving
Corporation shall cause to be maintained in effect policies of directors' and
officers' liability insurance maintained by Sierra Pacific or Nevada Power, as
the case may be, on terms no less favorable than the terms of such current
insurance coverage; PROVIDED, HOWEVER, that the amount paid shall not exceed
200% of the annual aggregate premiums currently being paid by Sierra Pacific or
the Surviving Corporation.
CORPORATE GOVERNANCE MATTERS
SIERRA PACIFIC BOARD. The Merger Agreement provides that Nevada Power's and
Sierra Pacific's Boards of Directors will take such action as may be necessary
to cause the number of directors comprising the full Sierra Pacific Board at the
Effective Time of the Second Merger to consist of 14 members, with one-half to
be selected by Nevada Power and one-half to be selected by Sierra Pacific.
Except for
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Messrs. Niggli and Malquist, who have been designated to serve as directors of
the Sierra Pacific Board, the initial designation of such directors among the
three classes of the Sierra Pacific Board shall be agreed among the parties, the
designees of each party to be divided as equally as is feasible among such
classes. At the Effective Time of the Second Merger, the Sierra Pacific Board
shall have such number of standing committees, with such names and functions as
shall be agreed upon by Nevada Power and Sierra Pacific prior to the Effective
Time of the Second Merger. Nevada Power and Sierra Pacific shall each select
one-half of the members of each committee and the chairperson of one-half of the
committees.
OFFICERS. The Merger Agreement provides that after the Effective Time of
the Second Merger, Mr. Niggli, the current President and Chief Operating Officer
of Nevada Power, will be the Chairman and Chief Executive Officer of Sierra
Pacific and the Chairman of each of SPPC and the Surviving Corporation, and Mr.
Malquist, the current Chairman, Chief Executive Officer and President of Sierra
Pacific will be the President and Chief Operating Officer of Sierra Pacific and
the President and Chief Executive Officer of SPPC and the Surviving Corporation.
These provisions are subject to the specific terms of the employment contracts
entered into between each of Messrs. Niggli and Malquist with Sierra Pacific,
which are to become effective at the Effective Time of the Second Merger. "The
Mergers--Employment Agreements."
CORPORATE OFFICES. The Merger Agreement provides that at the Effective Time
of the Second Merger, (a) the corporate headquarters of Sierra Pacific and the
principal executive offices of the gas and water business units will be located
in Reno, Nevada and (b) the headquarters of SPPC and the Surviving Corporation
and principal executive offices of the electric business unit will be located in
Las Vegas, Nevada.
LABOR AND EMPLOYEE BENEFITS MATTERS
The Surviving Corporation and its subsidiaries shall honor, without
modification, all collective bargaining agreements and, subject to certain
exceptions discussed elsewhere in this Joint Proxy Statement/Prospectus, all
contracts, agreements and commitments of Nevada Power which apply to any current
or former employee or current or former director of Nevada Power; PROVIDED,
HOWEVER, that this undertaking is not intended to prevent the Surviving
Corporation from enforcing such contracts, agreements, collective bargaining
agreements and commitments in accordance with their terms, including, without
limitation, any reserved right to amend, modify, suspend, revoke or terminate
any such contract, agreement, collective bargaining agreement or commitment.
Subject to compliance with applicable law and obligations under applicable
collective bargaining agreements, for a period of three years following the
Effective Time of the Second Merger, any reductions in workforce in respect of
employees of Sierra Pacific and its subsidiaries, including the Surviving
Corporation and its subsidiaries, shall be made on a fair and equitable basis,
in light of the circumstances and the objectives to be achieved, giving
consideration to previous work history, job experience, qualifications, and
business needs without regard to whether employment prior to the Effective Time
of the Second Merger was with Sierra Pacific or its subsidiaries or Nevada Power
or its subsidiaries, and any employees whose employment is terminated or jobs
are eliminated by Sierra Pacific or any of its subsidiaries, including the
Surviving Corporation or its subsidiaries, during such period shall be entitled
to participate on a fair and equitable basis in the job opportunity and
employment placement programs offered by Sierra Pacific or any of its
subsidiaries. Any workforce reductions carried out following the Effective Time
of the Second Merger by Sierra Pacific and its subsidiaries, including the
Surviving Corporation and its subsidiaries, shall be done in accordance with all
applicable collective bargaining agreements, and all laws and regulations
governing the employment relationship and termination thereof including, without
limitation, the Worker Adjustment and Retraining Notification Act and
regulations promulgated thereunder, and any comparable state or local law.
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Except as may be required by applicable law and obligations under applicable
collective bargaining agreements or as Nevada Power and Sierra Pacific may
otherwise agree, each of the Nevada Power and Sierra Pacific benefit plans or
employment or other agreements in effect on the date of the Merger Agreement (or
as amended or established in accordance with or as permitted by the Merger
Agreement) will be maintained in effect, except with respect to Nevada Power's
1993 Long-Term Incentive Plan and certain other exceptions, with respect to the
employees, former employees, directors or former directors of Nevada Power and
any of its subsidiaries and of Sierra Pacific and any of its subsidiaries,
respectively, who are covered by such plans or agreements immediately prior to
the Effective Time of the Second Merger until Sierra Pacific determines
otherwise on or after the Effective Time of the Second Merger. The Surviving
Corporation will assume as of the Effective Time of the Second Merger each
Nevada Power benefit plan or employment or other agreement with any current or
former officer, director or employee maintained by Nevada Power immediately
prior to the Effective Time of the Second Merger and perform such plan or
agreement in the same manner and to the same extent that Nevada Power would be
required to perform thereunder. Each participant in any Nevada Power or Sierra
Pacific benefit plan will receive credit for purposes of eligibility to
participate, vesting and eligibility to receive benefits (but specifically
excluding for benefit accrual purposes) under any benefit plan of Sierra Pacific
or any of its subsidiaries or affiliates for service credited for the
corresponding purpose under any such benefit plan; PROVIDED, HOWEVER, that such
crediting of service may not operate to cause any such plan or agreement to fail
to comply with the applicable provisions of the Code and ERISA. Sierra Pacific
and Nevada Power will cooperate to develop appropriate employee benefit plans,
programs and arrangements, including but not limited to, executive and incentive
compensation, stock option and supplemental executive retirement plans, for
employees and directors of Sierra Pacific and its subsidiaries from and after
the Effective Time of the Second Merger including, without limitation, a
successor to Nevada Power's 1993 Long-Term Incentive Plan. No such obligation
under this paragraph shall be deemed to constitute an employment contract
between Sierra Pacific or any of its subsidiaries and any individual, or a
waiver of Sierra Pacific's or its subsidiaries' right to discharge any employee
at any time, with or without cause.
With respect to each of the Nevada Power 1993 Long-Term Incentive Plan and
401(k) Savings Plan under which the delivery of Nevada Power Common Stock is
required upon payment of benefits or grant of awards (the "Stock Plans"), (i)
Sierra Pacific and Nevada Power will take such action as may be necessary so
that, after the Effective Time of the Second Merger, the Stock Plans provide
only for the issuance or purchase in the open market only of Sierra Pacific
Common Stock rather than Nevada Power Common Stock, and (ii) Sierra Pacific will
take all corporate action necessary or appropriate to (x) obtain shareholder
approval with respect to such plan to the extent such approval is required for
purposes of the Code or other applicable law, or to the extent Sierra Pacific
deems it desirable, (y) reserve for issuance under such plan or otherwise
provide a sufficient number of shares of Sierra Pacific Common Stock for
delivery upon payment of benefits or grants of awards under such plan and (z) as
soon as practicable after the Effective Time of the Second Merger, file
registration statements on Form S-3 or Form S-8, as the case may be (or any
successor or other appropriate forms), with respect to the shares of the Sierra
Pacific Common Stock subject to such plan to the extent such registration
statement is required under applicable law, and Sierra Pacific will use its best
efforts to maintain the effectiveness of such registration statements (and
maintain the current status of the prospectuses contained therein or related
thereto) for so long as such benefits and grants remain payable.
The dividend reinvestment plan of Nevada Power will be terminated as of the
Effective Time of the Second Merger and Nevada Power will send notices of
termination to participants therein prior to the Effective Time of the Second
Merger. The Board of Directors of Sierra Pacific will amend the Sierra Pacific
dividend reinvestment plan to provide for the automatic participation therein
effective immediately after the Effective Time of the Second Merger by
participants who participate in the Nevada Power dividend reinvestment plan
immediately prior to Effective Time of the Second Merger.
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CONDITIONS TO CONSUMMATION OF THE MERGERS
The respective obligations of Nevada Power and Sierra Pacific to effect the
Mergers are subject to satisfaction of the following conditions, among others:
(a) the receipt of all required approvals from the stockholders of Nevada Power
and Sierra Pacific; (b) absence of any temporary restraining order, preliminary
or permanent injunction or other order that prevents and no law or regulation
that prohibits the consummation of the Mergers; (c) the effectiveness of the
Registration Statement and the absence of any stop order or proceedings seeking
a stop order; (d) the approval for listing on the NYSE upon official notice of
issuance of the shares of Sierra Pacific Common Stock issuable in the Mergers;
(e) the receipt of all material governmental authorizations, consents, orders or
approvals which shall have become final and which do not impose terms or
conditions which would have, or would be reasonably likely to have, a material
adverse effect on the business, operations, assets, financial condition or
results of operations of either Sierra Pacific and its respective subsidiaries,
taken as a whole, or Nevada Power and its respective subsidiaries, taken as a
whole (a "Sierra Pacific Material Adverse Effect" and "Nevada Power Material
Adverse Effect," respectively); (f) the performance in all material respects of
all obligations required to be performed by the other party under the Merger
Agreement; (g) the accuracy in all material respects of the representations and
warranties set forth in the Merger Agreement; (h) the receipt by Nevada Power of
an officer's certificate from Sierra Pacific, and the receipt by Sierra Pacific
of an officer's certificate from Nevada Power, each stating that the conditions
set forth in the Merger Agreement have been satisfied; (i) there shall have
occurred no Sierra Pacific Material Adverse Effect or Nevada Power Material
Adverse Effect; (j) the receipt of tax opinions by Sierra Pacific and Nevada
Power to the effect that, except for any cash received, the Mergers will be
tax-free transactions; (k) the receipt of certain third party consents; (l) the
non-occurrence of an event that would result in the triggering of any right or
entitlement of stockholders under the Sierra Pacific Rights Agreement or the
Nevada Power Rights Agreement (each as hereinafter defined), including a
"flip-in" or "flip-over" or similar event commonly described in such rights
plans, which, in the reasonable judgment of the other party, would have or be
reasonably likely to result in a material adverse effect on such other party or
materially change the number of outstanding equity securities of the issuer of
the rights in question, and the rights shall not have become nonredeemable by
any actions of the Sierra Pacific Board or Nevada Power Board; and (m) in the
case of Sierra Pacific, each issued and outstanding share of Nevada Power
Preferred Stock, other than tax-preference preferred securities, shall have been
redeemed or otherwise retired in accordance with its terms.
TERMINATION; FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Closing
Date, whether before or after approval by the stockholders of Nevada Power and
Sierra Pacific: (a) by mutual written consent of the Boards of Directors of
Nevada Power and Sierra Pacific; (b) by any party thereto, by written notice to
the other, if the Effective Time of the Second Merger shall not have occurred on
or before October 29, 1999 (the "Initial Termination Date"); PROVIDED, HOWEVER,
that such right to terminate the Merger Agreement shall not be available to any
party whose failure to fulfill any obligations under the Merger Agreement has
been the cause of, or resulted in, the failure of the Effective Time of the
Second Merger to occur on or before that date and, provided further, that if on
the Initial Termination Date the required statutory approval shall not have been
obtained, then the Initial Termination Date shall be extended to April 29, 2000;
(c) by any party thereto, by written notice to the other, if any required
stockholder approval shall not have been obtained at a duly held meeting; (d) by
any party thereto, if (i) any state or federal law, order, rule or regulation is
adopted or issued, which has the effect, as supported by the written opinion of
outside counsel for such party, of prohibiting either of the Mergers or (ii) any
court of competent jurisdiction in the United States or any state shall have
issued an order, judgment or decree permanently restraining, enjoining or
otherwise prohibiting either of the Mergers, and such order, judgment or decree
shall have become final and nonappealable; (e) by Sierra Pacific or Nevada
Power, at any time prior to their respective stockholders' approval, upon five
days' prior notice to the other, if, as a result of a Business Combination
proposal by a third party, the Board of Directors of such party determines in
good faith, after
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considering applicable provisions of state law, giving effect to all concessions
that may be offered by the other party and consulting with financial advisors
and outside counsel, that failing to accept the Business Combination proposal
could reasonably be expected to be a breach of its fiduciary duties under
applicable law; PROVIDED, HOWEVER, that prior to any such termination, such
party shall, and shall cause its respective financial and legal advisors to,
negotiate with the other party to make such adjustments in the terms and
conditions of the Merger Agreement as would enable such party to proceed with
the transactions contemplated thereby; (f) by Sierra Pacific or Nevada Power by
written notice to the other, if (i) there shall have been any inaccuracies of
the representations and warranties of the other party which, individually or in
the aggregate, would or would be reasonably likely to result in a Nevada Power
Material Adverse Effect or a Sierra Pacific Material Adverse Effect,
respectively, or the other party shall not have performed and compiled with, in
all material respects, its agreements and covenants under the Merger Agreement,
and in each case, such breach or failure shall not have been remedied within 20
days after receipt by the breaching party of notice in writing from the
non-breaching party, specifying the nature of such breach or failure and
requesting that it be remedied or (ii) the Board of Directors of either party
shall withdraw or modify its approval or recommendation of the Merger Agreement
or the Mergers in any manner adverse to the other party, shall approve or
recommend any acquisition of the other party or a material portion of its assets
or any tender offer for shares of its capital stock, in each case, by a third
party, or shall resolve to take such action; or (g) by Sierra Pacific or Nevada
Power, by written notice to the other, if (i) a third party acquires greater
than 50% of the voting power of the outstanding voting securities of the other
or (ii) the current members of the other party's Board of Directors cease to
constitute a majority of the Board of Directors of such party.
In the event of termination of the Merger Agreement by either Nevada Power
or Sierra Pacific as provided above, there shall be no liability on the part of
either Nevada Power or Sierra Pacific or their respective officers or directors
thereunder (other than (i) to hold in strict confidence all documents furnished
in accordance with the Confidentiality Agreement, dated March 10, 1998, between
Sierra Pacific and Nevada Power, (ii) certain specified provisions of the Merger
Agreement and (iii) liability by reason of any willful breach of any
representation, warranty or covenant contained in the Merger Agreement).
If the Merger Agreement is terminated pursuant to clause (f)(i) above, then
the breaching party shall promptly (but not later than five business days after
receipt of notice from the other party) pay to the non-breaching party an amount
equal to all documented out-of-pocket expenses and fees incurred by the non-
breaching party (including, without limitation, fees and expenses payable to all
legal, accounting, financial, public relations and other professional advisors
arising out of, in connection with or related to the Mergers or the other
transactions contemplated by the Merger Agreement) not to exceed $10 million in
the aggregate ("Out-of-Pocket Expenses"); PROVIDED, HOWEVER, that, (i) if the
Merger Agreement is terminated by a party as a result of a willful breach by the
other party, the non-breaching party may pursue any remedies available to it at
law or in equity and shall, in addition to its Out-of-Pocket Expenses (which
shall be paid as specified above and shall not be limited to $10 million), be
entitled to recover such additional amounts as such non-breaching party may be
entitled to receive at law or in equity; and (ii) if (x) at the time of the
breaching party's willful breach of this Agreement, there shall have been a
third-party tender offer for shares of, or a third party offer or proposal with
respect to a Business Combination involving, such party or any of its affiliates
which at the time of such termination shall not have been rejected by such party
and its Board of Directors and withdrawn by the third party, and (y) within two
and one-half years of any termination by the non-breaching party, the breaching
party or an affiliate thereof becomes a subsidiary of such offeror or a
subsidiary of an affiliate of such offeror or accepts a written offer to
consummate or consummates a Business Combination with such offeror or an
affiliate thereof, then such breaching party (jointly and severally with its
affiliates), upon the signing of a definitive agreement relating to such a
Business Combination, or, if no such agreement is signed then at the closing
(and as a condition to the closing) of such breaching party becoming such a
subsidiary or of such Business Combination, will pay to the non-breaching party
a fee equal to $52.5 million in cash minus any amounts as may have been
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previously paid by the breaching party as Out-of-Pocket Expenses. In no event
shall the termination fee in the following paragraph be payable if the fee
described under clause (ii) herein has been paid.
If (i) the Merger Agreement (x) is terminated pursuant to clause (e) or
(f)(ii) above, (y) is terminated pursuant to clause (c) above following a
failure of the stockholders of any of the above parties to grant the necessary
stockholder approvals (provided the stockholders of the other party have not
also failed to grant the necessary stockholder approval) ("Stockholder
Disapproval") or (z) is terminated as a result of such party's material breach
of its obligations to take all steps necessary to obtain such stockholder
approvals as set forth in the Merger Agreement and (ii) at the time of such
termination or, in the case of a termination following a Stockholder
Disapproval, prior to the meeting of such party's stockholders at which such
Stockholder Disapproval occurred, there shall have been a third-party tender
offer for shares of, or a third-party offer or proposal with respect to a
Business Combination involving, such party or any of its affiliates which at the
time of such termination or, in the case of a termination following a
Stockholder Disapproval, at the time of the meeting of such party's
stockholders, shall not have been (x) rejected by such party and its Board of
Directors and (y) withdrawn by the third party; and (iii) within two and
one-half years of any such termination described in clause (i) above, such party
or its affiliate which is the subject of the tender offer or offer or proposal
with respect to a Business Combination (the "Target Party") becomes a subsidiary
of such offeror or a subsidiary of an affiliate of such offeror or accepts a
written offer to consummate or consummates a Business Combination with such
offeror or affiliate thereof, then such Target Party (jointly and severally with
its affiliates), upon the signing of a definitive agreement relating to such a
Business Combination, or, if no such agreement is signed, then at the closing
(and as a condition to the closing) of such Target Party becoming such a
subsidiary or of such Business Combination, will pay to the other party a
termination fee equal to $52.5 million in cash minus any amounts as may have
been previously paid by the Target Party as Out-of-Pocket Expenses. In no event
will the termination fee referred to in this paragraph be paid if the
termination fee referred to in the prior paragraph has been paid.
The Merger Agreement further provides that all termination fees constitute
liquidated damages and not a penalty, and if one party should fail to promptly
pay any termination fee due, the defaulting party shall pay the costs and
expenses (including legal fees and expenses) in connection with any action taken
to collect payment, together with interest on the amount of any unpaid
termination fee as set forth in the Merger Agreement.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties thereto, only by an
instrument in writing signed on behalf of each of such parties, pursuant to
action by their respective Boards of Directors, at any time before or after
approval thereof by the stockholders of Nevada Power and Sierra Pacific and
prior to the Effective Time of the Second Merger, but after such approvals, no
such amendment shall (i) alter or change the amount or kind of shares, rights or
any of the proceedings of the exchange and/or conversion or (ii) alter or change
any of the terms and conditions of the Merger Agreement if any of the
alterations or changes, alone or in the aggregate, would materially and
adversely affect the rights of holders of Nevada Power Common Stock, Nevada
Power Preferred Stock, or Sierra Pacific Common Stock. At any time prior to the
Effective Time of the Second Merger, to the extent permitted by law, the parties
to the Merger Agreement may extend the time for the performance of any of the
obligations or other acts of the other parties thereto, waive any inaccuracies
in the representations and warranties contained therein or in any document
delivered pursuant thereto and waive compliance with any of the agreements or
conditions contained in the Merger Agreement. Any determination to waive a
condition would depend upon the facts and circumstances existing at the time of
such waiver and would be made by the waiving party's Board of Directors,
exercising its fiduciary duties to such party and its stockholders.
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PROPOSAL FOR SHARES AMENDMENT
SHARES AMENDMENT
On May 18, 1998, the Sierra Pacific Board unanimously approved a resolution
to amend the Sierra Pacific Restated Charter to increase the maximum number of
authorized shares of Sierra Pacific Common Stock from 90,000,000 shares to
250,000,000 shares. If the Shares Amendment is approved, Sierra Pacific will be
authorized to issue a total of 250,000,000 shares of Sierra Pacific Common Stock
(including the Share Issuance).
The Shares Amendment would revise Section 1 of Article FIFTH of the Sierra
Pacific Restated Charter to read, in its entirety, as follows:
"SECTION 1: The amount of the total authorized capital stock of the
Corporation is two hundred fifty million (250,000,000) shares of common
stock of $1.00 par value. Said shares may be issued by the Corporation from
time to time for such consideration as may be fixed from time to time by the
Board of Directors."
REASONS FOR SHARES AMENDMENT
Sierra Pacific would have a sufficient number of authorized shares of Sierra
Pacific Common Stock to satisfy the requirements of the Share Issuance under the
Merger Agreement. If, however, the Shares Amendment were not approved, after the
Mergers, Sierra Pacific would have only a small remaining number of authorized
but unissued shares of Sierra Pacific Common Stock. The increase in the number
of authorized shares of Sierra Pacific Common Stock will provide additional
shares for issuance, without the delay and expense of further stockholder
approval, at such time and for such proper corporate purposes as the Sierra
Pacific Board may in the future deem advisable. Such shares may be issued if and
when the Sierra Pacific Board decides it is in the best interest of Sierra
Pacific to do so which may include, without limitation, issuances (i) as part of
an acquisition transaction (as in the case of the Mergers); (ii) to obtain funds
through the sale of Sierra Pacific Common Stock; (iii) to declare a stock split
or stock dividend; (iv) in respect of an employee benefit or stock plan; or (v)
for other corporate purposes. Unless required by applicable law, the rules of
the NYSE, the Sierra Pacific Restated Charter or the Sierra Pacific By-Laws, it
is not anticipated that Sierra Pacific will solicit the votes of stockholders
prior to the issuance of Sierra Pacific Common Stock for any of the purposes
described above.
CERTAIN CONSIDERATIONS
If additional shares of Sierra Pacific Common Stock (in addition to the
Share Issuance) were to be issued in the future out of the authorized shares
contemplated by the Shares Amendment and were issued to other than the then
existing holders of Sierra Pacific Common Stock, the percentage interest of such
holders in Sierra Pacific Common Stock would be reduced. Although the existence
or issuance of authorized but unissued shares of stock could, under certain
circumstances, have an anti-takeover effect, by diluting the percentage
ownership of persons seeking to obtain control of Sierra Pacific, Sierra Pacific
has no present intention to issue such shares for anti-takeover purposes.
The Share Issuance will not be effected unless the Mergers are consummated.
The Shares Amendment will be effected, if approved by Sierra Pacific
stockholders, regardless of whether the Mergers are consummated.
ABSENCE OF APPRAISAL RIGHTS
Under the NGCL, holders of Sierra Pacific Common Stock are not entitled to
appraisal rights with respect to the Shares Amendment.
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BOARD OF DIRECTORS RECOMMENDATION
THE SIERRA PACIFIC BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF SIERRA
PACIFIC VOTE FOR THE SHARES AMENDMENT.
DESCRIPTION OF SIERRA PACIFIC CAPITAL STOCK
FOLLOWING THE MERGERS
AUTHORIZED CAPITAL STOCK
The authorized capital stock of Sierra Pacific consists of 90,000,000 shares
of Sierra Pacific Common Stock. At the close of business on September 3, 1998,
30,956,869 shares of Sierra Pacific Common Stock were issued and outstanding.
Pursuant to the Shares Amendment, if adopted, the total number of authorized
shares of capital stock of Sierra Pacific will consist of 250,000,000 shares of
Sierra Pacific Common Stock following the Mergers. It is anticipated that
approximately 78,724,000 shares of Sierra Pacific Common Stock will be issued in
the Share Issuance and pursuant to the Merger Agreement.
The authorized capital stock of SPPC consists of 20,000,000 shares of common
stock, par value $3.75 per share (the "SPPC Common Stock"), 1,780,500 shares of
preferred stock, par value $50 per share ( the "SPPC $50 Preferred Stock"), and
10,000,000 shares of Class A preferred stock, without par value (the "SPPC Class
A Preferred Stock" and, together with the SPPC $50 Preferred Stock, the "SPPC
Preferred Stock"). Following the Mergers, the authorized capital stock of the
Surviving Corporation (Nevada Power) will consist of 70,000,000 shares of common
stock, all outstanding shares of which will be owned by Sierra Pacific, and
4,500,000 shares of cumulative preferred stock, none of which will be
outstanding.
SIERRA PACIFIC COMMON STOCK
The holders of Sierra Pacific Common Stock are entitled to one vote for each
share held of record at any meeting of stockholders as to all matters in respect
of which such stock has voting power. Holders of Sierra Pacific Common Stock are
entitled to receive ratably such dividends as may from time to time be declared
by the Sierra Pacific Board out of funds legally available therefor. In the
event of a liquidation, dissolution or winding up of Sierra Pacific, holders of
Sierra Pacific Common Stock would be entitled to share ratably in all assets of
Sierra Pacific available for distribution to holders of Sierra Pacific Common
Stock remaining after payment of liabilities and liquidation preference of any
outstanding SPPC Preferred Stock. Holders of Sierra Pacific Common Stock have no
preemptive rights and have no rights to convert their Sierra Pacific Common
Stock into any other securities, and there are no redemption provisions with
respect to such shares. All of the outstanding shares of Sierra Pacific Common
Stock are fully paid and nonassessable.
SPPC COMMON STOCK
The holders of SPPC Common Stock are entitled to one vote for each share
held of record at any meeting of stockholders as to all matters in respect of
which such stock has voting power. Sierra Pacific owns all of the outstanding
shares of SPPC Common Stock. Holders of SPPC Common Stock are entitled to
receive ratably such dividends as may from time to time be declared by the SPPC
Board of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of SPPC, holders of SPPC Common Stock
would be entitled to share ratably in all assets of SPPC available for
distribution to holders of SPPC Common Stock remaining after payment of
liabilities and liquidation preference of any outstanding SPPC Preferred Stock.
Holders of SPPC Common Stock have no preemptive rights and have no rights to
convert their SPPC Common Stock into any other securities, and there are no
redemption provisions with respect to such shares. All of the outstanding shares
of SPPC Common Stock are fully paid and nonassessable.
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SPPC PREFERRED STOCK
The SPPC Board of Directors has the authority to issue SPPC Preferred Stock
in one or more series from time to time and to fix as to any such series the
number of each series of stock and the voting powers, designation, preferences,
limitations, restrictions and relative, participating, option or other special
rights of each series.
SIERRA PACIFIC POWER CAPITAL I
On July 29, 1996, Sierra Pacific Capital I (the "Trust"), a wholly-owned
subsidiary of SPPC, issued $48.5 million (1,940,000 shares) of 8.60% Trust
Originated Preferred Securities (the "Preferred Securities"). SPPC owns all of
the common securities of the Trust, or 60,000 shares totaling $1.5 million (the
"Common Securities"). The Preferred Securities and the Common Securities
(collectively, the "Trust Securities") represent undivided beneficial ownership
interests in the assets of the Trust. The Trust exists 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, 2036 (the
"Debentures"), in a principal amount of $50 million. The sole asset of the Trust
is the Debentures. SPPC has provided a full and unconditional guarantee with
respect to the Trust's obligations under the Preferred Securities.
The Preferred Securities are redeemable only in conjunction with the
redemption of the related Debentures. The 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
(i) there is more than an insubstantial risk that the Trust is or will be
subject to U.S. federal income tax with respect to interest accrued or received
on the Debentures; (ii) the Trust is or will be subject to more than a de
minimis amount of other taxes, duties or governmental charges; or (iii) interest
payable by SPPC to the Trust on the Debentures is not or will not be deductible,
in whole or in part, by SPPC for U.S. federal income tax purposes.
Upon redemption of the Debentures, payment will simultaneously be applied to
redeem Preferred Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Debentures redeemed. The Preferred Securities
are redeemable at $25 per Preferred Security plus accrued dividends.
VOTING RIGHTS
Holders of Sierra Pacific Common Stock and SPPC Common Stock possess sole
voting rights for the election of directors and for all other purposes. The
Restated Articles of Incorporation of SPPC (the "SPPC Restated Charter") grant
holders of SPPC $50 Preferred Stock and SPPC Class A Preferred Stock, voting
together as one class, the right to elect a majority of the SPPC Board of
Directors if dividends payable on the shares of SPPC $50 Preferred Stock or SPPC
Class A Preferred Stock are in arrears for four quarterly dividends.
The SPPC Restated Charter requires the affirmative vote of two-thirds of the
holders of SPPC $50 Preferred Stock and SPPC Class A Preferred Stock, voting
together as a class, (a) to create or authorize any new class of stock ranking
prior to or on a parity with the SPPC $50 Preferred Stock or the SPPC Class A
Preferred Stock as to dividends or assets, (b) to amend, change or repeal any of
the express terms of the outstanding SPPC $50 Preferred Stock or SPPC Class A
Preferred Stock in any manner adverse to the holders thereof or (c) for the
issuance of any additional shares of SPPC $50 Preferred Stock or SPPC Class A
Preferred Stock, unless, after giving effect to such issuance, (i) the net
income of SPPC available for dividends is at least two and one-half times the
aggregate annual dividend requirements upon the entire outstanding amount of
SPPC Preferred Stock and of any stock of any class ranking as to dividends equal
or prior to the SPPC Preferred Stock, (ii) the gross income available for the
payment of interest charges (as defined in the SPPC Restated Charter) is at
least one and one-half times the sum of (i) the
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aggregate annual interest charges on all outstanding indebtedness of SPPC and
(2) the aggregate annual dividend requirements upon the entire outstanding
amount of SPPC Preferred Stock and of any stock of any class ranking as to
dividends equal or prior to the SPPC Preferred Stock, and (iii) the Common Stock
Equity (as defined in the SPPC Restated Charter) plus the aggregate of the
capital allocable to all classes of stock ranking junior to the SPPC Preferred
Stock, other than the SPPC Common Stock, is not less than the aggregate amount
payable upon involuntary liquidation, dissolution or winding up of SPPC to the
holders of SPPC Preferred Stock.
The SPPC Restated Charter also requires the affirmative vote of a majority
of the SPPC $50 Preferred Stock and the SPPC Class A Preferred Stock, voting
together as a class, for the authorization of (i) the issuance of unsecured
indebtedness unless certain established criteria are met, (ii) the merger or
consolidation of SPPC not approved by regulatory authorities or (iii) the sale,
lease or other disposition of all or substantially all of the property of SPPC.
SECTION 78.438 OF THE NGCL
Section 78.438 of the NGCL regulates a wide range of "Combinations" between
a resident domestic corporation that has 200 or more stockholders and the
beneficial owner (or an affiliate of such beneficial owner) of 10% or more of
the voting power of the outstanding voting shares of the corporation (an
"Interested Stockholder"). "Combinations" are broadly defined to include, among
other things, (i) mergers or consolidations with, (ii) sales, leases, mortgages,
pledges or other dispositions of assets having a market value of 5% or more of
the market value of the corporation's assets or outstanding shares, or
representing 10% or more of the corporation's earning power or net income, to,
(iii) certain transactions resulting in the issuance or transfer of any shares
having a market value equal to 5% or more of the market value of all outstanding
shares of the corporation to, (iv) the adoption of a plan or proposal of the
liquidation or dissolution of such corporation proposed by, (v) certain
transactions which would result in increasing the proportionate share of shares
of the corporation owned by, or (vi) the receipt of the benefits, except
proportionately as a stockholder, of any loans, advances or other financial
benefits by, an Interested Stockholder. Section 78.438 provides that an
Interested Stockholder may not engage in a Combination with the corporation for
a period of three years from the date of becoming an Interested Stockholder
unless, prior to the date on which the Interested Stockholder becomes such, the
Combination or the purchase of shares by the Interested Stockholder resulting in
such 10% ownership is approved by the board of directors of such corporation.
Following the expiration of the three-year period, a Combination with an
Interested Stockholder is permitted if the Combination meets all the
requirements specified in the articles of incorporation of such corporation and
either (i) (a) the board of directors of the corporation approves, prior to such
person becoming an Interested Stockholder, the Combination or the purchase of
shares by the Interested Stockholder resulting in such 10% ownership and (b) the
Combination is approved by the affirmative vote of holders of a majority of
voting power not beneficially owned by the Interested Stockholder at a meeting
called no earlier than three years after the date the Interested Stockholder
became such or (ii) (x) the aggregate amount of cash and the market value of
consideration other than cash to be received by holders of common shares and
holders of any other class or series of shares meets the minimum requirements
set forth in Sections 78.441 through 78.443, inclusive, of the NGCL and (y)
prior to the consummation of the Combination, except in limited circumstances,
the Interested Stockholder will not have become the beneficial owner of
additional voting shares of the corporation.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Sierra Pacific Common Stock is
First Chicago Trust Company of New York.
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SIERRA PACIFIC RIGHTS AGREEMENT
For a description of the Sierra Pacific Rights Agreement, see "Comparison of
Rights of Stockholders--Rights Plans."
COMPARISON OF STOCKHOLDER RIGHTS
GENERAL
The rights of holders of Sierra Pacific Common Stock are currently governed
by the NGCL, the Sierra Pacific Restated Charter and the Sierra Pacific By-laws.
The rights of holders of Nevada Power Common Stock are currently governed by the
NGCL, the Nevada Power Restated Articles and the Nevada Power By-laws. In
accordance with the Merger Agreement, upon consummation of the Mergers, the
rights of stockholders of Sierra Pacific and stockholders of Nevada Power who
become stockholders of Sierra Pacific pursuant to the Second Merger will be
governed by the NGCL, the Sierra Pacific Restated Charter and the Sierra Pacific
By-laws. The following summary sets forth the material differences between the
current rights of stockholders of Sierra Pacific and stockholders of Nevada
Power.
The following summary is qualified by reference to the full text of the
Sierra Pacific Restated Charter, the Sierra Pacific By-laws, the Nevada Power
Restated Articles and the Nevada Power By-laws and the NGCL. For information as
to how such documents may be obtained, see "Available Information."
AUTHORIZED CAPITAL
NEVADA POWER. The authorized capital of Nevada Power consists of 70,000,000
shares of Nevada Power Common Stock.
SIERRA PACIFIC. The authorized capital of Sierra Pacific consists of
90,000,000 shares of Sierra Pacific Common Stock. Pursuant to the Shares
Amendment, if adopted, the total number of authorized shares of capital stock of
Sierra Pacific will consist of 250,000,000 shares of Sierra Pacific Common Stock
following the Mergers.
SPECIAL MEETINGS OF STOCKHOLDERS
NEVADA POWER. Under the Nevada Power By-laws, special meetings of
stockholders may be called at any time only by a majority of the Nevada Power
Board or the Chief Executive Officer. Only business referred to in the notice of
meeting may be transacted unless all of the outstanding capital stock of Nevada
Power is represented, in which case any lawful business may be transacted. The
Nevada Power By-laws do not give stockholders the right to call, or cause to be
called, a special meeting of stockholders. Notice of all stockholders' meetings
must be given not less than 10 or more than 60 days prior to the meeting.
SIERRA PACIFIC. Under the Sierra Pacific By-laws, special meetings of
stockholders may be called at any time only by a majority of the Sierra Pacific
Board, the Chairman of the Board or the President. The Sierra Pacific By-laws do
not give stockholders the right to call, or cause to be called, a special
meeting of stockholders. Notice of all stockholders' meetings must be given not
less than 10 or more than 60 days prior to the meeting.
STOCKHOLDER ACTION BY CONSENT
NEVADA POWER. Under the Nevada Power By-laws, no stockholder action
required to be taken or which may be taken at any annual or special meeting of
stockholders may be taken without a meeting and such By-laws specifically deny
stockholders the power to consent in writing to the taking of any action without
a meeting.
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SIERRA PACIFIC. Under the Sierra Pacific By-laws, no stockholder action
required to be taken or which may be taken at any annual or special meeting of
stockholders may be taken without a meeting and such by-laws specifically deny
stockholders the power to consent in writing to the taking of any action without
a meeting.
ADVANCE NOTICE OF PROPOSALS OR DIRECTOR NOMINATIONS AT STOCKHOLDERS'
SPECIAL MEETINGS
NEVADA POWER. The Nevada Power Restated Articles provide that a stockholder
wishing to make a proposal or a director nomination to be acted upon at a
stockholders' meeting must provide written notice to the Secretary of Nevada
Power at the executive offices of Nevada Power not less than 30 or more than 60
days prior to the meeting; PROVIDED, HOWEVER, if less than 40 days prior notice
or prior public disclosure of the date of the meeting is given or made to the
stockholder then the stockholder must provide written notice not less than 10
days prior to such meeting. Each notice shall set forth (i) the name and address
of the stockholder who intends to make the proposal or nomination, (ii) a
representation that the stockholder is a holder of record of Nevada Power Common
Stock entitled to vote at such meeting and intends to appear in person or by
proxy at such meeting to present such proposal or nomination and (iii) the class
and number of shares of Nevada Power Common Stock which are beneficially owned
by such stockholder. Each notice shall also describe the proposal or nomination
in sufficient detail and shall contain specified information of persons
nominated for election as directors or of business proposed to be conducted at
the stockholders' meeting and any material interest of the stockholder in such
business.
SIERRA PACIFIC. The Sierra Pacific By-laws provide that a stockholder
wishing to make a proposal or a director nomination to be acted upon at a
stockholders' meeting must provide written notice to the Secretary of Sierra
Pacific at the executive offices of Sierra Pacific not later than (i) with
respect to an annual meeting of stockholders 120 days prior to the anniversary
date of the immediately preceding annual meeting and (ii) with respect to a
special meeting of stockholders for the election of directors, 10 days following
the day on which notice of such meeting is first given to stockholders. Each
notice shall set forth (i) the name and address of the stockholder who intends
to make the proposal or nomination, (ii) a representation that the stockholder
is a holder of record of Sierra Pacific Common Stock entitled to vote at such
meeting and intends to appear in person or by proxy at such meeting to present
such proposal or nomination and (iii) the class and number of shares of Sierra
Pacific Common Stock which are beneficially owned by such stockholder. Each
notice shall also describe the proposal or nomination in sufficient detail and
shall contain specified information of persons nominated for election as
directors or of business proposed to be conducted at the stockholders' meeting
and any material interest of the stockholder in such business.
AMENDMENTS TO CHARTERS
NEVADA POWER. The Nevada Power Restated Articles provide that it may be
amended or altered by a vote of the holders of a majority of the outstanding
shares of Nevada Power Common Stock, provided, that the affirmative vote of (i)
a majority of the disinterested directors or (ii) 80% of the outstanding shares
of Nevada Power Common Stock is required to approve amendments to provisions
relating to the number of directors, classified board of directors, removal of
directors, notice of stockholder nominees for director, call of special meetings
and the business combination provisions described below under "Fair Price
Provisions -- Nevada Power."
SIERRA PACIFIC. The Sierra Pacific Restated Charter provides that it may be
amended or altered by a vote of the holders of a majority of the outstanding
shares of Sierra Pacific Common Stock, provided, that the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Sierra Pacific
Common Stock is required to amend or repeal, or adopt any provisions
inconsistent with, provisions relating to the number, tenure, vacancy,
classification or removal of directors or any "fair price" provisions.
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AMENDMENTS TO BY-LAWS
NEVADA POWER. The Nevada Power By-laws provide that they may be amended,
added to, altered or repealed, in whole or in part, by the affirmative vote of a
majority of the voting power of the Nevada Power Common Stock and by the
affirmative vote of a majority of the Nevada Power Board.
SIERRA PACIFIC. The Sierra Pacific By-laws provide that they may be
amended, added to, altered or repealed, in whole or in part, by the affirmative
vote of at least two-thirds of the voting power of the Sierra Pacific Common
Stock and by the affirmative vote of a majority of the Sierra Pacific Board.
FAIR PRICE PROVISIONS
NEVADA POWER. The Nevada Power Restated Articles requires the affirmative
vote of the holders of not less than 80% of the outstanding shares of Nevada
Power Common Stock to approve certain business combinations, including mergers,
consolidations, certain dispositions of mergers, consolidations, certain
disposition of assets, certain issuances of securities and liquidation,
involving Nevada Power or any of its subsidiaries and person or entity which is,
or under certain circumstances was, an owner or an associate or an affiliate of
an owner of 5% or more of the outstanding shares of Nevada Power Common Stock,
unless (i) such business combination is approved by the affirmative vote of
those holders as may be required by law and the Nevada Power Restated Articles
and (ii) such business combination is approved by a majority of disinterested
directors.
SIERRA PACIFIC. The Sierra Pacific Restated Charter contains a "fair price"
provision which requires the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Sierra Pacific Common Stock to approve
certain business combinations, including mergers, consolidations,
recapitalizations, certain dispositions of assets, certain issuances of
securities, liquidations and dissolutions, involving Sierra Pacific or any of
its subsidiaries and a person or entity which is, or under certain circumstances
was, an owner or an affiliate of an owner of 10% or more of the outstanding
shares of Sierra Pacific Common Stock, unless (i) such business combination is
approved by a majority of disinterested directors or (ii) certain "fair price"
and procedural requirements are met. With respect to the disposition of assets
or the issuance of securities, the Sierra Pacific Restated Charter requires
stockholder approval under such provision only if the transaction involves the
disposition of assets or the issuance of securities, as the case may be, having
a fair market value of $1,000,000 or more.
RIGHTS PLANS
NEVADA POWER. On October 11, 1990, the Nevada Power Board authorized and
declared a dividend of one preferred stock purchase right (a "Nevada Power
Right") for each outstanding share of Nevada Power Common Stock to stockholders
of record as of the close of business on October 25, 1990, and one Nevada Power
Right has been and will be issued for each share of Nevada Power Common Stock
issued thereafter and prior to the Nevada Power Distribution Date (as defined
herein). The following is a brief description of the Nevada Power Rights. It is
intended to provide a general description only and is subject to the detailed
terms and conditions of the Rights Agreement (the "Nevada Power Rights
Agreement"), dated as of October 15, 1990, between Nevada Power and
Manufacturers Hanover Trust Company, as amended by an amendment to the Nevada
Power Rights Agreement (the "Amendment to the Rights Agreement"), dated as of
April 29, 1998, between Nevada Power and Chase Manhattan Bank, N.A., successor
to Manufacturers Hanover Trust Company, as rights agent (the "Rights Agent").
Certain of the capitalized terms used in the following description have the
meanings set forth in the Nevada Power Rights Agreement.
Each Nevada Power Right, initially evidenced by and traded with the shares
of Nevada Power Common Stock, entitles the registered holder to purchase one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $20 per Share, of the Company (the "Junior Preferred Shares"), at an
exercise price of $58 (the "Exercise Price"), subject to certain adjustments and
other specified
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conditions. The Nevada Power Rights are not exercisable until the Nevada Power
Distribution Date and will expire on the earlier to occur of (i) October 14,
2000 and (ii) immediately prior to the Effective Time of the Second Merger,
unless previously redeemed by Nevada Power as described below. Following the
Nevada Power Distribution Date, the Nevada Power Rights will trade separately
from the Nevada Power Common Stock and will be evidenced by separate
certificates. Until a Nevada Power Right is exercised, the holder thereof will
have no rights as a stockholder of Nevada Power, including, without limitation,
the right to receive dividends.
Except as described below, the Nevada Power Rights will be evidenced by the
Nevada Power Common Stock certificates. The Nevada Power Rights will separate
from the Nevada Power Common Stock and a "Nevada Power Distribution Date" will
occur upon the earliest of (i) the tenth business day following the date of the
first public announcement that any person (other than Nevada Power or certain
related entities) has become the beneficial owner of 10% or more of the
outstanding Nevada Power Common Stock (such person is a "10% Stockholder" and
the date of such public announcement is the "10% Ownership Date"), (ii) the
tenth business day (or such later day as shall be designated by the Nevada Power
Board) following the date of the commencement of, or the announcement of an
intention to make, a tender offer or exchange offer, the consummation of which
would cause any person to become a 10% Stockholder; or (iii) the first date, on
or after the 10% Ownership Date, upon which Nevada Power is acquired in a merger
or other business combination in which Nevada Power is not the surviving
corporation or in which the outstanding Nevada Power Common Stock is changed
into or exchanged for stock or assets of another person, or upon which 50% or
more of Nevada Power's consolidated assets or earning power are sold (other than
in transactions in the ordinary course of business). In calculating the
percentage of outstanding shares of Nevada Power Common Stock that are
beneficially owned by any person, such person shall be deemed to beneficially
own any Nevada Power Common Stock issuable upon the exercise, exchange or
conversion of any options, warrants or other securities beneficially owned by
such person; provided, however, that such shares of Nevada Power Common Stock
will not be deemed outstanding for the purpose of calculating the percentage of
Nevada Power Common Stock that is beneficially owned by any other person.
Unless the Nevada Power Rights have previously expired or been redeemed or
exchanged, from and after the close of business on the tenth business day
following the 10% Ownership Date, each Nevada Power Right (other than a Nevada
Power Right owned by the 10% Stockholder which has become void) shall be
exercisable to purchase, at the Exercise Price (initially $58), Nevada Power
Common Stock with a market value equal to two times the Exercise Price. If
Nevada Power does not have sufficient shares of Nevada Power Common Stock
available for all Nevada Power Rights to be exercised, Nevada Power shall
substitute for all or any portion of the Nevada Power Common Stock that would
otherwise be issuable upon the exercise of the Nevada Power Rights, cash, assets
or other securities having the same aggregate value as such Nevada Power Common
Stock.
Unless the Nevada Power Rights have previously expired or been redeemed or
exchanged, if, on or after the 10% Ownership Date, (i) Nevada Power is acquired
in a merger or other business combination in which Nevada Power is not the
surviving corporation or in which the outstanding Nevada Power Common Stock is
changed into or exchanged for stock or assets of another person, or (ii) 50% or
more of Nevada Power's consolidated assets or earning power are sold (other than
in transactions in the ordinary course of business) (each a "Section 13(a)
Event"), then each Nevada Power Right (other than a Nevada Power Right owned by
the 10% Stockholder which has become void) shall thereafter be exercisable to
purchase, at the Exercise Price (initially $58), shares of common stock of the
surviving corporation or purchaser, respectively, with an aggregate market value
equal to two times the Exercise Price.
At any time prior to the first event of the type described in the two
preceding paragraphs, a majority of the directors may, at their option, direct
Nevada Power to redeem the Nevada Power Rights in whole, but not in part, at a
price of $.01 per Nevada Power Right (the "Redemption Price"), and Nevada Power
shall so redeem the Nevada Power Rights. Immediately upon any such action by the
Nevada Power Board,
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the right to exercise Nevada Power Rights shall terminate and the only right of
the holders of Nevada Power Rights thereafter shall be to receive the Redemption
Price.
The Amendment to Rights Agreement provides that none of Sierra Pacific, any
of its Affiliates or Associates or any of its permitted assignees or transferees
will be deemed a 10% Stockholder and none of a Nevada Power Distribution Date, a
10% Ownership Date or a Section 13(a) Event will be deemed to occur, in each
case, by reason of the approval, execution or delivery of the Merger Agreement,
the consummation of the Second Merger or the consummation of the other
transactions contemplated by the Merger Agreement.
The Nevada Power Rights have certain anti-takeover effects as they will
cause substantial dilution to a person or group that acquires a substantial
interest in Nevada Power without the prior approval of the Nevada Power Board.
The effect of the Nevada Power Rights may be to inhibit a change in control of
Nevada Power that may be beneficial to the stockholders of Nevada Power.
SIERRA PACIFIC. On October 2, 1989, the Sierra Pacific Board declared a
dividend distribution of one right (a "Sierra Pacific Right") for each
outstanding share of Sierra Pacific Common Stock to stockholders of record at
the close of business on October 31, 1989, and one Sierra Pacific Right has been
and will be issued for each share of Sierra Pacific Common Stock issued
thereafter prior to the Sierra Pacific Distribution Date (as defined herein).
The description and terms of the Sierra Pacific Rights are set forth in the
Rights Agreement, dated as of October 13, 1989, as amended (the "Sierra Pacific
Rights Agreement"), between Sierra Pacific and First Chicago Trust Company of
New York, as successor Rights Agent. Certain of the capitalized terms used in
the following description have the meanings set forth in the Sierra Pacific
Rights Agreement. The following descriptions of the Sierra Pacific Rights and
the Sierra Pacific Rights Agreement do not purport to be complete and are
qualified in their entirety by reference to the Sierra Pacific Rights Agreement.
Each Sierra Pacific Right, initially evidenced by and traded with the shares
of Sierra Pacific Common Stock, entitles the registered holder to purchase one
share of Sierra Pacific Common Stock at an exercise price of $70, subject to
certain adjustments, regulatory approval and other specified conditions. The
Sierra Pacific Rights are not exercisable until the Distribution Date and will
expire on October 31, 1999 unless previously redeemed by Sierra Pacific as
described below. Following the Sierra Pacific Distribution Date, the Sierra
Pacific Rights will trade separately from the Sierra Pacific Common Stock and
will be evidenced by separate certificates. Until a Sierra Pacific Right is
exercised, the holder thereof will have no rights as a stockholder of Sierra
Pacific, including, without limitation, the right to receive dividends.
Except as described below, the Sierra Pacific Rights will be evidenced by
the Sierra Pacific Common Stock certificates. The Sierra Pacific Rights will
separate from the Sierra Pacific Common Stock and a "Sierra Pacific Distribution
Date" will occur upon the earlier of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons other than Sierra
Pacific and its affiliates (an "Acquiring Person") has acquired, or obtained the
right to acquire, beneficial ownership of 15% or more of the outstanding Sierra
Pacific Common Stock (the "Stock Acquisition Date") and (ii) 10 business days
(or such later date as a majority of the Sierra Pacific Board may determine)
following the commencement of (or a public announcement of an intention to make)
a tender or exchange offer that would result in a person or group becoming an
Acquiring Person.
In the event that a person becomes an Acquiring Person (except pursuant to a
tender or exchange offer for all outstanding shares of Sierra Pacific Common
Stock at a price and on terms determined by at least a majority of the members
of the Sierra Pacific Board who are not Acquiring Persons or affiliates or
associates of an Acquiring Person, to be fair to the stockholders of Sierra
Pacific and otherwise in the best interests of Sierra Pacific and its
stockholders) each holder of a Sierra Pacific Right will have the right, subject
to regulatory approval and other specified conditions, to receive, upon exercise
at the then current exercise price of the Sierra Pacific Right, Sierra Pacific
Common Stock having a market value equal to two times the exercise price of the
Sierra Pacific Right. Notwithstanding any of the foregoing, following the
98
<PAGE>
occurrence of any such event, all Sierra Pacific Rights that are or (under
certain circumstances specified in the Sierra Pacific Rights Agreement) were
beneficially owned by any Acquiring Person (or certain related parties) will be
null and void.
In the event that, at any time following the Sierra Pacific Distribution
Date, Sierra Pacific is acquired in a merger or other business combination
transaction (other than pursuant to certain approved merger transactions), or
50% or more of Sierra Pacific's assets or earning power is sold, each holder of
a Sierra Pacific Right will thereafter have the right to receive, upon the
exercise thereof at the then current exercise price, common stock of the
acquiring or surviving company having a value equal to two times the exercise
price of the Sierra Pacific Right.
At any time until 10 days following the Stock Acquisition Date, Sierra
Pacific may redeem the Sierra Pacific Rights, in whole but not in part, at a
price of $.01 per Sierra Pacific Right. Immediately upon the action of the
Sierra Pacific Board ordering redemption of the Sierra Pacific Rights, the
Sierra Pacific Rights will terminate and the only right of the holders of Sierra
Pacific Rights will be to receive the $.01 redemption price.
The Sierra Pacific Rights have certain anti-takeover effects as they will
cause substantial dilution to a person or group that acquires a substantial
interest in Sierra Pacific without the prior approval of the Sierra Pacific
Board. The effect of the Sierra Pacific Rights may be to inhibit a change in
control of Sierra Pacific that may be beneficial to the stockholders of Sierra
Pacific.
BOARD OF DIRECTORS; REMOVAL; VACANCIES
NEVADA POWER. The Nevada Power By-laws provide that the Nevada Power Board
shall consist of not more than 12 or less than 3 directors. There are currently
11 directors serving on the Nevada Power Board.
The Nevada Power Restated Articles provides that the Nevada Power Board will
be divided into three classes, and each class will generally serve for a term of
three years and will be as nearly equal in number as possible. At each annual
meeting of stockholders, one class of directors (or approximately one-third of
the directors) is elected for a three-year term.
Under the Nevada Power Restated Articles, any director may be removed from
office at any time (i) if without cause, by 80% of the outstanding voting stock
or (2) if for cause, by two-thirds of the outstanding voting stock. The Nevada
Power Restated Articles also provides that vacancies and newly created
directorships may be filled by the affirmative vote of a majority of the
directors then in office (even though less than a quorum). Each director so
chosen shall hold office until the expiration of the term of the director, if
any, whom he or she has been chosen to succeed, or if none, until the expiration
of the term of the class assigned to the newly created directorship to which he
or she has been elected and until a successor shall have been elected and
qualified or until his or her earlier death, resignation or removal.
SIERRA PACIFIC. The Sierra Pacific By-laws provide that the Sierra Pacific
Board shall consist of not more than 15 or less than 3 directors, and until
amendment of such by-laws, the Sierra Pacific Board shall consist of 12
directors. There are currently 10 directors serving on the Sierra Pacific Board.
Prior to the Effective Time of the Second Merger, the Sierra Pacific By-laws
will be amended to set the number of directors of the Sierra Pacific Board at 14
members. See "The Mergers--Composition of the Sierra Pacific Board."
The Sierra Pacific Restated Charter provides that the Sierra Pacific Board
will be divided into three classes, and each class will generally serve for a
term of three years and will be as nearly equal in number as possible. At each
annual meeting of stockholders, one class of directors (or approximately
one-third of the directors) is elected for a three-year term.
Under the Sierra Pacific Restated Charter, any director may be removed from
office by the vote of stockholders representing at least two-thirds of the
outstanding shares of Sierra Pacific Common Stock. The Sierra Pacific Restated
Charter also provides that vacancies and newly created directorships may be
99
<PAGE>
filled by the affirmative vote of a majority of the directors then in office
(even though less than a quorum). Each director so chosen shall hold office
until the expiration of the term of the director, if any, whom he or she has
been chosen to succeed, or if none, until the expiration of the term of the
class assigned to the newly created directorship to which he or she has been
elected and until a successor shall have been elected and qualified or until his
or her earlier death, resignation or removal.
COMMITTEES OF THE BOARD OF DIRECTORS
NEVADA POWER. Under the Nevada Power By-laws, the Nevada Power Board may,
by resolution or vote passed by a majority of the whole board, designate one or
more committees to consist of one or more of the directors of the Nevada Power
Board.
SIERRA PACIFIC. Under the Sierra Pacific By-laws, the Sierra Pacific Board
may, by resolution or vote passed by a majority of the whole board, designate
one or more committees to consist of one or more of the directors of the Sierra
Pacific Board. Pursuant to the Sierra Pacific By-laws, there shall be at all
times (i) an Audit Committee and (ii) a Compensation and Organization Committee.
The Merger Agreement provides that at the Effective Time of the Second
Merger, the Sierra Pacific Board shall have such number of standing committees,
with such names and functions as shall be agreed upon by Sierra Pacific and
Nevada Power prior to the Effective Time of the Second Merger. Sierra Pacific
and Nevada Power will each select one-half of the members of each committee and
the chairperson of one-half of the committees.
MERGER RELATED FINANCING
During the period prior to consummation of the Mergers, the managements of
Nevada Power and Sierra Pacific will be evaluating alternative sources and
methods of financing the approximately $460 million necessary to fund the total
of the Nevada Power Cash Consideration and Sierra Pacific Cash Consideration. It
is currently anticipated that the full amount of $460 million will be financed
at the Sierra Pacific holding company level through external sources. Sources of
financing being considered include, but are not limited to, commercial banks,
investment banks, institutional lenders and the public securities markets.
Methods of financing which will be considered include, but are not limited to,
commercial paper, bank lines of credit, various maturities and types of debt and
preferred securities. Management of Sierra Pacific and Nevada Power believe that
Sierra Pacific will have access to many sources and types of short-term and
long-term capital at reasonable rates. As a result of this financing and as
shown in the Unaudited Pro Forma Combined Condensed Financial Statements, the
consolidated capitalization of Sierra Pacific after the Mergers will consist of
approximately 39.5% common equity and 60.5% long-term debt and preferred stock.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give effect to the
Mergers. In the First Merger, LAKE Merger Sub will be merged with and into
Sierra Pacific, with Sierra Pacific as the surviving corporation. In the Second
Merger, DESERT Merger Sub will be merged with and into Nevada Power, with DESERT
Merger Sub as the surviving corporation. DESERT Merger Sub will immediately
change its name to Nevada Power Company. As a result of the Mergers, Nevada
Power and SPPC will be wholly-owned subsidiaries of Sierra Pacific. The
unaudited pro forma combined condensed balance sheet as of June 30, 1998, is
presented as if the Mergers had occurred at the balance sheet date. The
unaudited pro forma combined condensed statements of income for the year ended
December 31, 1997 and the six-months ended June 30, 1998, assume that the
Mergers occurred at the beginning of the period presented. These statements are
prepared on the basis of accounting for the First Merger in a manner similar to
a pooling of interests and for the Second Merger as a purchase and are based on
the assumptions set forth in the notes thereto. The unaudited pro forma
financial statements do not give effect to the estimated synergies of the
transaction, costs to achieve such synergies or estimated transaction costs. See
"Regulatory Matters--State Approvals and Related Matters." The pro forma
adjustments were based upon a preliminary allocation of the purchase price.
Management expects to finalize the allocation subject to the closing of the
transaction. Management does not expect the final allocation to differ
materially from the preliminary allocation of the purchase price.
The following unaudited pro forma financial statements have been prepared
from, and should be read in conjunction with, the historical financial
statements and related notes thereto of Nevada Power and Sierra Pacific,
incorporated herein by reference. The following unaudited pro forma financial
statements are not necessarily indicative of the financial position or operating
results that would have occurred had the Mergers been consummated on the dates
as of which, or at the beginning of the periods for which, the Mergers are being
given effect nor is it necessarily indicative of future operating results or
financial position. In addition, due to the effect of seasonal fluctuations and
other factors on the operations of Nevada Power and Sierra Pacific, financial
results for the six-month period ended June 30, 1998 are not necessarily
indicative of results for the year ended December 31, 1998.
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<PAGE>
SIERRA PACIFIC RESOURCES
PRO FORMA COMBINED CONDENSED BALANCE SHEETS
AT JUNE 30, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIERRA
NEVADA PACIFIC
POWER (10) RESOURCES (10) ADJUSTMENTS PRO FORMA
---------- -------------- ----------- ---------------
<S> <C> <C> <C> <C>
ASSETS
UTILITY PLANT:
Plant in service...................... $2,468,051 $2,151,055 $ -- $4,619,106
Less: accumulated provision for
depreciation........................ 679,683 695,737 -- 1,375,420
---------- -------------- ----------- ---------------
1,788,368 1,455,318 -- 3,243,686
Construction work-in-progress......... 184,018 168,439 -- 352,457
Property under capital leases......... 69,334 -- -- 69,334
---------- -------------- ----------- ---------------
2,041,720 1,623,757 -- 3,665,477
---------- -------------- ----------- ---------------
INVESTMENTS AND OTHER PROPERTY, NET..... 20,589 55,696 -- 76,285
---------- -------------- ----------- ---------------
CURRENT ASSETS:
Cash and cash equivalents............. 575 9,548 456,200(1) 6,440
(151,600)(2)
(304,600)(3)
(3,683)(12)
Customer and other receivables--net of
uncollectibles...................... 110,799 84,263 -- 195,062
Materials, supplies and fuel, at
average cost........................ 38,787 26,126 -- 64,913
Deferred energy costs................. 43,495 -- -- 43,495
Prepayments and other................. 4,663 4,365 -- 9,028
---------- -------------- ----------- ---------------
198,319 124,302 (3,683) 318,938
---------- -------------- ----------- ---------------
DEFERRED CHARGES:
Regulatory tax asset.................. 95,077 66,455 -- 161,532
Goodwill.............................. -- -- 437,273(5) 437,273
Other................................. 51,889 79,337 4,600(1) 135,826
---------- -------------- ----------- ---------------
146,966 145,792 441,873 734,631
---------- -------------- ----------- ---------------
$2,407,594 $1,949,547 $ 438,190 $4,795,331
---------- -------------- ----------- ---------------
---------- -------------- ----------- ---------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock and additional paid in
capital............................. $ 732,650 $ 487,058 $(151,600)(2) $1,200,781
(304,600)(3)
--(4)
437,273(5)
Retained earnings..................... 93,855 164,607 (98)(12) 258,364
Preferred stock-not subject to
mandatory redemption................ 3,385 73,115 (3,385)(12) 73,115
Preferred securities-subject to
mandatory redemption................ 118,872 48,500 -- 167,372
Long-term debt........................ 892,858 611,936 460,800(1) 1,965,594
---------- -------------- ----------- ---------------
1,841,620 1,385,216 438,390 3,665,226
---------- -------------- ----------- ---------------
CURRENT LIABILITIES:
Short-term borrowings................. 125,298 88,400 -- 213,698
Current maturities of long-term debt
and sinking fund requirements....... 5,148 10,573 (200)(12) 15,521
Accounts payable...................... 68,943 57,142 -- 126,085
Accrued taxes......................... 7,016 12,646 -- 19,662
Accrued interest...................... 8,833 6,127 -- 14,960
Deferred taxes on deferred energy
costs............................... 15,223 -- -- 15,223
Other current liabilities............. 40,374 37,691 -- 78,065
---------- -------------- ----------- ---------------
270,835 212,579 (200) 483,214
---------- -------------- ----------- ---------------
DEFERRED CREDITS:
Investment tax credits................ 28,813 38,890 -- 67,703
Deferred income taxes................. 189,556 166,273 -- 355,829
Regulatory tax liability.............. 15,908 39,725 -- 55,633
Customer advances for construction.... 58,039 33,064 -- 91,103
Other................................. 2,823 73,800 -- 76,623
---------- -------------- ----------- ---------------
295,139 351,752 -- 646,891
---------- -------------- ----------- ---------------
$2,407,594 $1,949,547 $ 438,190 $4,795,331
---------- -------------- ----------- ---------------
---------- -------------- ----------- ---------------
</TABLE>
102
<PAGE>
SIERRA PACIFIC RESOURCES
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIERRA
NEVADA PACIFIC
POWER RESOURCES ADJUSTMENTS PRO FORMA
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES............................................. $ 364,198 $ 356,114 $ -- $ 720,312
---------- ---------- ----------- -----------
OPERATING EXPENSES:
Operations................................................... 236,329 221,399 -- 457,728
Maintenance.................................................. 27,707 10,703 -- 38,410
Depreciation and amortization................................ 35,556 33,593 5,466(7) 74,615
Taxes:
Income taxes............................................... 7,402 20,699 (6,451)(8) 21,650
Other than income.......................................... 11,153 9,906 -- 21,059
---------- ---------- ----------- -----------
318,147 296,300 (985) 613,462
---------- ---------- ----------- -----------
OPERATING INCOME............................................... 46,051 59,814 985 106,850
---------- ---------- ----------- -----------
OTHER INCOME:
Allowance for other funds used during construction........... 4,913 2,126 -- 7,039
Other income (expense)--net.................................. (1,042) (2) -- (1,044)
---------- ---------- ----------- -----------
3,871 2,124 -- 5,995
---------- ---------- ----------- -----------
Total Income............................................... 49,922 61,938 985 112,845
---------- ---------- ----------- -----------
INTEREST CHARGES:
Long-term debt............................................... 28,525 20,320 18,432(6) 67,277
Other........................................................ 1,839 3,667 -- 5,506
Allowance for borrowed funds used during construction and
capitalized interest....................................... (2,698) (3,721) -- (6,419)
---------- ---------- ----------- -----------
27,666 20,266 18,432 66,364
---------- ---------- ----------- -----------
INCOME BEFORE COMPANY OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES......................................... 22,256 41,672 (17,447) 46,481
Preferred dividend requirements on company-obligated
mandatorily redeemable preferred securities................ 4,874 2,086 -- 6,960
---------- ---------- ----------- -----------
INCOME BEFORE PREFERRED DIVIDENDS.............................. 17,382 39,586 (17,447) 39,521
Preferred dividend requirements.............................. 89 2,730 (89) 12) 2,730
---------- ---------- ----------- -----------
INCOME APPLICABLE TO COMMON STOCK.............................. $ 17,293 $ 36,856 $ (17,358) $ 36,791
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Average shares of common stock outstanding (thousands) (11).... 50,751 30,938 -- 77,773
Earnings per share--Basic (9).................................. $ 0.34 $ 1.19 $ -- $ 0.47
</TABLE>
103
<PAGE>
SIERRA PACIFIC RESOURCES
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIERRA
NEVADA PACIFIC
POWER RESOURCES ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES.......................................... $ 799,148 $ 663,243 $ -- $ 1,462,391
---------- ---------- ----------- ------------
OPERATING EXPENSES:
Operations................................................ 479,011 399,101 -- 878,112
Maintenance............................................... 52,126 23,387 -- 75,513
Depreciation and amortization............................. 66,273 64,117 10,932(7) 141,322
Taxes:
Income taxes............................................ 43,478 38,667 (12,902)(8) 69,243
Other than income....................................... 21,064 19,344 -- 40,408
---------- ---------- ----------- ------------
661,952 544,616 (1,970) 1,204,598
---------- ---------- ----------- ------------
OPERATING INCOME............................................ 137,196 118,627 1,970 257,793
---------- ---------- ----------- ------------
OTHER INCOME:
Allowance for other funds used during construction........ 8,760 5,723 -- 14,483
Other income (expense)--net............................... (5,741) 1,261 -- (4,480)
---------- ---------- ----------- ------------
3,019 6,984 -- 10,003
---------- ---------- ----------- ------------
Total Income............................................ 140,215 125,611 1,970 267,796
---------- ---------- ----------- ------------
INTEREST CHARGES:
Long-term debt............................................ 50,791 41,738 36,864(6) 129,393
Other..................................................... 1,531 4,583 -- 6,114
Allowance for borrowed funds used during construction and
capitalized interest.................................... (2,579) (4,785) -- (7,364)
---------- ---------- ----------- ------------
49,743 41,536 36,864 128,143
---------- ---------- ----------- ------------
INCOME BEFORE COMPANY OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES...................................... 90,472 84,075 (34,894) 139,653
Preferred dividend requirements on company-obligated
mandatorily redeemable preferred securities............. 7,256 4,171 -- 11,427
---------- ---------- ----------- ------------
INCOME BEFORE PREFERRED DIVIDENDS........................... 83,216 79,904 (34,894) 128,226
Preferred dividend requirements........................... 1,125 5,459 (1,125) 12) 5,459
---------- ---------- ----------- ------------
INCOME APPLICABLE TO COMMON STOCK........................... $ 82,091 $ 74,445 $ (33,769) $ 122,767
---------- ---------- ----------- ------------
---------- ---------- ----------- ------------
Average shares of common stock outstanding (thousands)
(11)...................................................... 49,691 30,880 -- 76,630
Earnings per Share--basic (9)............................... $ 1.65 $ 2.41 -- $ 1.60
</TABLE>
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<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1) Reflects the incurrence of $460,800,000 (including $4.6 million debt
issuance costs) of long-term debt the proceeds of which are to be applied to
pay the Sierra Pacific Cash Consideration and the Nevada Power Cash
Consideration.
2) Pursuant to the Merger Agreement, this adjustment reflects the Sierra
Pacific Cash Consideration paid to Sierra Pacific stockholders who will
receive cash in lieu of common stock. The amount of adjustment assumes a
total payment of $151,600,000 at a cash price of $37.55 per share.
3) Pursuant to the Merger Agreement, this adjustment reflects the Nevada Power
Cash Consideration paid to Nevada Power stockholders who will receive cash
in lieu of common stock. The amount of adjustment assumes a total payment of
$304,600,000 at a cash price of $26.00 per share.
4) Reflects the Nevada Power and Sierra Pacific Stock Consideration as
described in the Merger Agreement. The adjustment recognizes the conversion
of the remaining shares of Nevada Power Common Stock and Sierra Pacific
Common Stock net of the shares which were converted to cash in adjustments 2
and 3. The adjustment is based on the number of shares outstanding as of
June 30, 1998. The conversion represents the exchange of each share of
Sierra Pacific Common Stock into 1.44 shares of Sierra Pacific Common Stock
and the exchange of each share of Nevada Power Common Stock into one share
of Sierra Pacific Common Stock. The total shares exchanged and stock
consideration is based on the following calculations (share amounts in
thousands).
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-------------------------------
<S> <C> <C> <C> <C> <C> <C>
SIERRA NEVADA
PACIFIC POWER PRO FORMA
--------- --------- ---------
Shares outstanding end of
period......................... 30,957 51,051 --
Shares redeemed for cash
(adjustments 2 and 3).......... (4,037) (11,715) --
--------- --------- ---------
Remaining shares to be
exchanged...................... 26,920 39,336 --
X 1.44 X 1.00 --
--------- --------- ---------
Stock Consideration.............. 38,765 39,336 78,101
--------- --------- ---------
--------- --------- ---------
</TABLE>
(5) Reflects the recognition of goodwill equal to the excess of the purchase
price over the net fair value of assets and liabilities of Sierra Pacific
Resources acquired. The adjustment assumes total purchase consideration
equal to cash of $151,600,000 and 38,765,000 shares of Sierra Pacific Common
Stock at a price of $24.18 based on the average closing price of Nevada
Power Common Stock between April 22, 1998 and May 6, 1998. The eleven day
average price of Nevada Power Common Stock used in determining the total
stock consideration represents the market price over a reasonable period of
time before and after the transaction was announced on April 29, 1998. The
calculation of goodwill
105
<PAGE>
for the balance sheet presented is based on the following calculation
(dollars in thousands except per share amounts):
<TABLE>
<CAPTION>
JUNE 30,
1998
------------
<S> <C> <C> <C> <C>
Cash consideration (adjustment 2)............. $ 151,600
Common stock consideration:
Sierra Pacific stock converted.............. 26,920
Conversion rate............................. 1.44
---------
New shares received......................... 38,765
Nevada Power average stock price............ 24.18
---------
Total stock consideration................... 937,338
------------
Total Consideration........................... 1,088,938
Less net fair value (assumed to be book value)
of Sierra Pacific end of period............. 651,665
------------
Goodwill...................................... 437,273
------------
------------
</TABLE>
6) Reflects the recognition of interest expense related to the incurrence of
debt (adjustment 1) at an assumed annual rate of 8.00%. The interest
expense as presented in the pro forma income statements is calculated as if
the Mergers had occurred on the first day of each period presented. A 1/8%
increase in the interest rate would cause an increase in interest expense
for the six months ended June 30, 1998 and the year ended December 31,
1997, of $288,000 and $576,000, respectively.
7) Reflects six and twelve months amortization of goodwill (calculated in
adjustment 5) based on a forty year amortization period included in the Pro
Forma Combined Condensed Statement of Income for the Six Months ended June
30, 1998 and Year Ended December 31, 1997, respectively.
8) Reflects an adjustment to reduce pro forma income taxes because of higher
interest expense (adjustment 6). The adjustment assumes an effective income
tax rate of 35%.
9) The Statement of Financial Accounting Standards No. 128, Earnings Per
Share, effective for financial periods ending after December 15, 1997,
established standards for computing and presenting earnings per share. The
statement now requires dual presentation of basic and diluted earnings per
share for entities with complex capital structures. Both Nevada Power and
Sierra Pacific adopted this pronouncement for the income statement periods
presented in these unaudited pro forma financial statements. The adoption
resulted in no effect for Nevada Power and was immaterial for both Sierra
Pacific and on a pro forma basis. Accordingly, only basic earnings per
share is reflected.
10) For comparative purposes, certain historical amounts have been reclassified
to conform to the pro forma financial statement format.
106
<PAGE>
11) Calculation of Weighted Average Shares Outstanding (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED TWELVE MONTHS ENDED DECEMBER
JUNE 30, 1998 31, 1997
------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
SIERRA NEVADA SIERRA NEVADA
PACIFIC POWER PRO FORMA PACIFIC POWER PRO FORMA
--------- --------- --------- --------- --------- ---------
Weighted Average Shares Outstanding....... 30,938 50,751 -- 30,880 49,691 --
Shares redeemed for cash (A).............. (4,037) (11,715) -- (4,037) (11,715) --
--------- --------- --------- --------- --------- ---------
Net shares................................ 26,901 39,036 -- 26,843 37,976 --
Conversion................................ 1.44 1.00 -- 1.44 1.00 --
--------- --------- --------- --------- --------- ---------
38,737 39,036 77,773 38,654 37,976 76,630
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
(A) Shares redeemed based on the following calculation (see footnotes 2 and 3):
<TABLE>
<CAPTION>
SIERRA NEVADA
PACIFIC POWER
---------- ----------
<S> <C> <C>
Allocated cash for redemption ($000).................................. $ 151,600 $ 304,600
Redemption price per share............................................ 37.55 26.00
---------- ----------
Shares redeemed (000)................................................. 4,037 11,715
---------- ----------
---------- ----------
</TABLE>
12) Pursuant to the Merger Agreement, reflects the retirement of Nevada Power
preferred stock. The Nevada Power preferred stock is redeemable at a price
of $21 per share for the 5.20% series and the 5.40% series and at $20.25
per share for the 4.70% series at any time upon 30 days notice to the
holders. Although this entry assumes the retirement is accomplished with
cash, Nevada Power has not determined how it will finance the retirement of
the Nevada Power preferred stock.
107
<PAGE>
SELECTED INFORMATION CONCERNING NEVADA POWER AND SIERRA PACIFIC
BUSINESS OF NEVADA POWER
Nevada Power, incorporated in 1929 under the laws of Nevada, is a public
utility engaged in the electric utility business in Las Vegas and vicinity in
southern Nevada. Most of Nevada Power's operations are conducted in Clark
County, Nevada (with an estimated service area population of 1,303,000 at
December 31, 1997) where Nevada Power furnishes electric service in the
communities of Las Vegas, North Las Vegas, Henderson, Searchlight, Laughlin and
adjoining areas and to Nellis Air Force Base (consisting of a permanent military
installation northeast of Las Vegas and the USAF Tactical Fighter Weapons
Center). Electric service is also supplied to the Department of Energy at
Mercury and Jackass Flats in Nye County, where the Nevada Test Site is located.
The Company will supply 40 percent of the Nevada Test Site's future electrical
power according to a settlement agreement approved by the PUCN.
The principal executive office of Nevada Power is, and after the Effective
Time of the Second Merger will be, located at 6226 West Sahara Avenue, Las
Vegas, Nevada 89146, and its telephone number is (702) 367-3000.
BUSINESS OF SIERRA PACIFIC
Sierra Pacific is a holding company with five primary subsidiaries: SPPC,
TGPC, e-three, LOS and SPE. Sierra Pacific was incorporated in Nevada on
December 12, 1983. The principal executive office of Sierra Pacific is, and the
principal executive office of Sierra Pacific after the Effective Time of the
Second Merger will be, located at 6100 Neil Road, Reno, Nevada 89511 and its
telephone number is (702) 834-4011.
SIERRA PACIFIC POWER COMPANY. SPPC, a wholly-owned subsidiary of Sierra
Pacific since 1984, is a public utility primarily engaged in the generation,
purchase, transmission, distribution and sale of electric energy. It provides
electricity to approximately 287,000 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, Elko and a portion of eastern California,
including the Lake Tahoe area. SPPC also provides natural gas to approximately
100,000 customers in the Reno/Sparks area, and water service to approximately
65,000 customers in the Reno/Sparks area.
During 1997, 92.0% of SPPC's revenues were from retail sales of electricity,
natural gas and water in Nevada, 6.0% were from retail sales of electricity in
California and 2.0% were from wholesale sales of electricity in Nevada and
California.
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 ("TGTC"), with a subsidiary of TransCanada to develop,
construct and operate a natural gas pipeline to serve an expanding gas market in
Reno, northern Nevada and northeastern California. To date, Sierra Pacific has
an investment of approximately $15.5 million in TGPC. In December 1995, TGTC
completed construction and began service of its 229-mile pipeline extending from
Malin, Oregon to Reno. TGTC interconnects with Pacific Gas Transmission Company
("PGT") at Malin. PGT is a major interstate natural gas pipeline extending from
Oregon to the U.S./Canadian border. The PGT system provides TGTC customers
access to natural gas reserves in the Western Canadian Sedimentary basin, one of
the largest natural gas reserve basins in North America.
As an interstate pipeline, TGTC provides only transportation service. SPPC
and Sierra Pacific were the two largest customers of TGTC during 1997,
contributing 92.2% and 6.3% of revenues, respectively. Malin began taking
service from TGTC during the later part of 1996, and the Sierra Army Depot at
Herlong, California, began taking service from TGTC during the later part of
1997.
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E-THREE. Organized in October 1996, e-three is an unregulated wholly-owned
subsidiary of Sierra Pacific. It provides comprehensive energy and other
business solutions in commercial and industrial markets by offering a variety of
energy-related products and services to increase customers' productivity and
profits and improve the quality of the indoor environment. Such products and
services include technology and efficiency improvements to lighting, heating,
ventilation and air conditioning equipment; installation or retrofit of controls
and power quality systems; energy performance contracting; end-use services;
power and transmission services and ongoing energy monitoring and verification
services.
LANDS OF SIERRA. LOS was organized in 1964 to develop and manage SPPC
non-utility property in Nevada and California. Such properties included retail,
industrial, office and residential sites, and timberland and properties in the
Lake Tahoe region. Sierra Pacific has decided to focus on its core energy
business. In keeping with this strategy, LOS continues to sell its remaining
properties. Properties sold in 1997 include several commercial sites in Nevada
for total sales of $1.45 million. Properties remaining include only vacant land
in Nevada and land leases in the Lake Tahoe region. Management will continue to
focus on selling most of these remaining properties in 1998.
SIERRA PACIFIC FOLLOWING THE MERGERS
As a result of the Mergers, Sierra Pacific will become the parent company of
the Surviving Corporation (renamed Nevada Power Company) and will continue to be
the parent of SPPC. The operating utility subsidiaries will maintain their
separate corporate identities and will continue to serve customers in Nevada
under their present names. The utility subsidiaries of Sierra Pacific will serve
approximately 805,000 electric customers, 101,000 natural gas customers and
65,000 water customers. Present non-utility operations of Sierra Pacific will be
unaffected. The business of Sierra Pacific will consist of owning utilities and
various non-utility subsidiaries. The following chart depicts the organizational
structure of Sierra Pacific after the Mergers:
[LOGO]
MANAGEMENT OF SIERRA PACIFIC AFTER THE MERGERS
Pursuant to the Merger Agreement, at the Effective Time of the Second
Merger, the new Sierra Pacific Board will consist of 14 members, seven to be
selected by Sierra Pacific and seven to be selected by Nevada Power. See "The
Merger Agreement--Corporate Governance Matters--Sierra Pacific Board."
After the Effective Time of the Second Merger, Mr. Niggli, the President and
Chief Operating Officer of Nevada Power, will become the Chairman and Chief
Executive Officer of Sierra Pacific and the Chairman of each of SPPC and the
Surviving Corporation, and Mr. Malquist, the Chairman, Chief
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Executive Officer and President of Sierra Pacific, will become the President and
Chief Operating Officer of Sierra Pacific and the President and Chief Executive
Officer of SPPC and the Surviving Corporation. These provisions are subject to
the specific terms of the Employment Agreements entered into between each of
Messrs. Niggli and Malquist and Sierra Pacific, which are to become effective at
the Effective Time of the Second Merger. See "The Mergers--Employment
Agreements."
OPERATIONS
After the Mergers, Nevada Power and SPPC will continue to operate as the
utility subsidiaries of Sierra Pacific.
As a result of the Merger, all contractual and other obligations and rights
of Nevada Power will be assumed by or transferred to the Surviving Corporation
by operation of law. Notwithstanding such assumption or transfer by operation of
law, certain of Nevada Power's agreements or arrangements (such as those
relating to its joint power projects, environmental permits, interconnection
agreements, power purchase and sales agreements, transmission agreements, loan
agreements, franchise agreements, easements and rights of way and similar
instruments) may by their terms require the consent of the other party or
parties to such agreement or arrangement. It is a condition to the consummation
of the Mergers that Nevada Power have obtained all such approvals the absence of
which would be material to the continued operation of the Surviving Corporation.
Nevada Power will use its best efforts to obtain all required consents or
approvals, but no assurance can be made that it will be able to do so.
The Merger Agreement provides that all outstanding shares of Nevada Power
Preferred Stock must be redeemed or otherwise retired prior to the consummation
of the Mergers. The Nevada Power Preferred Stock is redeemable at a price of $21
per share for the 5.20% series and the 5.40% series and at $20.25 per share for
the 4.70% series at any time upon 30 days notice to the holders. Nevada Power
has not determined when or how it will retire the Nevada Power Preferred Stock.
All other securities of Nevada Power outstanding at the time the Mergers are
consummated (including, without limitation first mortgage bonds and (QUIDS) will
be assumed by the Surviving Corporation without the need for any consent or
approval of the holders thereof. In the case of certain securities issued for
the benefit of Nevada Power, the interest on which is exempt from federal income
taxation, Nevada Power must receive an opinion of nationally recognized bond
counsel that the Mergers will not have an adverse affect on such tax exemption.
Nevada Power will seek such opinions where required. In the event such opinions
cannot be obtained, it may be necessary to redeem or otherwise retire such
obligations (the maximum aggregate amount of which is $541 million).
None of the securities of SPPC, including its first mortgage bonds, junior
subordinated debentures, SPPC Preferred Stock or SPPC Class A Preferred Stock
will be affected by the Mergers and all such securities will remain outstanding
and unchanged. No approval of the holders of any security of SPPC is required as
a condition to consummation of the Mergers.
The non-utility operations of Sierra Pacific are presently conducted through
wholly-owned subsidiaries.
DIVIDENDS
Following the Mergers, the Sierra Pacific Board is expected to continue
Sierra Pacific's existing dividend payment policy. Sierra Pacific currently pays
$1.30 per share annually, and Nevada Power's annual dividend rate is currently
$1.60 per share but, effective with the quarterly $0.25 per share dividend
payable in November 1998, will be at an annual rate of $1.00 per share. Adjusted
for the Sierra Pacific Exchange Ratio and the Nevada Power Exchange Ratio, the
expected annual dividend rate of Sierra Pacific after the Mergers will be $1.00
per share. No assurance can be given that such dividend rate will be in effect
or will remain unchanged, and Sierra Pacific reserves the right to increase or
decrease its dividend as may be required by law or contract or as may be
determined by the Sierra Pacific Board, in its discretion,
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to be advisable. Declaration and timing of dividends on the Sierra Pacific
Common Stock will be a business decision to be made by the Sierra Pacific Board
from time to time based upon the results of operations and financial condition
of Sierra Pacific and its subsidiaries and such other business considerations as
the Sierra Pacific Board considers relevant in accordance with applicable laws.
For a description of certain restrictions on Sierra Pacific's ability to pay
dividends on Sierra Pacific Common Stock, see "Description of Sierra Pacific
Capital Stock."
STOCK OWNERSHIP
NEVADA POWER. The following table shows the beneficial ownership of the
Nevada Power Common Stock as of April 30, 1998 unless otherwise indicated in the
footnotes below, by each director, the Chairman and Chief Executive Officer, the
four other most highly compensated executive officers, all directors and
executive officers of Nevada Power as a group, and each person Nevada Power
believes holds more than 5% of the outstanding shares of Nevada Power Common
Stock. No director or executive officer owns, nor do the directors and executive
officers as a group own, in excess of one percent of the outstanding shares of
Nevada Power Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP
- ------------------------------------------------------------------------------------------ ----------------------
<S> <C>
Mary Kaye Cashman......................................................................... 8,042(1)
Mary Lee Coleman.......................................................................... 299,457(2)
Fred D. Gibson, Jr........................................................................ 7,468(3)
John L. Goolsby........................................................................... 2,421(4)
Jerry E. Herbst........................................................................... 5,100(5)
Charles A. Lenzie......................................................................... 18,354(10)
Michael R. Niggli......................................................................... 41(9)
John F. O'Reilly.......................................................................... 2,000(6)
Frank E. Scott............................................................................ 3,972(5)
Arthur M. Smith........................................................................... 1,200(7)
Jelindo A. Tiberti........................................................................ 2,000(8)
David G. Barneby.......................................................................... 6,202(11)
Cynthia K. Gilliam........................................................................ 4,542(12)
Richard L. Hinckley....................................................................... 4,681(13)
Steven W. Rigazio......................................................................... 6,942(14)
All Directors & Executive Officers as a Group (15 individuals)............................ 372,422
</TABLE>
- ------------------------
(1) 6,300 shares held in street name; balance held in stockholder's name.
(2) 158,696 shares held in stockholder's name; balance held in family trust.
(3) 4,600 shares held in street name; balance held in stockholder's name.
(4) 2,000 shares held in street name; balance held in stockholder's name.
(5) Held in stockholder's name.
(6) Held in street name.
(7) 1,000 shares held in street name; balance held in family trust.
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(8) 1,250 shares held in street name; balance held in name of controlled
corporation.
(9) Held in stockholder's name.
(10) 7,838 shares held in street name; balance held in stockholder's name.
(11) 1,136 shares held in street name; balance held in stockholders's name.
(12) 1,478 shares held in street name; balance in stockholder's name.
(13) 2,731 shares held in custodial account; balance held in stockholder's
name.
(14) 3,673 shares held in custodial account; balance held in stockholder's
name.
SIERRA PACIFIC. The following table shows the beneficial ownership of the
Sierra Pacific Common Stock as of April 30, 1998, unless otherwise indicated in
the footnotes below, by each director, the Chief Executive Officer, the Chairman
of the Board, the four other most highly compensated executive officers, all
directors and executive officers of Sierra Pacific as a group, and each person
Sierra Pacific believes holds more than 5% of the outstanding shares of Sierra
Pacific Common Stock. No director or executive officer owns, nor do the
directors and executive officers as a group own, in excess of one percent of the
outstanding shares of Sierra Pacific Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
DIRECTORS NAME OWNED
- -------------------------------------------------------------------- ------------------------
<S> <C>
Edward P. Bliss..................................................... 13,090
Krestine M. Corbin.................................................. 9,406
Theodore J. Day..................................................... 19,467
Harold P. Dayton, Jr................................................ 11,701
James R. Donnelley.................................................. 17,373
Richard N. Fulstone................................................. 13,920
Malyn K. Malquist................................................... 14,888
James L. Murphy..................................................... 9,445
Dennis E. Wheeler................................................... 8,379
Robert B. Whittington............................................... 12,202
-------
129,971
-------
-------
EXECUTIVE OFFICERS
- --------------------------------------------------------------------
Malyn K. Malquist................................................... 14,888
William E. Peterson................................................. 13,129
Mark A. Ruelle...................................................... 3,165
Gerald W. Canning................................................... 7,881
-------
39,163
-------
-------
All directors and executive officers as a group (1) (2) (3)......... 178,683
-------
-------
</TABLE>
- ------------------------
(1) Includes shares acquired through participation in the Employee Stock
Purchase Plan and 401(k) Plan.
(2) The number of shares beneficially owned includes shares which the Executive
Officers currently have the right to acquire pursuant to stock options
granted and performance shares earned under the Executive Long-Term
Incentive Plan. Shares beneficially owned pursuant to stock options granted
to Messrs. Malquist, Peterson, Ruelle, and Canning, and directors and
executive officers as a group are 10,817, 10,287, 2,795, 6,017, and 42,441
shares, respectively. Shares beneficially owned as a result of performance
shares earned by Messrs. Malquist, Peterson, Ruelle, Canning, and all
officers as a group are 1,350, 1,234, 0, 1,025, and 6,136, respectively.
(3) Included in the shares beneficially owned by the Directors are 65,290 shares
of "phantom stock."
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EXPERTS
The audited consolidated financial statements and financial statement
schedule incorporated in this Joint Proxy Statement/Prospectus by reference from
Nevada Power's Annual Report on Form 10-K for the year ended December 31, 1997
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The audited consolidated financial statements incorporated in this Joint
Proxy Statement/Prospectus by reference from Sierra Pacific's Annual Report on
Form 10-K for the year ended December 31, 1997 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and has been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
With respect to the unaudited interim financial information of Sierra
Pacific and its subsidiaries for the three month and six month periods ended
March 31, 1998 and 1997, and June 30, 1998 and 1997, which are incorporated
herein by reference, Deloitte & Touche LLP have applied limited procedures in
accordance with professional standards for a review of such information.
However, as stated in their report included in Sierra Pacific's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998 and
incorporated by reference herein, Deloitte & Touche LLP did not audit and does
not express an opinion on that interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. Deloitte & Touche
LLP are not subject to the liability provisions of Section 11 of the Securities
Act for their reports on the unaudited interim financial information because
those reports are not a "report" or a "part" of the registration statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Securities Act.
LEGAL MATTERS
William E. Peterson, Esq., Senior Vice President, General Counsel and
Corporate Secretary of Sierra Pacific will pass upon the legality of the shares
of Sierra Pacific Common Stock to be issued in connection with the Mergers.
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STOCKHOLDER PROPOSALS
NEVADA POWER
Any stockholder of Nevada Power may submit a proposal for consideration at
Nevada Power's 1999 Annual Meeting. Any stockholder desiring to submit a
proposal for inclusion in the proxy statement for consideration at Nevada
Power's 1999 Annual Meeting should forward the proposal so that it will be
received at Nevada Power's principal executive offices no later than November
26, 1998. Proposals received by that date that are proper for consideration at
the Annual Meeting and otherwise conforming to the rules of the SEC will be
included in the 1999 proxy statement. In addition to SEC requirements,
stockholder proposals or nominations must be received no fewer than 60 days
prior to the meeting (or, if the date of the meeting has not been made public,
within 10 days after the publication of the date of the meeting).
SIERRA PACIFIC
Under the rules of the SEC, any stockholder proposal intended to be
presented at Sierra Pacific's 1999 Annual Meeting must be received by Sierra
Pacific at its principal executive offices no later than November 17, 1998 in
order to be eligible to be considered for inclusion in Sierra Pacific's proxy
materials relating to that meeting. A stockholder submitting a proposal or
nominating a person to serve as director must comply with procedures set forth
in the Sierra Pacific By-laws. In general, the By-laws provide that for business
to be considered at an annual meeting of stockholders, a stockholder must give
120 days prior notice of the matter to the Secretary of Sierra Pacific. The
notice must specify in reasonable detail the business desired to be brought
before the meeting and contain other information required by the Sierra Pacific
By-laws. Nominations for director may be made by stockholders only if the
stockholder has given timely and proper notice thereof to the Secretary of
Sierra Pacific. The notice must contain the name of the person or persons
nominated, certain information about the nominee and other information required
by the Sierra Pacific By-laws. In addition to SEC requirements, stockholder
proposals or nominations must be received no fewer than 60 days prior to the
meeting (or, if the date of the meeting has not been made public, within 10 days
after the publication of the date of the meeting).
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ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NEVADA POWER COMPANY,
SIERRA PACIFIC RESOURCES,
DESERT MERGER SUB, INC.
AND LAKE MERGER SUB, INC.
DATED AS OF APRIL 29, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE 1
THE MERGERS
Section 1.1 The Mergers.............................................................................. A-1
Section 1.2 Effects of the Mergers................................................................... A-1
Section 1.3 Effective Time of the Mergers............................................................ A-2
ARTICLE 2
TREATMENT OF SHARES
Section 2.1 Effect on the Capital Stock of Sierra Pacific of the First Merger........................ A-2
(a) Cancellation of Lake Merger Sub Shares................................................... A-2
(b) Cancellation of Sierra Pacific Treasury Stock and Sub-Owned Stock........................ A-2
(c) Conversion of Sierra Pacific Common Stock................................................ A-2
(d) Allocation............................................................................... A-2
(e) Election................................................................................. A-3
(f) Allocation of Sierra Pacific Cash Election Shares........................................ A-3
(g) Allocation of Sierra Pacific Stock Election Shares....................................... A-4
(h) No Allocation............................................................................ A-4
(i) Proration of Sierra Pacific Deminimis Shares............................................. A-4
(j) Computations............................................................................. A-5
(k) Cancellation of Shares................................................................... A-5
Section 2.2 Effect on the Capital Stock of Nevada Power of the Second Merger......................... A-5
(a) Conversion of Desert Merger Sub Shares................................................... A-5
(b) Cancellation of Nevada Power Treasury Stock and Sub-Owned Stock.......................... A-5
(c) Conversion of Nevada Power Common Stock.................................................. A-5
(d) Allocation............................................................................... A-5
(e) Election................................................................................. A-6
(f) Allocation of Nevada Power Cash Election Shares.......................................... A-6
(g) Allocation of Nevada Power Stock Election Shares......................................... A-7
(h) No Allocation............................................................................ A-7
(i) Proration of Nevada Power Deminimis Shares............................................... A-7
(j) Computations............................................................................. A-8
(k) Cancellation of Shares................................................................... A-8
Section 2.3 Exchange of Certificates................................................................. A-8
(a) Exchange Agent........................................................................... A-8
(b) Exchange Procedures...................................................................... A-8
(c) Distributions with Respect to Unexchanged Shares......................................... A-10
(d) No Further Ownership Rights in Shares.................................................... A-10
(e) No Fractional Shares..................................................................... A-10
(f) Termination of Exchange Fund............................................................. A-11
(g) No Liability............................................................................. A-11
(h) Investment of Exchange Fund.............................................................. A-11
(i) Lost Certificates........................................................................ A-11
(j) Determination of Proper Elections........................................................ A-11
Section 2.4 Certain Adjustments...................................................................... A-11
</TABLE>
A-i
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<TABLE>
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<S> <C> <C>
ARTICLE 3
THE CLOSING
Section 3.1 Closing.................................................................................. A-12
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF EACH OF SIERRA PACIFIC,
LAKE MERGER SUB AND DESERT MERGER SUB
Section 4.1 Organization and Qualification........................................................... A-12
Section 4.2 Subsidiaries............................................................................. A-12
Section 4.3 Capitalization........................................................................... A-13
Section 4.4 Authority; Non-Contravention; Statutory Approvals; Compliance............................ A-13
(a) Authority................................................................................ A-13
(b) Non-Contravention........................................................................ A-14
(c) Statutory Approvals...................................................................... A-14
(d) Compliance............................................................................... A-14
Section 4.5 Reports and Financial Statements......................................................... A-15
Section 4.6 Absence of Certain Changes or Events; Absence of Undisclosed Liabilities................. A-15
Section 4.7 Litigation............................................................................... A-15
Section 4.8 Registration Statement and Proxy Statement............................................... A-16
Section 4.9 Tax Matters.............................................................................. A-16
(a) Filing of Timely Tax Returns............................................................. A-16
(b) Payment of Taxes......................................................................... A-16
(c) Tax Liens................................................................................ A-16
(d) Withholding Taxes........................................................................ A-16
(e) Extensions of Time for Filing Tax Returns................................................ A-17
(f) Waivers of Statute of Limitations........................................................ A-17
(g) Expiration of Statute of Limitations..................................................... A-17
(h) Audit, Administrative and Court Proceedings.............................................. A-17
(i) Powers of Attorney....................................................................... A-17
(j) Tax Rulings.............................................................................. A-17
(k) Availability of Tax Returns.............................................................. A-17
(l) Tax Sharing Agreements................................................................... A-17
(m) Code Section 341(f)...................................................................... A-17
(n) Code Section 168......................................................................... A-17
(o) Code Section 481 Adjustments............................................................. A-17
(p) Code SectionSection 6661 and 6662........................................................ A-18
(q) Code Section 280G........................................................................ A-18
(r) Liability for Others..................................................................... A-18
Section 4.10 Employee Matters: ERISA.................................................................. A-18
(a) Benefit Plans............................................................................ A-18
(b) Contributions............................................................................ A-18
(c) Qualification: Compliance................................................................ A-18
(d) Liabilities.............................................................................. A-18
(e) Welfare Plans............................................................................ A-19
(f) Documents Made Available................................................................. A-19
(g) Payments Resulting from Merger........................................................... A-19
(h) Funded Status of Plans................................................................... A-19
(i) Certain Other Obligations................................................................ A-19
(j) Modification or Termination of Plans..................................................... A-19
</TABLE>
A-ii
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<TABLE>
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<S> <C> <C>
(k) Labor Agreements......................................................................... A-20
Section 4.11 Environmental Protection................................................................. A-20
(a) Compliance............................................................................... A-20
(b) Environmental Permits.................................................................... A-20
(c) Environmental Claims..................................................................... A-21
(d) Releases................................................................................. A-21
(e) Predecessors............................................................................. A-21
(f) Disclosure............................................................................... A-21
Section 4.12 Regulation as a Utility.................................................................. A-22
Section 4.13 Vote Required............................................................................ A-22
Section 4.14 Non-applicability of Certain Nevada Law.................................................. A-22
Section 4.15 Opinion of Financial Advisor............................................................. A-22
Section 4.16 Insurance................................................................................ A-23
Section 4.17 Ownership of Nevada Power Common Stock................................................... A-23
Section 4.18 Sierra Pacific Rights Agreement.......................................................... A-23
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF NEVADA POWER
Section 5.1 Organization and Qualification........................................................... A-23
Section 5.2 Subsidiaries............................................................................. A-23
Section 5.3 Capitalization........................................................................... A-24
Section 5.4 Authority; Non-Contravention; Statutory Approvals; Compliance............................ A-24
(a) Authority................................................................................ A-24
(b) Non-Contravention........................................................................ A-24
(c) Statutory Approvals...................................................................... A-25
(d) Compliance............................................................................... A-25
Section 5.5 Reports and Financial Statements......................................................... A-25
Section 5.6 Absence of Certain Changes or Events; Absence of Undisclosed Liabilities................. A-26
Section 5.7 Litigation............................................................................... A-26
Section 5.8 Registration Statement and Proxy Statement............................................... A-26
Section 5.9 Tax Matters.............................................................................. A-26
(a) Filing of Timely Tax Returns............................................................. A-26
(b) Payment of Taxes......................................................................... A-27
(c) Tax Liens................................................................................ A-27
(d) Withholding Taxes........................................................................ A-27
(e) Extensions of Time for Filing Tax Returns................................................ A-27
(f) Waivers of Statute of Limitations........................................................ A-27
(g) Expiration of Statute of Limitations..................................................... A-27
(h) Audit, Administrative and Court Proceedings.............................................. A-27
(i) Power of Attorney........................................................................ A-27
(j) Tax Rulings.............................................................................. A-27
(k) Availability of Tax Returns.............................................................. A-27
(l) Tax Sharing Agreements................................................................... A-27
(m) Code Section 341(f)...................................................................... A-28
(n) Code Section 168......................................................................... A-28
(o) Code Section 481 Adjustments............................................................. A-28
(p) Code Section 6661 and Section 6662....................................................... A-28
(q) Code Section 280G........................................................................ A-28
(r) Liability for Others..................................................................... A-28
</TABLE>
A-iii
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<TABLE>
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<S> <C> <C>
Section 5.10 Employee Matters; ERISA.................................................................. A-28
(a) Benefit Plans............................................................................ A-28
(b) Contributions............................................................................ A-28
(c) Qualification; Compliance................................................................ A-29
(d) Liabilities.............................................................................. A-29
(e) Welfare Plans............................................................................ A-29
(f) Documents Made Available................................................................. A-29
(g) Payments Resulting from Merger........................................................... A-29
(h) Funded Status of Plans................................................................... A-29
(i) Certain Other Obligations................................................................ A-29
(j) Modification or Termination of Plans..................................................... A-30
(k) Labor Agreements......................................................................... A-30
Section 5.11 Environmental Protection................................................................. A-30
(a) Compliance............................................................................... A-30
(b) Environmental Permits.................................................................... A-31
(c) Environmental Claims..................................................................... A-31
(d) Releases................................................................................. A-31
(e) Predecessors............................................................................. A-31
(f) Disclosure............................................................................... A-31
Section 5.12 Regulation as a Utility.................................................................. A-31
Section 5.13 Vote Required............................................................................ A-31
Section 5.14 Non-applicability of Certain Nevada Law.................................................. A-32
Section 5.15 Opinion of Financial Advisor............................................................. A-32
Section 5.16 Insurance................................................................................ A-32
Section 5.17 Ownership of Sierra Pacific Common Stock................................................. A-32
Section 5.18 Nevada Power Rights Agreement............................................................ A-32
ARTICLE 6
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Covenants of The Parties................................................................. A-32
(a) Ordinary Course of Business.............................................................. A-32
(b) Dividends................................................................................ A-33
(c) Issuance of Securities................................................................... A-33
(d) Charter Documents........................................................................ A-34
(e) No Acquisitions.......................................................................... A-34
(f) Capital Expenditures: Additional Facilities, Etc......................................... A-34
(g) No Dispositions.......................................................................... A-34
(h) Indebtedness............................................................................. A-34
(i) Compensation, Benefits................................................................... A-35
(j) 1935 Act................................................................................. A-35
(k) Accounting............................................................................... A-35
(l) Tax-Free Status.......................................................................... A-35
(m) Affiliate Transactions................................................................... A-35
(n) Cooperation, Notification................................................................ A-35
(o) Rate Matters............................................................................. A-36
(p) Third-Party Consents..................................................................... A-36
(q) No Breach, Etc........................................................................... A-36
(r) Tax-Exempt Status........................................................................ A-36
(s) Contracts................................................................................ A-36
(t) Discharge of Liabilities................................................................. A-36
</TABLE>
A-iv
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<S> <C> <C>
ARTICLE 7
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information.................................................................... A-37
Section 7.2 Joint Proxy Statement and Registration Statement......................................... A-37
(a) Preparation and Filing................................................................... A-37
(b) Amendments and Supplements............................................................... A-37
(c) Letter of Sierra Pacific's Accountants................................................... A-37
(d) Letter of Nevada Power's Accountants..................................................... A-38
(e) Fairness Opinions........................................................................ A-38
Section 7.3 Regulatory Matters....................................................................... A-38
(a) HSR Filings.............................................................................. A-38
(b) Other Regulatory Approvals............................................................... A-38
Section 7.4 Shareholder Approval..................................................................... A-38
(a) Approval of Nevada Power Stockholders.................................................... A-38
(b) Approval of Sierra Pacific Stockholders.................................................. A-38
(c) Meeting Date............................................................................. A-39
Section 7.5 Directors' and Officers' Indemnification................................................. A-39
(a) Indemnification.......................................................................... A-39
(b) Insurance................................................................................ A-39
(c) Successors............................................................................... A-40
(d) Survival of Indemnification.............................................................. A-40
(e) Benefit.................................................................................. A-40
Section 7.6 Disclosure Schedules..................................................................... A-40
Section 7.7 Public Announcements..................................................................... A-40
Section 7.8 Rule 145 Affiliates...................................................................... A-40
Section 7.9 Employee Agreements and Workforce Matters................................................ A-41
(a) Certain Employee Agreements.............................................................. A-41
(b) Workforce Matters........................................................................ A-41
Section 7.10 Employee Benefit Plans................................................................... A-41
Section 7.11 Incentive, Stock and Other Plans......................................................... A-42
(a) Sierra Pacific Action.................................................................... A-42
(b) Dividend Reinvestment Plans.............................................................. A-42
Section 7.12 No Solicitations......................................................................... A-42
Section 7.13 Sierra Pacific Board of Directors........................................................ A-43
Section 7.14 Officers................................................................................. A-43
Section 7.15 Employment Contracts..................................................................... A-43
Section 7.16 Corporate Offices........................................................................ A-43
Section 7.17 Transition Management.................................................................... A-44
Section 7.18 Expenses................................................................................. A-44
Section 7.19 Covenant to Satisfy Conditions........................................................... A-44
ARTICLE 8
CONDITIONS
Section 8.1 Conditions to Each Party's Obligations to Effect the Mergers............................. A-44
(a) Shareholder Approvals.................................................................... A-44
(b) No Injunction............................................................................ A-44
(c) Registration Statement................................................................... A-44
(d) Listing of Shares........................................................................ A-45
(e) Statutory Approvals...................................................................... A-45
</TABLE>
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<TABLE>
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PAGE
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<S> <C> <C>
Section 8.2 Conditions to Obligations of Sierra Pacific, Lake Merger Sub and Desert Merger Sub to A-45
Effect the Mergers.......................................................................
(a) Performance of Obligations of Nevada Power............................................... A-45
(b) Representations and Warranties........................................................... A-45
(c) Closing Certificates..................................................................... A-45
(d) Nevada Power Material Adverse Effect..................................................... A-45
(e) Tax Opinion.............................................................................. A-45
(f) Nevada Power Required Consents........................................................... A-45
(g) Trigger of Nevada Power Rights........................................................... A-45
(h) Cancellation of Nevada Power Preferred Stock............................................. A-46
Section 8.3 Conditions to Obligations of Nevada Power to Effect the Mergers.......................... A-46
(a) Performance of Obligations............................................................... A-46
(b) Representations and Warranties........................................................... A-46
(c) Closing Certificates..................................................................... A-46
(d) Sierra Pacific Material Adverse Effect................................................... A-46
(e) Tax Opinion.............................................................................. A-46
(f) Sierra Pacific Required Consents......................................................... A-46
(g) Trigger of Sierra Pacific Rights......................................................... A-46
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination.............................................................................. A-47
Section 9.2 Effect of Termination.................................................................... A-49
Section 9.3 Termination Fee; Expenses................................................................ A-49
(a) Expenses Payable upon Non-Wilful Breach.................................................. A-49
(b) Termination Fee In Certain Other Events.................................................. A-49
(c) Expenses................................................................................. A-50
Section 9.4 Amendment................................................................................ A-50
Section 9.5 Waiver................................................................................... A-51
ARTICLE 10
GENERAL PROVISIONS
Section 10.1 Non-Survival of Representations, Warranties, Covenants and Agreements.................... A-51
Section 10.2 Brokers.................................................................................. A-51
Section 10.3 Notices.................................................................................. A-51
Section 10.4 Miscellaneous............................................................................ A-52
Section 10.5 Interpretation........................................................................... A-52
Section 10.6 Counterparts; Effect..................................................................... A-52
Section 10.7 Parties in Interest...................................................................... A-52
Section 10.8 Further Assurances....................................................................... A-53
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of April 29, 1998 (this "Agreement"),
by and among Nevada Power Company, a Nevada corporation ("Nevada Power"), Sierra
Pacific Resources, a Nevada corporation ("Sierra Pacific"), DESERT Merger Sub,
Inc., a Nevada corporation and a wholly-owned subsidiary of Sierra ("DESERT
Merger Sub"), and LAKE Merger Sub, Inc., a Nevada corporation and a wholly-owned
subsidiary of Sierra ("LAKE Merger Sub").
WHEREAS, Nevada Power and Sierra Pacific have determined to engage in a
strategic business combination transaction as peer firms in a merger of equals
on the terms stated herein;
WHEREAS, in furtherance thereof, the respective Boards of Directors of
Sierra Pacific and Lake Merger Sub have approved this Agreement and the merger
of Lake Merger Sub with and into Sierra Pacific, with Sierra Pacific being the
surviving corporation (the "First Merger"), and the respective Boards of
Directors of Nevada Power, Sierra Pacific and Desert Merger Sub have approved
this Agreement and the merger of Nevada Power with and into Desert Merger Sub,
with Desert Merger Sub being the surviving corporation (the "Second Merger," and
together with the First Merger, the "Mergers");
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGERS
Section 1.1 THE MERGERS. Upon the terms and subject to the conditions of
this Agreement:
a) At the Effective Time of the First Merger (as defined in Section 1.3),
Lake Merger Sub will be merged with and into Sierra Pacific, in accordance with
the laws of the State of Nevada. Sierra Pacific will be the surviving
corporation in the First Merger and will continue its corporate existence under
the laws of the State of Nevada. The effects and the consequences of the First
Merger are set forth in Section 1.2(a). Throughout this Agreement, the term
"Sierra Pacific" refers to Sierra Pacific prior to the First Merger or to Sierra
Pacific as the surviving corporation in the First Merger, as the context
requires.
b) At the Effective Time of the Second Merger (as defined in Section 1.3),
Nevada Power will be merged with and into Desert Merger Sub in accordance with
the laws of the State of Nevada. Desert Merger Sub will be the surviving
corporation in the Second Merger (the "Surviving Corporation") and will continue
its corporate existence under the laws of the State of Nevada. The effects and
the consequences of the Second Merger are set forth in Section 1.2(b).
Section 1.2 EFFECTS OF THE MERGERS.
(a) At the Effective Time of the First Merger, (i) the articles of
incorporation of Sierra Pacific, as in effect immediately prior to the First
Merger (which will be amended and restated in a form agreed to by Nevada Power
and Sierra Pacific), will be the articles of incorporation of Sierra Pacific
(the "Articles of Incorporation"), as the surviving corporation in the First
Merger, until thereafter amended as provided by law and the Articles of
Incorporation, and (ii) the bylaws of Sierra Pacific, as in effect immediately
prior to the First Merger (which will be amended and restated in a form agreed
to by Nevada Power and Sierra Pacific), will be the bylaws of Sierra Pacific
(the "Bylaws"), as the surviving corporation in the First Merger, until
thereafter amended as provided by law, the Articles of Incorporation and the
Bylaws. Subject to the foregoing, the additional effects of the First Merger
shall be as provided in the applicable provisions of the General Corporation Law
of the State of Nevada (the "GCL").
(b) At the Effective Time of the Second Merger, (i) the articles of
incorporation of Desert Merger Sub, as in effect immediately prior to the Second
Merger (which will be amended and restated in a form agreed to by Nevada Power
and Sierra Pacific), will be the articles of incorporation of the Surviving
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Corporation until thereafter amended as provided by law and such articles of
incorporation, and (ii) the by-laws of Desert Merger Sub, as in effect
immediately prior to the Second Merger (which will be amended and restated in a
form agreed to by Nevada Power and Sierra Pacific), shall be the by-laws of the
Surviving Corporation until thereafter amended as provided by law, the articles
of incorporation of the Surviving Corporation and such bylaws. Subject to the
foregoing, the additional effects of the Second Merger shall be as provided in
the applicable provisions of the GCL.
Section 1.3 EFFECTIVE TIME OF THE MERGERS. On the Closing Date (as defined
in Section 3.1), articles of merger complying with the requirements of the GCL
will be executed and filed with the Secretary of State of the State of Nevada
with respect to the Mergers. The First Merger shall become effective upon filing
the articles of merger or upon such later date as is agreed upon by the parties
and specified in the articles of merger (the "Effective Time of the First
Merger"). The Second Merger shall become effective upon filing the articles of
merger or upon such later date as is agreed upon by the parties and specified in
the articles of merger (the "Effective Time of the Second Merger"). The First
Merger will occur immediately prior to the Second Merger.
ARTICLE 2
TREATMENT OF SHARES
Section 2.1 EFFECT ON THE CAPITAL STOCK OF SIERRA PACIFIC OF THE FIRST
MERGER. As of the Effective Time of the First Merger, by virtue of the First
Merger and without any action on the part of any holder of Sierra Pacific Common
Stock (as hereinafter defined):
(a) CANCELLATION OF LAKE MERGER SUB SHARES. Each share of common stock,
without par value, of Lake Merger Sub issued and outstanding immediately prior
to the Effective Time of the First Merger will automatically be canceled and
retired and will cease to exist, and no consideration will be delivered in
exchange therefor.
(b) CANCELLATION OF SIERRA PACIFIC TREASURY STOCK AND SUB-OWNED
STOCK. Each share of common stock, par value $1.00 per share, of Sierra Pacific
("Sierra Pacific Common Stock"), together with the associated purchase rights
(the "Sierra Pacific Rights") under the Sierra Pacific Rights Agreement (as
defined in Section 4.18), that is owned by Sierra Pacific or by any wholly owned
subsidiary of Sierra Pacific will automatically be canceled and retired and will
cease to exist, and no consideration will be delivered in exchange therefor.
Throughout this Agreement, the term "Sierra Pacific Common Stock" refers to the
Sierra Pacific Common Stock together with the associated Sierra Pacific Rights.
(c) CONVERSION OF SIERRA PACIFIC COMMON STOCK. Subject to the provisions
of Section 2.3(e) hereof, each issued and outstanding share of Sierra Pacific
Common Stock (other than shares of Sierra Pacific Common Stock to be canceled in
accordance with Section 2.1(b)) will be converted into either (x) $37.55 in cash
(the "Sierra Pacific Cash Consideration") or (y) 1.44 (the "Sierra Pacific
Exchange Ratio") fully paid and non-assessable shares of Sierra Pacific Common
Stock (the "Sierra Pacific Stock Consideration" and, together with the Sierra
Pacific Cash Consideration, the "Sierra Pacific Merger Consideration"), in each
case as the holder thereof shall have elected or be deemed to have elected, in
accordance with Section 2.1(e).
(d) ALLOCATION. Notwithstanding anything in this Agreement to the
contrary, the number of shares of Sierra Pacific Common Stock to be converted
into the right to receive the Sierra Pacific Cash Consideration in the First
Merger (the "Sierra Pacific Cash Number") will be equal to (i) 4,037,809 shares
of Sierra Pacific Common Stock less (ii) the aggregate number of shares of
Sierra Pacific Common Stock to be exchanged for cash pursuant to Section 2.3(e).
The number of shares of Sierra Pacific Common Stock to be converted into the
right to receive the Sierra Pacific Stock Consideration in the First Merger (the
"Sierra Pacific Stock Number") will be equal to (i) the number of shares of
Sierra Pacific Common Stock issued and outstanding immediately prior to the
Effective Time of the First Merger (ignoring for this
A-2
<PAGE>
purpose any Sierra Pacific Common Stock held as treasury shares and canceled
pursuant to Section 2.1(b)) less (ii) the sum of (A) the Sierra Pacific Cash
Number and (B) the aggregate number of shares of Sierra Pacific Common Stock to
be exchanged for cash pursuant to Section 2.3(e). Notwithstanding anything to
the contrary herein, Sierra Pacific will have the option, with the prior consent
of Nevada Power, to change the Sierra Pacific Cash Number and the Sierra Pacific
Stock Number to more closely follow the actual elections of the Sierra Pacific
stockholders pursuant to this Section 2.1, so long as such modification to the
Sierra Pacific Cash Number and the Sierra Pacific Stock Number does not prevent
the conditions set forth in Sections 8.2(e) and 8.3(e) from being satisfied.
(e) ELECTION. Subject to allocation in accordance with the provisions of
this Section 2.1, each record holder of shares of Sierra Pacific Common Stock
(other than shares to be canceled in accordance with Section 2.1(b)) issued and
outstanding immediately prior to the Election Deadline (as defined in Section
2.3(b)(i)) will be entitled, in accordance with Section 2.3(b), (i) to elect to
receive in respect of each such share (A) the Sierra Pacific Cash Consideration
(a "Sierra Pacific Cash Election") or (B) the Sierra Pacific Stock Consideration
(a "Sierra Pacific Stock Election") or (ii) to indicate that such record holder
has no preference as to the receipt of the Sierra Pacific Cash Consideration or
the Sierra Pacific Stock Consideration for all such shares held by such holder
(a "Sierra Pacific Non-Election"); PROVIDED, HOWEVER, that, except as provided
in Section 2.1(i), all record holders of Sierra Pacific Common Stock who (x) own
less than 100 shares of Sierra Pacific Common Stock or (y) elect to receive the
Sierra Pacific Stock Consideration in respect of less than 100 shares of Sierra
Pacific Common Stock (all such shares being herein referred to as the "Sierra
Pacific Deminimis Shares") will be deemed to have elected to receive the Sierra
Pacific Cash Consideration. Shares of Sierra Pacific Common Stock in respect of
which a Sierra Pacific Non-Election is made or as to which no election is made
(collectively, "Sierra Pacific Non-Election Shares") shall be deemed by Sierra
Pacific, with the prior consent of Nevada Power, to be shares in respect of
which Sierra Pacific Cash Elections or Sierra Pacific Stock Elections have been
made, as Sierra Pacific shall determine.
(f) ALLOCATION OF SIERRA PACIFIC CASH ELECTION SHARES. In the event that
the aggregate number of shares in respect of which Sierra Pacific Cash Elections
have been made or are deemed to have been made in accordance with the proviso at
the end of the first sentence of Section 2.1(e) (the "Sierra Pacific Cash
Election Shares") exceeds the Sierra Pacific Cash Number, all shares of Sierra
Pacific Common Stock in respect of which Sierra Pacific Stock Elections have
been made ("the Sierra Pacific Stock Election Shares") and all Sierra Pacific
Non-Election Shares will be converted into the right to receive the Sierra
Pacific Stock Consideration (and cash in lieu of fractional interests in
accordance with Section 2.3(e)), and the Sierra Pacific Cash Election Shares
will be converted into the right to receive the Sierra Pacific Cash
Consideration or the Sierra Pacific Stock Consideration in the following manner:
(i) all Sierra Pacific Deminimis Shares will be converted into the right
to receive the Sierra Pacific Cash Consideration;
(ii) the number of Sierra Pacific Cash Election Shares, other than
Sierra Pacific Deminimis Shares, covered by each Form of Election (as
defined in Section 2.3(b)(i)) to be converted into Sierra Pacific Cash
Consideration will be determined by multiplying the number of Sierra Pacific
Cash Election Shares covered by such Form of Election by a fraction, (A) the
numerator of which is the Sierra Pacific Cash Number less the number of
Sierra Pacific Deminimis Shares and (B) the denominator of which is the
aggregate number of Sierra Pacific Cash Election Shares less the number of
Sierra Pacific Deminimis Shares, rounded down to the nearest whole number;
PROVIDED, HOWEVER, that, if as a result of such proration, any holder of
Sierra Pacific Cash Election Shares would, but for this proviso, receive
less than 100 shares of Sierra Pacific Common Stock in accordance with
Section 2.1(f)(iii), all Sierra Pacific Cash Election Shares held by such
holders (the "Sierra Pacific Non-Prorated Cash Shares") will be converted
into the Sierra Pacific Cash Consideration and the remaining Sierra Pacific
Cash Election Shares to be converted into the Sierra Pacific Cash
Consideration will be determined by multiplying the number of Sierra Pacific
Cash Election Shares covered by
A-3
<PAGE>
such Form of Election by a fraction, (A) the numerator of which is the
Sierra Pacific Cash Number less the sum of the number of Sierra Pacific
Deminimis Shares and Sierra Pacific Non-Prorated Cash Shares and (B) the
denominator of which is the aggregate number of Sierra Pacific Cash Election
Shares less the sum of the number of Sierra Pacific Deminimis Shares and
Sierra Pacific Non-Prorated Cash Shares, rounded down to the nearest whole
number; PROVIDED FURTHER, HOWEVER, that, if the number of Sierra Pacific
Non-Prorated Cash Shares exceeds the difference between the Sierra Pacific
Cash Number and the number of Sierra Pacific Deminimis Shares, the Sierra
Pacific Non-Prorated Cash Shares will be converted into the Sierra Pacific
Cash Consideration by selecting, by lottery or such other method as mutually
agreed to by Sierra Pacific and Nevada Power, from among the record holders
of Sierra Pacific Non-Prorated Cash Shares a sufficient number of such
holders (the "Sierra Pacific Cash Designees") such that the number of Sierra
Pacific Cash Election Shares held by the Sierra Pacific Cash Designees will,
when added to the Sierra Pacific Deminimis Shares, be equal as closely as
practicable to the Sierra Pacific Cash Number, and all such Sierra Pacific
Cash Election Shares held by such Sierra Pacific Cash Designees will be
converted into the right to receive the Sierra Pacific Cash Consideration;
PROVIDED, HOWEVER, that no such Sierra Pacific Cash Designee shall receive
both Sierra Pacific Stock Consideration and Sierra Pacific Cash
Consideration for such holder's Sierra Pacific Common Stock and that Sierra
Pacific may, in accordance with Section 2.1(d), change the Sierra Pacific
Cash Number and the Sierra Pacific Stock Number in order to meet this
requirement; and
(iii) all Sierra Pacific Cash Election Shares not converted into Sierra
Pacific Cash Consideration in accordance with Section 2.1(f)(i) or (ii) will
be converted into the right to receive the Sierra Pacific Stock
Consideration (and cash in lieu of fractional interests in accordance with
Section 2.3(e)).
(g) ALLOCATION OF SIERRA PACIFIC STOCK ELECTION SHARES. In the event that
the aggregate number of Sierra Pacific Stock Election Shares exceeds the Sierra
Pacific Stock Number, all Sierra Pacific Cash Election Shares and all Sierra
Pacific Non-Election Shares (together, the "Sierra Pacific Cash Shares") will be
converted into the right to receive the Sierra Pacific Cash Consideration, and
all Sierra Pacific Stock Election Shares will be converted into the right to
receive the Sierra Pacific Cash Consideration or the Sierra Pacific Stock
Consideration in the following manner:
(i) the number of Sierra Pacific Stock Election Shares covered by each
Form of Election to be converted into Sierra Pacific Cash Consideration will
be determined by multiplying the number of Sierra Pacific Stock Election
Shares covered by such Form of Election by a fraction, (A) the numerator of
which is the Sierra Pacific Cash Number less the number of Sierra Pacific
Cash Shares and (B) the denominator of which is the aggregate number of
Sierra Pacific Stock Election Shares, rounded down to the nearest whole
number; and
(ii) all Sierra Pacific Stock Election Shares not converted into Sierra
Pacific Cash Consideration in accordance with Section 2.1(g)(i) will be
converted into the right to receive the Sierra Pacific Stock Consideration
(and cash in lieu of fractional interests in accordance with Section
2.3(e)).
(h) NO ALLOCATION. In the event that neither Section 2.1(f) nor Section
2.1(g) is applicable, all Sierra Pacific Cash Election Shares will be converted
into the right to receive the Sierra Pacific Cash Consideration, all Sierra
Pacific Stock Election Shares will be converted into the right to receive the
Sierra Pacific Stock Consideration (and cash in lieu of fractional interests in
accordance with Section 2.3(e)) and Sierra Pacific Non-Election Shares will be
converted into the right to receive the Sierra Pacific Cash Consideration or the
Sierra Pacific Stock Consideration (and cash in lieu of fractional interests in
accordance with Section 2.3(e)) as Sierra Pacific, with the prior consent of
Nevada Power, shall determine.
(i) PRORATION OF SIERRA PACIFIC DEMINIMIS SHARES. In the event that, at
the Election Deadline, the value of the Sierra Pacific Stock Consideration,
determined by multiplying the Sierra Pacific Exchange Ratio by the Average Price
of a share of Sierra Pacific Common Stock, exceeds 120% of the value of the
Sierra Pacific Cash Consideration, Sierra Pacific will have the option, with the
prior consent of Nevada
A-4
<PAGE>
Power, to more closely follow the actual election of the Sierra Pacific
stockholders who hold Sierra Pacific Deminimis Shares without regard to the
proviso at the end of the first sentence of Section 2.1(e). "Average Price"
means the average of the closing prices as reported in The Wall Street Journal's
New York Stock Exchange Composite Transactions Reports for each of the 20
consecutive Trading Days in the period ending on the Election Deadline. "Trading
Day" means a day on which the New York Stock Exchange, Inc. is open for trading.
(j) COMPUTATIONS. The Exchange Agent, in consultation with Sierra Pacific
and Nevada Power, will make all computations to give effect to this Section 2.1.
(k) CANCELLATION OF SHARES. As of the Effective Time of the First Merger,
all such shares of Sierra Pacific Common Stock will no longer be outstanding and
will automatically be canceled and retired and will cease to exist and each
holder of a certificate formerly representing any such shares of Sierra Pacific
Common Stock (a "Sierra Pacific Certificate") will cease to have any rights with
respect thereto, except the right to receive the Sierra Pacific Merger
Consideration and any additional cash in lieu of fractional shares of Sierra
Pacific Common Stock to be issued or paid in consideration therefor upon
surrender of such Sierra Pacific Certificate in accordance with Section 2.3,
without interest.
Section 2.2 EFFECT ON THE CAPITAL STOCK OF NEVADA POWER OF THE SECOND
MERGER. As of the Effective Time of the Second Merger, by virtue of the Second
Merger and without any action on the part of any holder of Nevada Power Common
Stock (as hereinafter defined):
(a) CONVERSION OF DESERT MERGER SUB SHARES. Each share of common stock,
without par value, of Desert Merger Sub issued and outstanding immediately prior
to the Effective Time of the Second Merger will remain outstanding unaffected by
the Second Merger, with the result that the Surviving Corporation will remain a
wholly owned subsidiary of Sierra Pacific.
(b) CANCELLATION OF NEVADA POWER TREASURY STOCK AND SUB-OWNED STOCK. Each
share of common stock, par value $1.00 per share, of Nevada Power ("Nevada Power
Common Stock"), together with the associated purchase rights (the "Nevada Power
Rights") under the Nevada Power Rights Agreement (as defined in Section 5.18),
that is owned by Nevada Power or by any wholly owned subsidiary of Nevada Power
or by Sierra Pacific or any wholly owned subsidiary of Sierra Pacific will
automatically be canceled and retired and will cease to exist, and no
consideration will be delivered in exchange therefor. Throughout this Agreement,
the term "Nevada Power Common Stock" refers to Nevada Power Common Stock
together with the associated Nevada Power Rights.
(c) CONVERSION OF NEVADA POWER COMMON STOCK. Subject to the provisions of
Section 2.3(e) hereof, each issued and outstanding share of Nevada Power Common
Stock (other than shares of Nevada Power Common Stock to be canceled in
accordance with Section 2.2(b)) will be converted into either (x) $26.00 in cash
(the "Nevada Power Cash Consideration") or (y) 1.00 (the "Nevada Power Exchange
Ratio") fully paid and non-assessable shares of Sierra Pacific Common Stock (the
"Nevada Power Stock Consideration" and, together with the Nevada Power Cash
Consideration, the "Nevada Power Merger Consideration"), in each case as the
holder thereof shall have elected or be deemed to have elected, in accordance
with Section 2.2(e).
(d) ALLOCATION. Notwithstanding anything in this Agreement to the
contrary, the number of shares of Nevada Power Common Stock to be converted into
the right to receive the Nevada Power Cash Consideration in the Second Merger
(the "Nevada Power Cash Number") will be equal to (i) 11,715,084 shares of
Nevada Power Common Stock less (ii) the aggregate number of shares of Nevada
Power Common Stock to be exchanged for cash pursuant to Section 2.3(e). The
number of shares of Nevada Power Common Stock to be converted into the right to
receive the Nevada Power Stock Consideration in the Second Merger (the "Nevada
Power Stock Number") will be equal to (i) the number of shares of Nevada Power
Common Stock issued and outstanding immediately prior to the Effective Time of
the Second Merger (ignoring for this purpose any Nevada Power Common Stock held
as treasury shares and
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<PAGE>
canceled pursuant to Section 2.2(b)) less (ii) the sum of (A) the Nevada Power
Cash Number and (B) the aggregate number of shares of Nevada Power Common Stock
to be exchanged for cash pursuant to Section 2.3(e). Notwithstanding anything to
the contrary herein, Nevada Power will have the option, with the prior consent
of Sierra Pacific, to change the Nevada Power Cash Number and the Nevada Power
Stock Number to more closely follow the actual elections of the Nevada Power
stockholders pursuant to this Section 2.2, so long as such modification to the
Nevada Power Cash Number and the Nevada Power Stock Number does not prevent the
conditions set forth in Sections 8.2(e) and 8.3(e) from being satisfied.
(e) ELECTION. Subject to allocation in accordance with the provisions of
this Section 2.2, each record holder of shares of Nevada Power Common Stock
(other than shares to be canceled in accordance with Section 2.2(b)) issued and
outstanding immediately prior to the Election Deadline will be entitled, in
accordance with Section 2.3(b), (i) to elect to receive in respect of each such
share (A) the Nevada Power Cash Consideration (a "Nevada Power Cash Election")
or (B) the Nevada Power Stock Consideration (a "Nevada Power Stock Election") or
(ii) to indicate that such record holder has no preference as to the receipt of
the Nevada Power Cash Consideration or the Nevada Power Stock Consideration for
all such shares held by such holder (a "Nevada Power Non-Election"); PROVIDED,
HOWEVER, that, except as provided in Section 2.2(i), all record holders of
Nevada Power Common Stock who (x) own less than 100 shares of Nevada Power
Common Stock or (y) elect to receive the Nevada Power Stock Consideration in
respect of less than 100 shares of Nevada Power Common Stock (all such shares
being herein referred to as the "Nevada Power Deminimis Shares") will be deemed
to have elected to receive the Nevada Power Cash Consideration. Shares of Nevada
Power Common Stock in respect of which a Nevada Power Non-Election is made or as
to which no election is made (collectively, "Nevada Power Non-Election Shares")
shall be deemed by Nevada Power, with the prior consent of Sierra Pacific, to be
shares in respect of which Nevada Power Cash Elections or Nevada Power Stock
Elections have been made, as Nevada Power shall determine.
(f) ALLOCATION OF NEVADA POWER CASH ELECTION SHARES. In the event that the
aggregate number of shares in respect of which Nevada Power Cash Elections have
been made or are deemed to have been made in accordance with the proviso at the
end of the first sentence of Section 2.2(e) (the "Nevada Power Cash Election
Shares") exceeds the Nevada Power Cash Number, all shares of Nevada Power Common
Stock in respect of which Nevada Power Stock Elections have been made (the
"Nevada Power Stock Election Shares") and all Nevada Power Non-Election Shares
will be converted into the right to receive the Nevada Power Stock Consideration
(and cash in lieu of fractional interests in accordance with Section 2.3(e)),
and the Nevada Power Cash Election Shares will be converted into the right to
receive the Nevada Power Cash Consideration or the Nevada Power Stock
Consideration in the following manner:
(i) all Nevada Power Deminimis Shares will be converted into the right
to receive the Nevada Power Cash Consideration;
(ii) the number of Nevada Power Cash Election Shares, other than Nevada
Power Deminimis Shares, covered by each Form of Election to be converted
into Nevada Power Cash Consideration will be determined by multiplying the
number of Nevada Power Cash Election Shares covered by such Form of Election
by a fraction, (A) the numerator of which is the Nevada Power Cash Number
less the number of Nevada Power Deminimis Shares and (B) the denominator of
which is the aggregate number of Nevada Power Cash Election Shares less the
number of Nevada Power Deminimis Shares, rounded down to the nearest whole
number; PROVIDED, HOWEVER, that, if as a result of such proration, any
holder of Nevada Power Cash Election Shares would, but for this proviso,
receive less than 100 shares of Sierra Pacific Common Stock in accordance
with Section 2.2(f)(iii), all Nevada Power Cash Election Shares held by such
holders (the "Nevada Power Non-Prorated Cash Shares") will be converted into
the Nevada Power Cash Consideration and the remaining Nevada Power Cash
Election Shares to be converted into the Nevada Power Cash Consideration
will be determined by multiplying the number of Nevada Power Cash Election
Shares covered by such Form of Election by a fraction, (A) the numerator of
which is the Nevada Power Cash Number less the sum of the number of Nevada
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Power Deminimis Shares and Nevada Power Non-Prorated Cash Shares and (B) the
denominator of which is the aggregate number of Nevada Power Cash Election
Shares less the sum of the number of Nevada Power Deminimis Shares and
Nevada Power Non-Prorated Cash Shares, rounded down to the nearest whole
number; PROVIDED FURTHER, HOWEVER, that, if the number of Nevada Power
Non-Prorated Cash Shares exceeds the difference between the Nevada Power
Cash Number and the number of Nevada Power Deminimis Shares, the Nevada
Power Non-Prorated Cash Shares will be converted into the Nevada Power Cash
Consideration by selecting, by lottery or such other method as mutually
agreed to by Sierra Pacific and Nevada Power, from among the record holders
of Nevada Power Non-Prorated Cash Shares a sufficient number of such holders
(the "Nevada Power Cash Designees") such that the number of Nevada Power
Cash Election Shares held by the Nevada Power Cash Designees will, when
added to the Nevada Power Deminimis Shares, be equal as closely as
practicable to the Nevada Power Cash Number, and all such Nevada Power Cash
Election Shares held by such Nevada Power Cash Designees will be converted
into the right to receive the Nevada Power Cash Consideration; PROVIDED,
HOWEVER, that no such Nevada Power Cash Designee shall receive both Nevada
Power Stock Consideration and Nevada Power Cash Consideration for such
holder's Nevada Power Common Stock and that Nevada Power may, in accordance
with Section 2.2(d), change the Nevada Power Cash Number and the Nevada
Power Stock Number in order to meet this requirement; and
(iii) all Nevada Power Cash Election Shares not converted into Nevada
Power Cash Consideration in accordance with Section 2.2(f)(i) or (ii) will
be converted into the right to receive the Nevada Power Stock Consideration
(and cash in lieu of fractional interests in accordance with Section
2.3(e)).
(g) ALLOCATION OF NEVADA POWER STOCK ELECTION SHARES. In the event that
the aggregate number of Nevada Power Stock Election Shares exceeds the Nevada
Power Stock Number, all Nevada Power Cash Election Shares and all Nevada Power
Non-Election Shares (together, the "Nevada Power Cash Shares") will be converted
into the right to receive the Nevada Power Cash Consideration, and all Nevada
Power Stock Election Shares will be converted into the right to receive the
Nevada Power Cash Consideration or the Nevada Power Stock Consideration in the
following manner:
(i) the number of Nevada Power Stock Election Shares covered by each
Form of Election to be converted into Nevada Power Cash Consideration will
be determined by multiplying the number of Nevada Power Stock Election
Shares covered by such Form of Election by a fraction, (A) the numerator of
which is the Nevada Power Cash Number less the number of Nevada Power Cash
Shares and (B) the denominator of which is the aggregate number of Nevada
Power Stock Election Shares, rounded down to the nearest whole number; and
(ii) all Nevada Power Stock Election Shares not converted into Nevada
Power Cash Consideration in accordance with Section 2.2(g)(i) will be
converted into the right to receive the Nevada Power Stock Consideration
(and cash in lieu of fractional interests in accordance with Section
2.3(e)).
(h) NO ALLOCATION. In the event that neither Section 2.2(f) nor Section
2.2(g) is applicable, all Nevada Power Cash Election Shares shall be converted
into the right to receive the Nevada Power Cash Consideration, all Nevada Power
Stock Election Shares shall be converted into the right to receive the Nevada
Power Stock Consideration (and cash in lieu of fractional interests in
accordance with Section 2.3(e)) and Nevada Power Non-Election Shares will be
converted into the right to receive the Nevada Power Cash Consideration or the
Nevada Power Stock Consideration (and cash in lieu of fractional interests in
accordance with Section 2.3(e)) as Nevada Power, with the prior consent of
Sierra Pacific, shall determine.
(i) PRORATION OF NEVADA POWER DEMINIMIS SHARES. In the event that, at the
Election Deadline, the value of the Nevada Power Stock Consideration, determined
by multiplying the Nevada Power Exchange Ratio by the Average Price of a share
of Sierra Pacific Common Stock, exceeds 120% of the value of the Nevada Power
Cash Consideration at the Election Deadline, Nevada Power will have the option,
with the prior consent of Sierra Pacific, to more closely follow the actual
election of the Nevada Power stockholders
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who hold Nevada Power Deminimis Shares without regard to the proviso at the end
of the first sentence of Section 2.2(e).
(j) COMPUTATIONS. The Exchange Agent, in consultation with Sierra Pacific
and Nevada Power, will make all computations to give effect to this Section 2.2.
(k) CANCELLATION OF SHARES. As of the Effective Time of the Second Merger,
all such shares of Nevada Power Common Stock will no longer be outstanding and
will automatically be canceled and retired and will cease to exist and each
holder of a certificate formerly representing any such shares of Nevada Power
Common Stock (a "Nevada Power Certificate") will cease to have any rights with
respect thereto, except the right to receive the Nevada Power Merger
Consideration and any additional cash in lieu of fractional shares of Sierra
Pacific Common Stock to be issued or paid in consideration therefor upon
surrender of such Nevada Power Certificate in accordance with Section 2.3,
without interest.
Section 2.3 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time of the First Merger, Sierra
Pacific will enter into an agreement with such bank or trust company as may be
designated by Sierra Pacific, with the prior consent of Nevada Power (the
"Exchange Agent"), which will provide that Sierra Pacific will deposit with the
Exchange Agent as of the Effective Time of the First Merger, for the benefit of
the holders of shares of Sierra Pacific Common Stock and Nevada Power Common
Stock for exchange in accordance with this Article 2, through the Exchange
Agent, cash equal to the sum of the total aggregate Sierra Pacific Cash
Consideration and Nevada Power Cash Consideration and certificates representing
the shares of Sierra Pacific Common Stock (such cash and such shares of Sierra
Pacific Common Stock, together with any dividends or distributions with respect
thereto with a record date after the Effective Time of the Second Merger and any
cash payable in lieu of any fractional shares of Sierra Pacific Common Stock,
being hereinafter referred to as the "Exchange Fund") issuable pursuant to
Sections 2.1 and 2.2 in exchange for outstanding shares of Sierra Pacific Common
Stock and Nevada Power Common Stock, as the case may be.
(b) EXCHANGE PROCEDURES.
(i) Not more than 90 days nor fewer than 30 days prior to the Closing
Date, the Exchange Agent will mail a form of election (a "Form of Election")
to holders of record of shares of Sierra Pacific Common Stock and to the
holders of record of shares of Nevada Power Common Stock (as of a record
date as close as practicable to the date of mailing and mutually agreed to
by Sierra Pacific and Nevada Power). In addition, the Exchange Agent will
use its best efforts to make the Form of Election available to all persons
who become stockholders of Sierra Pacific or Nevada Power during the period
between such record date and the Closing Date. Any election to receive the
Sierra Pacific Merger Consideration contemplated by Section 2.1(e) or the
Nevada Power Merger Consideration contemplated by Section 2.2(e) (as
applicable, the "Merger Consideration") will have been properly made only if
the Exchange Agent shall have received at its designated office or offices,
by 5:00 p.m., New York City time, on the fifth business day immediately
preceding the Closing Date (the "Election Deadline"), a Form of Election
properly completed and accompanied by a Sierra Pacific Certificate or a
Nevada Power Certificate, as the case may be (together or as applicable,
"Certificate(s)") for the shares to which such Form of Election relates,
duly endorsed in blank or otherwise acceptable for transfer on the books of
Sierra Pacific or Nevada Power, as the case may be (or an appropriate
guarantee of delivery), as set forth in such Form of Election. An election
may be revoked only by written notice received by the Exchange Agent prior
to 5:00 p.m., New York City time, on the Election Deadline. In addition, all
elections shall automatically be revoked if the Exchange Agent is notified
in writing by Sierra Pacific and Nevada Power that either of the Mergers has
been abandoned. If an election is so revoked, the Certificate(s) (or
guarantee of delivery, as appropriate) to which such election relates will
be promptly returned to the person submitting the same to the Exchange
Agent.
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(ii) Two or more holders of Sierra Pacific Common Stock or Nevada Power
Common Stock who are determined to constructively own the shares of Sierra
Pacific Common Stock or Nevada Power Common Stock, as the case may be, owned
by each other by virtue of Section 318(a) of the Internal Revenue Code of
1986, as amended (the "Code"), and who so certify to Sierra Pacific's and
Nevada Power's satisfaction, and any single holder of shares of Sierra
Pacific Common Stock or Nevada Power Common Stock who holds his shares in
two or more different names and who so certifies to Sierra Pacific's and
Nevada Power's satisfaction, may submit a joint Form of Election covering
the aggregate shares of Sierra Pacific Common Stock or Nevada Power Common
Stock, as the case may be, owned by all such holders or by such single
holder, as the case may be. For all purposes of this Agreement, each such
group of holders that, and each such single holder who, submits a joint Form
of Election shall be treated as a single holder of Sierra Pacific Common
Stock or Nevada Power Common Stock, as the case may be.
(iii) Record holders of Sierra Pacific Common Stock or Nevada Power
Common Stock who are nominees only may submit a separate Form of Election
for each beneficial owner for whom such record holder is a nominee;
PROVIDED, HOWEVER, that on the request of Sierra Pacific or Nevada Power,
such record holder shall certify to the satisfaction of Sierra Pacific or
Nevada Power that such record holder holds such Sierra Pacific Common Stock
or Nevada Power Common Stock, as the case may be, as nominee for the
beneficial owner thereof. For purposes of this Agreement, each beneficial
owner for which a Form of Election is submitted will be treated as a
separate holder of Sierra Pacific Common Stock or Nevada Power Common Stock,
as the case may be, subject, however, to the immediately preceding
sub-paragraph (ii) dealing with joint Forms of Election and the immediately
following sub-paragraph (iii) dealing with dividend reinvestment plans.
(iv) Any dividend reinvestment plan of either Sierra Pacific or Nevada
Power will be treated as a single holder of Sierra Pacific Common Stock or
Nevada Power Common Stock, respectively, for the purposes of Section 2.3(e).
(v) As soon as reasonably practicable after the Effective Time of the
First Merger, with respect to the First Merger, and the Effective Time of
the Second Merger, with respect to the Second Merger (together or as
applicable, the "Effective Time"), the Exchange Agent will mail to each
holder of record of a Certificate, whose shares of Sierra Pacific Common
Stock or Nevada Power Common Stock (collectively, the "Shares"), were
converted into the right to receive the Merger Consideration and who failed
to return a properly completed Form of Election, (i) a letter of transmittal
(which will specify that delivery will be effected, and risk of loss and
title to the Certificates will pass, only upon delivery of the Certificates
to the Exchange Agent and will be in such form and have such other
provisions as Sierra Pacific and Nevada Power may specify consistent with
this Agreement) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration.
(vi) At the Effective Time, with respect to properly made elections in
accordance with Section 2.3(b)(i), and upon surrender in accordance with
Section 2.3(b)(v) of a Certificate for cancellation to the Exchange Agent or
to such other agent or agents as may be appointed by Sierra Pacific and
Nevada Power, together with such letter of transmittal, duly executed, and
such other documents as may reasonably be required by the Exchange Agent,
the holder of such Certificate will be entitled to receive in exchange
therefor the Merger Consideration that such holder has the right to receive
pursuant to the provisions of this Article 2, and the Certificate so
surrendered will forthwith be canceled. In the event of a transfer of
ownership of Shares that are not registered in the transfer records of
Sierra Pacific or Nevada Power, as the case may be, payment may be issued to
a Person other than the Person in whose name the Certificate so surrendered
is registered if such Certificate is properly endorsed or otherwise in
proper form for transfer and the Person requesting such issuance pays any
transfer or other taxes required by reason of such payment to a Person other
than the registered holder of such Certificate or establishes to the
satisfaction of Sierra Pacific and Nevada
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Power that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.3, each Certificate will be deemed at any
time after the Effective Time to represent only the right to receive upon
such surrender the Merger Consideration that the holder thereof has the
right to receive in respect of such Certificate pursuant to the provisions
of this Article 2. No interest will be paid or will accrue on any cash
payable to holders of Certificates pursuant to the provisions of this
Article 2.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions with respect to Sierra Pacific Common Stock with a record
date after the Effective Time will be paid to the holder of any unsurrendered
Certificate with respect to the shares of Sierra Pacific Common Stock
represented thereby, no cash payment in lieu of fractional shares will be paid
pursuant to Section 2.3(e) and all such dividends, other distributions and cash
in lieu of fractional shares of Sierra Pacific Common Stock will be paid by
Sierra Pacific to the Exchange Agent and will be included in the Exchange Fund,
in each case in accordance with this Article 2. Subject to the effect of
applicable escheat or similar laws, following surrender of any Certificate in
accordance herewith there will be paid to the holder of the certificate
representing whole shares of Sierra Pacific Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Sierra Pacific Common
Stock and, in the case of Certificates, the amount of any cash payable in lieu
of a fractional share of Sierra Pacific Common Stock to which such holder is
entitled pursuant to Section 2.3(e) and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to such surrender and with a payment date subsequent to
such surrender payable with respect to such whole shares of Sierra Pacific
Common Stock.
(d) NO FURTHER OWNERSHIP RIGHTS IN SHARES. All shares of Sierra Pacific
Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article 2 (including any cash paid pursuant to
this Article 2) will be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the Shares theretofore represented by
such Certificates, and there will be no further registration of transfers on the
stock transfer books of Sierra Pacific with respect to previously outstanding
shares of Sierra Pacific Common Stock or the stock transfer books of the
Surviving Corporation with respect to previously outstanding shares of Nevada
Power Common Stock. If, after the Effective Time, Certificates are presented to
Sierra Pacific, the Surviving Corporation or the Exchange Agent for any reason,
they will be canceled and exchanged as provided in this Article 2.
(e) NO FRACTIONAL SHARES
(i) No certificates or scrip representing fractional shares of Sierra
Pacific Common Stock will be issued upon the surrender for exchange of
Certificates, no dividend or distribution of Sierra Pacific will relate to
such fractional share interests and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of
Sierra Pacific.
(ii) Notwithstanding any other provision of this Agreement, each holder
of Shares converted pursuant to the Mergers who would otherwise be entitled
to receive a fraction of a share of Sierra Pacific Common Stock (after
taking into account all Shares held at the Effective Time by such holder)
shall receive, in lieu thereof, an amount in cash (without interest) equal
to the product obtained by multiplying (A) the fractional share interest to
which such holder would otherwise be entitled by (B) the average closing
price for a share of Sierra Pacific Common Stock as reported on the NYSE
Composite Combination Tape (as reported in the WALL STREET JOURNAL, or, if
not reported thereby, any other authoritative source) for the ten trading
days prior to the Closing Date.
(ii) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Shares with respect to any fractional
share interests, the Exchange Agent will make available such amounts to such
holders of Shares subject to and in accordance with the terms of Section
2.3(c).
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(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time will be delivered to Sierra Pacific, upon demand, and any
holders of the Certificates who have not theretofore complied with this Article
2 will thereafter look only to Sierra Pacific for payment of their claim for
Merger Consideration, any cash in lieu of fractional shares of Sierra Pacific
Common Stock and any dividends or distributions with respect to Sierra Pacific
Common Stock.
(g) NO LIABILITY. None of Sierra Pacific, Nevada Power, Lake Merger Sub,
Desert Merger Sub or the Exchange Agent will be liable to any Person in respect
of any shares of Sierra Pacific Common Stock (or dividends or distributions with
respect thereto) or cash from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If any
Certificate has not been surrendered prior to one year after the Effective Time
(or immediately prior to such earlier date on which any Merger Consideration,
any cash payable to the holder of such Certificate representing Shares pursuant
to this Article 2 or any dividends or distributions payable to the holder of
such Certificate would otherwise escheat to or become the property of any
governmental entity), any such Merger Consideration or cash, dividends or
distributions in respect of such Certificate will become the property of Sierra
Pacific, free and clear of all claims or interest of any Person previously
entitled thereto.
(h) INVESTMENT OF EXCHANGE FUND. The Exchange Agent will invest any cash
included in the Exchange Fund, as directed by Sierra Pacific, with the prior
consent of Nevada Power, on a daily basis. Any interest and other income
resulting from such investments will be paid to Sierra Pacific.
(i) LOST CERTIFICATES. If any Certificate is lost, stolen or destroyed,
upon the making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed and, if required by Sierra Pacific
or the Surviving Corporation, as the case may be, the posting by such Person of
a bond in such reasonable amount as Sierra Pacific or the Surviving Corporation,
as the case may be, may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the Merger Consideration
and, if applicable, any cash in lieu of fractional shares, and unpaid dividends
and distributions on shares of Sierra Pacific Common Stock or deliverable in
respect thereof, pursuant to this Agreement.
(j) DETERMINATION OF PROPER ELECTIONS. Without limiting the generality or
effect of any other provision hereof, the Exchange Agent will have discretion to
determine whether or not elections have been properly made or revoked pursuant
to this Article 2 with respect to Shares and when elections and revocations were
received by it. If the Exchange Agent determines that any election was not
properly made with respect to Shares, such Shares will be treated by the
Exchange Agent as, and for all purposes of this Agreement will be deemed to be,
Sierra Pacific Non-Election Shares or Nevada Power Non-Election Shares, as the
case may be, at the Effective Time. The Exchange Agent will also make
computations as to the allocation and proration contemplated by this Article 2
and any such computation will be conclusive and binding. The Exchange Agent may,
with the mutual agreement of Sierra Pacific and Nevada Power, make such
equitable changes in the procedures set forth herein for the implementation of
the elections provided for in this Article 2 as it determines to be necessary or
desirable to effect fully such elections.
Section 2.4 CERTAIN ADJUSTMENTS. If after the date hereof and on or prior
to the Closing Date, the outstanding shares of Sierra Pacific Common Stock or
Nevada Power Common Stock shall be changed into a different number of shares by
reason of any reclassification, recapitalization, split-up, combination or
exchange of shares, or any dividend payable in stock or other securities is
declared thereon with a record date within such period, or any similar event
shall occur, the Sierra Pacific Merger Consideration and the Nevada Power Merger
Consideration will be adjusted accordingly to provide to the holders of Sierra
Pacific Common Stock and Nevada Power Common Stock, respectively, the same
economic effect as contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange or dividend
or similar event.
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ARTICLE 3
THE CLOSING
Section 3.1 CLOSING. The closing of the Mergers (the "Closing") will take
place at such place and at such time as Nevada Power and Sierra Pacific shall
mutually agree on the second business day immediately following the date on
which the last of the conditions set forth in Article 8 hereof is fulfilled or
waived, or on such other date as Nevada Power and Sierra Pacific shall mutually
agree (the "Closing Date").
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF EACH OF SIERRA PACIFIC,
LAKE MERGER SUB AND DESERT MERGER SUB
Each of Sierra Pacific, Lake Merger Sub and Desert Merger Sub represents and
warrants to Nevada Power as follows (for purposes of this Article 4, the term
"Sierra Pacific" shall be deemed to include Sierra Pacific and Sierra Pacific
Power Company, a Nevada corporation and a wholly-owned subsidiary of Sierra
Pacific ("Sierra Pacific Power"), except where the context otherwise requires):
Section 4.1 ORGANIZATION AND QUALIFICATION. Except as set forth in Section
4.1 of the Sierra Pacific Disclosure Schedule (as defined in Section 7.6(i)),
each of Sierra Pacific and its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation, has all requisite corporate power and authority, and has been
duly authorized by all necessary approvals and orders of the Public Utilities
Commission of Nevada ("Nevada Commission") and the Public Utilities Commission
of California ("California Commission"), to own, lease and operate its assets
and properties and to carry on its business as it is now being conducted, and is
duly qualified and in good standing to do business in each jurisdiction in which
the nature of its business or the ownership or leasing of its assets and
properties makes such qualification necessary other than in such jurisdictions
where the failure to be so qualified and in good standing will not, when taken
together with all other such failures, have a material adverse effect on the
business, operations, assets, financial condition or the results of operations
of Sierra Pacific and its subsidiaries taken as a whole or on the consummation
of this Agreement (any such material adverse effect being hereinafter referred
to as a "Sierra Pacific Material Adverse Effect"). As used in this Agreement,
the term "subsidiary" of a person shall mean any corporation or other entity
(including partnerships, limited liability entities and other business
associations and joint ventures) in which such person directly or indirectly
owns at least a majority of any class of outstanding voting securities, equity,
partnership interests, membership interests or the like.
Section 4.2 SUBSIDIARIES. Section 4.2 of the Sierra Pacific Disclosure
Schedule sets forth a description of all subsidiaries and joint ventures of
Sierra Pacific, including the name of each such entity, the state or
jurisdiction of its incorporation or formation, a brief description of the
principal line or lines of business conducted by each such entity and Sierra
Pacific's interest therein. Except as set forth in Section 4.2 of the Sierra
Pacific Disclosure Schedule, none of such entities is a "public utility
company," a "holding company," a "subsidiary company" or an "affiliate" of any
public utility company within the meaning of Section 2(a)(5), 2(a)(7), 2(a)(8)
or 2(a)(11), respectively, of the Public Utility Holding Company Act of 1935, as
amended (the "1935 Act"). Except as set forth in Section 4.2 of the Sierra
Pacific Disclosure Schedule, all of the issued and outstanding shares of capital
stock or other securities of, or interests in, each subsidiary or joint venture
of Sierra Pacific are validly issued, fully paid, nonassessable and free of
preemptive rights, are owned directly or indirectly by Sierra Pacific free and
clear of any liens, claims, encumbrances, security interests, equities, charges
and options of any nature whatsoever, and there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating any such subsidiary to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of its
capital stock or obligating it to grant, extend or enter into any such agreement
or commitment. As used in this Agreement, the term
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"joint venture" of a person shall mean any corporation or other entity
(including partnerships and other business associations and joint ventures) in
which such person or one or more of its subsidiaries owns an equity interest
that is less than a majority of any class of the outstanding voting securities
or equity, other than equity interests held for passive investment purposes
which are less than 5% of any class of the outstanding voting securities or
equity of any such entity.
4.3 CAPITALIZATION.
(a) The authorized capital stock of Sierra Pacific consists of 90,000,000
shares of Sierra Pacific Common Stock. As of the close of business on April 28,
1998, 30,940,819 shares of Sierra Pacific Common Stock were issued and
outstanding. All of the issued and outstanding shares of the capital stock of
Sierra Pacific are validly issued, fully paid, nonassessable and free of
preemptive rights. Except as set forth in Section 4.3 of the Sierra Pacific
Disclosure Schedule, there are no outstanding subscriptions, options, calls,
contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating Sierra Pacific or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
the capital stock of Sierra Pacific, or obligating Sierra Pacific or any of its
subsidiaries to grant, extend or enter into any such agreement or commitment
other than the Sierra Pacific Rights Agreement.
(b) The authorized capital stock of Sierra Pacific Power consists of
20,000,000 shares of common stock, par value $3.75 per share ("Sierra Pacific
Power Common Stock"), 1,780,500 shares of preferred stock, par value $50 per
share ("Sierra Pacific Power Preferred Stock") and 10,000,000 shares of Class A
preferred stock, par value $25 per share ("Sierra Pacific Power Class A
Preferred Stock"). As of the close of business on April 28, 1998, (i) 1,000
shares of Sierra Pacific Power Common Stock; (ii) 462,300 shares of Sierra
Pacific Power Preferred Stock (consisting of 80,500 shares of the A series,
82,000 shares of the B series, and 299,800 shares of the C series) and (iii)
2,000,000 shares of Sierra Pacific Power Class A Preferred Stock were issued and
outstanding. As of the date hereof, Sierra Pacific Capital I, a wholly-owned
subsidiary of Sierra Pacific Power, had 2,000,000 8.6% Trust Originated
Preferred Securities issued and outstanding, 60,000 of which are owned by Sierra
Pacific Power, and 60,000 Common Securities issued and outstanding, all of which
are owned by Sierra Pacific Power.
(c) The authorized capital stock of Lake Merger Sub consists of 100 shares
of common stock, ten shares of which are validly issued and outstanding, fully
paid and nonassessable and owned by Sierra Pacific.
(d) The authorized capital stock of Desert Merger Sub consists of 100 shares
of common stock, ten shares of which are validly issued and outstanding, fully
paid and nonassessable and owned by Sierra Pacific.
Section 4.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) AUTHORITY. Each of Sierra Pacific, Lake Merger Sub and Desert Merger
Sub has all requisite power and authority to enter into this Agreement, and,
subject to the applicable Sierra Pacific Stockholders' Approval (as defined in
Section 4.13) and the Sierra Pacific Required Statutory Approvals (as
hereinafter defined), to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation by each of Sierra
Pacific, Lake Merger Sub and Desert Merger Sub of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of each of Sierra Pacific, Lake Merger Sub and Desert Merger Sub, subject to
obtaining the Sierra Pacific Stockholders' Approval. This Agreement has been
duly and validly executed and delivered by each of Sierra Pacific, Lake Merger
Sub and Desert Merger Sub, and assuming the due authorization, execution and
delivery hereof by Nevada Power, constitutes the valid and binding obligation of
each of Sierra Pacific, Lake Merger Sub and Desert Merger Sub enforceable
against each of Sierra Pacific, Lake Merger Sub and Desert Merger Sub in
accordance with its terms.
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(b) NON-CONTRAVENTION. The execution and delivery of this Agreement by
each of Sierra Pacific, Lake Merger Sub and Desert Merger Sub does not, and the
consummation of the transactions contemplated hereby will not, violate, conflict
with or result in a breach of any provision of, or constitute a default (with or
without notice or lapse of time or both) under, or result in the termination or
modification of, or accelerate the performance required by, or result in a right
of termination, cancellation, or acceleration of any obligation or the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets (any such
violation, conflict, breach, default, right of termination, modification,
cancellation or acceleration, loss or creation, a "Violation") of Sierra Pacific
or any of its subsidiaries or joint ventures pursuant to any provisions of (i)
the articles of incorporation, bylaws or similar governing documents of Sierra
Pacific or any of its subsidiaries or joint ventures, (ii) subject to obtaining
the Sierra Pacific Required Statutory Approvals and the receipt of the Sierra
Pacific Stockholders' Approvals, any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any Governmental
Authority (as hereinafter defined) applicable to Sierra Pacific or any of its
subsidiaries or joint ventures or any of their respective properties or assets
or (iii) subject to obtaining the third-party consents or other approvals set
forth in Section 4.4(b) of the Sierra Pacific Disclosure Schedule (the "Sierra
Pacific Required Consents") any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which Sierra Pacific or any of its
subsidiaries or any joint venture of Sierra Pacific is now a party or by which
it or any of its properties or assets may be bound or affected, excluding from
the foregoing clauses (ii) and (iii) such Violations that would not, in the
aggregate, have a Sierra Pacific Material Adverse Effect.
(c) STATUTORY APPROVALS. Except as described in Section 4.4(c) of the
Sierra Pacific Disclosure Schedule, no declaration, filing or registration with,
or notice to or authorization, consent or approval of, any court, governmental
or regulatory body (including a stock exchange or other self-regulatory body) or
authority, federal, state, local or foreign (each, a "Governmental Authority"),
is necessary for the execution and delivery of this Agreement by each of Sierra
Pacific, Lake Merger Sub and Desert Merger Sub or the consummation by each of
Sierra Pacific, Lake Merger Sub and Desert Merger Sub of the transactions
contemplated hereby, the failure of which to obtain, make or give would have, in
the aggregate, a Sierra Pacific Material Adverse Effect (the "Sierra Pacific
Required Statutory Approvals", it being understood that references in this
Agreement to "obtaining" such Sierra Pacific Required Statutory Approvals shall
mean making such declarations, filings or registrations; giving such notices;
obtaining such authorizations, consents or approvals; and having such waiting
periods expire as are necessary to avoid a violation of law).
(d) COMPLIANCE. Except as set forth in Section 4.4(d) or Section 4.11 of
the Sierra Pacific Disclosure Schedule or as disclosed in the Sierra Pacific
Reports (as defined in Section 4.5), neither Sierra Pacific nor any of its
subsidiaries nor, to the knowledge of Sierra Pacific, any joint ventures of
Sierra Pacific, is in violation of or is under investigation with respect to, or
has been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance or judgments (including, without limitation,
applicable Environmental Laws, as hereinafter defined) of any Governmental
Authority, except for violations which, in the aggregate, do not have, and, to
the knowledge of Sierra Pacific, are not reasonably likely to have, a Sierra
Pacific Material Adverse Effect. Except as set forth in Section 4.4(d) or
Section 4.11 of the Sierra Pacific Disclosure Schedule, Sierra Pacific and its
subsidiaries and any joint ventures have all permits, licenses, franchises and
other governmental authorizations, consents and approvals necessary to conduct
their businesses as currently conducted, except those of which the failure to
obtain would not, in the aggregate, have a Sierra Pacific Material Adverse
Effect. Except as set forth in Section 4.4(d) of the Sierra Pacific Disclosure
Schedule, neither Sierra Pacific or any of its subsidiaries nor, to the
knowledge of Sierra Pacific, any joint venture of Sierra Pacific is in breach or
violation of or in default in the performance or observance of any term or
provision of, and no event has occurred which, with lapse of time or action by a
third party or both could result in a default by Sierra Pacific or any Sierra
Pacific subsidiary or, to the knowledge of Sierra Pacific, any joint venture of
Sierra Pacific under (i) its articles of
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incorporation or bylaws or (ii) any contract, commitment, agreement, indenture,
mortgage, loan agreement, note, lease, bond, license, approval or other
instrument to which it is a party or by which Sierra Pacific or any subsidiary
or joint venture of Sierra Pacific is bound or to which any of its property is
subject, except for possible violations, breaches or defaults which individually
or in the aggregate would not have a Sierra Pacific Material Adverse Effect.
Section 4.5 REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1995, the
filings required to be made by Sierra Pacific and its subsidiaries under the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), applicable state laws and
regulations regulating public utilities, the Federal Power Act (the "Power Act")
or the 1935 Act have been filed with the Securities and Exchange Commission (the
"SEC"), the Nevada Commission, the California Commission or the Federal Energy
Regulatory Commission (the "FERC"), as the case may be, including all forms,
statements, reports, agreements (oral or written) and all documents, exhibits,
amendments and supplements appertaining thereto, and complied in all material
respects with all applicable requirements of the appropriate act and the rules
and regulations thereunder. Sierra Pacific has made available to Nevada Power a
true and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by Sierra Pacific or Sierra Pacific Utility
with the SEC since January 1, 1995 (as such documents have since the time of
their filing been amended, the "Sierra Pacific SEC Reports"). As of their
respective dates, the Sierra Pacific SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements of
Sierra Pacific included in the Sierra Pacific SEC Reports (collectively, the
"Sierra Pacific Financial Statements") have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis ("GAAP")
(except as may be indicted therein or in the notes thereto and except with
respect to unaudited statements as permitted by Form 10-Q of the SEC) and fairly
present the financial position of Sierra Pacific and its subsidiaries as of the
dates thereof and the results of their operations and cash flows for the periods
then ended, subject, in the case of the unaudited interim financial statements,
to normal, recurring audit adjustments. True, accurate and complete copies of
the articles of incorporation and bylaws of Sierra Pacific, as in effect on the
date hereof, have been delivered to Nevada Power.
Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS; ABSENCE OF UNDISCLOSED
LIABILITIES. (a) Except as set forth in the Sierra Pacific SEC Reports or
Section 4.6 of the Sierra Pacific Disclosure Schedule, from December 31, 1997,
through the date hereof each of Sierra Pacific and its subsidiaries has
conducted its business only in the ordinary course of business consistent with
past practice and there has not been, and no fact or condition exists which
would have or, to the knowledge of Sierra Pacific, is reasonably likely to have,
a Sierra Pacific Material Adverse Effect.
(b) Neither Sierra Pacific nor any of its subsidiaries has any liabilities
or obligations (whether absolute, accrued, contingent or otherwise) of a nature
required by GAAP to be reflected in a consolidated corporate balance sheet,
except liabilities, obligations or contingencies that are accrued or reserved
against in the consolidated financial statements of Sierra Pacific or reflected
in the notes thereto for the year ended December 31, 1997, or which were
incurred after December 31, 1997 in the ordinary course of business and would
not, in the aggregate, have a Sierra Pacific Material Adverse Effect.
Section 4.7 LITIGATION. Except as disclosed in the Sierra Pacific SEC
Reports or as set forth in Section 4.7 or Section 4.11 of the Sierra Pacific
Disclosure Schedule, (i) there are no claims, suits, actions or proceedings,
pending or, to the knowledge of Sierra Pacific, threatened, nor are there, to
the knowledge of Sierra Pacific, any investigations or reviews pending or
threatened against, relating to or affecting Sierra Pacific or any of its
subsidiaries and (ii) there are no judgments, decrees, injunctions, rules or
orders of any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator applicable to Sierra Pacific or
any of its subsidiaries, which when taken together with any of the matters
described in clauses (i) or (ii), would have, or to the knowledge of Sierra
Pacific is reasonably likely to
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have, a Sierra Pacific Material Adverse Effect. In addition, except as disclosed
in the Sierra Pacific SEC Reports or as set forth in Section 4.7 or Section 4.11
of the Sierra Pacific Disclosure Schedule, there have not been any developments
since December 31, 1997, with respect to such disclosed claims, suits, actions,
proceedings, investigations or reviews, which, in the aggregate, would have, or
to the knowledge of Sierra Pacific is reasonably likely to have, a Sierra
Pacific Material Adverse Effect.
4.8 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the information
supplied or to be supplied by or on behalf of Sierra Pacific for inclusion or
incorporation by reference in (i) the registration statement on Form S-4, or any
post-effective amendment to the registration statement on Form S-4, to be filed
with the SEC in connection with the issuance of shares of Sierra Pacific Common
Stock in the Mergers (the "Registration Statement") will, at the time the
Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and (ii) the joint proxy
statement, in definitive form, relating to the meetings of Nevada Power and
Sierra Pacific stockholders to be held in connection with the Mergers (the
"Proxy Statement") will not, at the dates mailed to stockholders and at the
times of the meetings of stockholders to be held in connection with the Mergers,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement and the Proxy Statement, insofar as they
relate to Sierra Pacific or any of its subsidiaries, will comply as to form in
all material respects with the applicable provisions of the Securities Act and
the Exchange Act and the rules and regulations thereunder.
Section 4.9 TAX MATTERS. "Taxes," as used in this Agreement, means any
federal, state, county, local or foreign taxes, charges, fees, levies, or other
assessments, including all net income, gross income, sales and use, ad valorem,
transfer, gains, profits, excise, franchise, real and personal property, gross
receipt, capital stock, production, business and occupation, disability,
employment, payroll, license, estimated, stamp, custom duties, severance or
withholding taxes or charges imposed by any governmental entity, and includes
any interest and penalties (civil or criminal) on or additions to any such taxes
and any expenses incurred in connection with the determination, settlement or
litigation of any tax liability. "Tax Return," as used in this Agreement, means
a report, return or other information required to be supplied to a governmental
entity with respect to Taxes including, where permitted or required, combined or
consolidated returns for any group or entities that include Sierra Pacific or
any of its subsidiaries on the one hand, or Nevada Power or any of its
subsidiaries on the other hand.
(a) FILING OF TIMELY TAX RETURNS. Sierra Pacific and each of its
subsidiaries have filed all Tax Returns required to be filed by each of them
under applicable law. All Tax Returns were in all material respects (and, as to
Tax Returns not filed as of the date hereof, will be) true, complete and correct
and filed on a timely basis.
(b) PAYMENT OF TAXES. Sierra Pacific and each of its subsidiaries have,
within the time and in the manner prescribed by law, paid (and until the Closing
Date will pay within the time and in the manner prescribed by law) all Taxes
that are currently due and payable except for those contested in good faith and
for which adequate reserves have been taken.
(c) TAX LIENS. There are no material Tax liens upon the assets of Sierra
Pacific or any of its subsidiaries except liens for Taxes not yet due.
(d) WITHHOLDING TAXES. Sierra Pacific and each of its subsidiaries have
complied (and until the Closing Date will comply) in all respects with the
provisions of the Code relating to the payment and withholding of Taxes,
including, without limitation, the withholding and reporting requirements under
Code SectionSection 1441 through 1464, 3401 through 3606, and 6041 and 6049, as
well as similar provisions under any other laws, and have, within the time and
in the manner prescribed bylaw, withheld from employee wages and paid over to
the proper governmental authorities all amounts required.
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(e) EXTENSIONS OF TIME FOR FILING TAX RETURNS. Except as disclosed in
Section 4.9(e) of the Sierra Pacific Disclosure Schedule, neither Sierra Pacific
nor any of its subsidiaries has requested any extension of time within which to
file any Tax Return, which Tax Return has not since been filed.
(f) WAIVERS OF STATUTE OF LIMITATIONS. Except as disclosed in Section
4.9(f) of the Sierra Pacific Disclosure Schedule, neither Sierra Pacific nor any
of its subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(g) EXPIRATION OF STATUTE OF LIMITATIONS. Except as disclosed in Section
4.9(g) of the Sierra Pacific Disclosure Schedule, the statute of limitations for
the assessment of all Taxes has expired for all applicable Tax Returns of Sierra
Pacific and each of its subsidiaries or those Tax Returns have been examined by
the appropriate taxing authorities for all periods through the date hereof, and
no deficiency for any Taxes has been proposed, asserted or assessed against
Sierra Pacific or any of its subsidiaries that has not been resolved and paid in
full.
(h) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. Except as disclosed in
Section 4.9(h) of the Sierra Pacific Disclosure Schedule, no audits or other
administrative proceedings or court proceedings are presently pending, and no
material issue raised remains unsettled, with regard to any Taxes or Tax Returns
of Sierra Pacific or any of its subsidiaries.
(i) POWERS OF ATTORNEY. Except as disclosed in Section 4.9(i) of the
Sierra Pacific Disclosure Schedule, no power of attorney currently in force has
been granted by Sierra Pacific or any of its subsidiaries concerning any Tax
matter.
(j) TAX RULINGS. Except as disclosed in Section 4.9(j) of the Sierra
Pacific Disclosure Schedule, neither Sierra Pacific nor any of its subsidiaries
has received a Tax Ruling (as defined below) or entered into a Closing Agreement
(as defined below) with any taxing authority that would have a continuing
adverse effect after the Closing Date. "Tax Ruling," as used in this Agreement,
shall mean a written ruling of a taxing authority relating to Taxes. "Closing
Agreement," as used in this Agreement, shall mean a written and legally binding
agreement with a taxing authority relating to Taxes.
(k) AVAILABILITY OF TAX RETURNS. As soon as practicable after the date
hereof, Sierra Pacific and its subsidiaries will make available to Nevada Power
complete and accurate copies of (i) all Tax Returns, and any amendments thereto,
filed by Sierra Pacific or any of its subsidiaries since January 1, 1990, (ii)
all audit reports received from any taxing authority relating to any Tax Return
filed by Sierra Pacific or any of its subsidiaries and (iii) any Closing
Agreements entered into by Sierra Pacific or any of its subsidiaries with any
taxing authority.
(l) TAX SHARING AGREEMENTS. Except as disclosed in Section 4.9(l) of the
Sierra Pacific Disclosure Schedule, no agreements relating to allocating or
sharing of Taxes exist between or among Sierra Pacific and any of its
subsidiaries.
(m) CODE SECTION 341(F). Neither Sierra Pacific nor any of its
subsidiaries has filed (or will file prior to the Closing) a consent pursuant to
Code Section 341(f) or has agreed to have Code Section 341(f)(2) apply to any
disposition of a subsection (f) asset (as that term is defined in Code Section
341(f)(4)) owned by Sierra Pacific or any of its subsidiaries.
(n) CODE SECTION 168. Except as set forth in Section 4.9(n) of the Sierra
Pacific Disclosure Schedule, no property of Sierra Pacific or any of its
subsidiaries is property that Sierra Pacific or any such subsidiary or any party
to this transaction is or will be required to treat as being owned by another
person pursuant to the provisions of Code Section 168(f)(8) (as in effect prior
to its amendment by the Tax Reform Act of 1986) or is "tax-exempt use property"
within the meaning of Code Section 168.
(o) CODE SECTION 481 ADJUSTMENTS. Except as set forth in Section 4.9(o) of
the Sierra Pacific Disclosure Schedule, neither Sierra Pacific nor any of its
subsidiaries is required to include in income any adjustment
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pursuant to Code Section 481(a) by reason of a voluntary change in accounting
method initiated by Sierra Pacific or any of its subsidiaries, and to the best
of the knowledge of Sierra Pacific, the Internal Revenue Service (the "IRS") has
not proposed any such adjustment or change in accounting method.
(p) CODE SECTIONSECTION 6661 AND 6662. All transactions that could give
rise to an understatement of federal income tax (within the meaning of Code
Section 6661 or Code Section 6662) that could reasonably be expected to result
in a Sierra Pacific Material Adverse Effect have been adequately disclosed (or,
with respect to Tax Returns filed following the Closing will be adequately
disclosed) on the Tax Returns of Sierra Pacific and its subsidiaries in
accordance with Code Section 6661(b)(2)(B) or Code Section 6662(d)(2)(B).
(q) CODE SECTION 280G. Except as set forth in Section 4.9(q) of the Sierra
Pacific Disclosure Schedule, neither Sierra Pacific nor any of its subsidiaries
is a party to any agreement, contract, or arrangement that could result, on
account of the transactions contemplated hereunder, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Code Section 280G.
(r) LIABILITY FOR OTHERS. Neither Sierra Pacific nor any of its
subsidiaries has any liability for Taxes of any person other than Sierra Pacific
and its subsidiaries under Treasury Regulations Section 1.1502-6 (or any similar
provision of state, local or foreign law) as a transferee or successor, by
contract or otherwise.
Section 4.10 EMPLOYEE MATTERS: ERISA.
(a) BENEFIT PLANS. Section 4.10(a) of the Sierra Pacific Disclosure
Schedule contains a true and complete list of each employee benefit plan,
program or arrangement sponsored, maintained or contributed to by and covering
employees, former employees, directors or former directors of Sierra Pacific (or
any of its subsidiaries or any other entity which would be treated under Section
414 of the Code as a single employer with Sierra Pacific) or any of their
dependents or beneficiaries, or providing benefits to such persons in respect of
services provided to any such entity including, but not limited to, any employee
benefit plans within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), any management, employment,
deferred compensation, severance (including any payment, right or benefit
resulting from a change in control), bonus or other contract for personal
services with any current or former officer, director or employee, any
consulting contract with any person who prior to entering into such contract was
a director or officer of Sierra Pacific or any of its subsidiaries or any plan,
agreement, arrangement or understanding similar to any of the foregoing
(collectively, the "Sierra Pacific Benefit Plans"). None of the Sierra Pacific
Benefit Plans is a multiemployer plan within the meaning of ERISA.
(b) CONTRIBUTIONS. Except as set forth in Section 4.10(b) of the Sierra
Pacific Disclosure Schedule, all contributions and other payments required to
have been made by Sierra Pacific or any of its subsidiaries (including any
pre-or post-tax contributions or payments by employees or their dependents) to
any Sierra Pacific Benefit Plan (or to any person pursuant to the terms thereof)
have been so made or the amount of such payment or contribution obligation has
been reflected in the Sierra Pacific Financial Statements.
(c) QUALIFICATION: COMPLIANCE. Except as set forth in Section 4.10(c) of
the Sierra Pacific Disclosure Schedule, each of the Sierra Pacific Benefit Plans
that are intended to be "qualified" within the meaning of Code Section 401(a)
has been determined by the IRS to be so qualified, and to the best knowledge of
Sierra Pacific, no circumstances exist that are reasonably expected by Sierra
Pacific to result in the revocation of any such determination. Sierra Pacific is
not in noncompliance in any respect with, and no Sierra Pacific Benefit Plan is
or has been operated in noncompliance with it terms and with, any applicable
law, rule or regulation governing such plan, including, without limitation,
ERISA and the Code, except as would not have a Sierra Pacific Material Adverse
Effect.
(d) LIABILITIES. With respect to the Sierra Pacific Benefit Plans,
individually and in the aggregate, no event has occurred, and, to the best
knowledge of Sierra Pacific, there exists no condition or set of circumstances
that could subject Sierra Pacific or any of its subsidiaries to any liabilities
arising under the Code, ERISA or any other applicable law (including, without
limitation, any liability to any such plan or
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the Pension Benefit Guaranty Corporation (the "PBGC")), or under any indemnity
agreement to which Sierra Pacific is a party, which liability, excluding
liability for benefit claims and funding obligations payable in the ordinary
course and liability for premiums due to the PBGC, would have, or insofar as
reasonably can be foreseen, could have, a Sierra Pacific Material Adverse
Effect.
(e) WELFARE PLANS. Except as set forth in Section 4.10(e) of the Sierra
Pacific Disclosure Schedule, none of the Sierra Pacific Benefit Plans that are
"Welfare Plans," within the meaning of Section 3(1) of ERISA, provides for any
retiree benefits.
(f) DOCUMENTS MADE AVAILABLE. Sierra Pacific has made available to Nevada
Power a true and correct copy of each collective bargaining agreement to which
Sierra Pacific is a party or under which Sierra Pacific has obligations and,
with respect to each Sierra Pacific Benefit Plan, (i) such plan and the most
recent summary plan description, (ii) the most recent annual report filed with
the IRS, (iii) each related trust agreement, insurance contract, service
provider or investment management agreement (including all amendments to each
such document), (iv) the most recent determination of the IRS with respect to
the qualified status of such plan and (v) the most recent actuarial report or
valuation.
(g) PAYMENTS RESULTING FROM MERGER. Other than as set forth in Section
7.11 or in Section 4.10(g) of the Sierra Pacific Disclosure Schedule, the
consummation, announcement or other action relating to the transactions
contemplated by this Agreement will not (either alone or upon the occurrence of
any additional or further acts or events) result in any (A) payment (whether of
severance pay or otherwise) becoming due from Sierra Pacific or any of its
subsidiaries to any officer, employee, former employee, director or former
director thereof or to the trustee under any "rabbi trust" or similar
arrangement, or (B) benefit under any Sierra Pacific Benefit Plan being
established or being accelerated, vested or payable.
(h) FUNDED STATUS OF PLANS. Except as set forth in Section 4.10(h) of the
Sierra Pacific Disclosure Schedule, the failure of any Sierra Pacific Benefit
Plan which is subject to the requirements of Code Section 412, Part 3 of Title I
of ERISA or Title IV of ERISA to hold assets, the fair market value of which, as
of the date hereof, are at least equal in value to the greatest of the projected
benefit obligations, the accumulated benefit obligations or accrued benefit
obligations (each determined as of the date hereof) of the participants and
beneficiaries under such plan, based on actuarial methods, tables and
assumptions theretofore utilized by such plan's actuary to determine the plan's
funded status, would not give rise to a Sierra Pacific Material Adverse Effect.
(i) CERTAIN OTHER OBLIGATIONS. Except as set forth in Section 4.10(i) of
the Sierra Pacific Disclosure Schedule, the termination of, or withdrawal from,
any employee pension benefit plan within the meaning of Section 3(2) of ERISA
(including any single employer, multiple employer or multiemployer plan) or
subject to Title IV of ERISA by Sierra Pacific or any corporation or other
entity which is, or at any time was, a subsidiary of Sierra Pacific or would be
treated under Section 414 of the Code as single employer with Sierra Pacific has
not, and will not, subject Sierra Pacific (or any subsidiary of Sierra Pacific)
to any liability of or to any governmental authority, corporation or other
person or such employee pension plan which individually or in the aggregate
would have a Sierra Pacific Material Adverse Effect.
(j) MODIFICATION OR TERMINATION OF PLANS. Except as set forth in Section
4.10(j) of the Sierra Pacific Disclosure Schedule, (i) neither Sierra Pacific
nor any subsidiary of Sierra Pacific is subject to any legal, contractual,
equitable or other obligation to establish or contribute to as of any date any
new Sierra Pacific Benefit Plan or amend any existing Sierra Pacific Benefit
Plan; and (ii) to the best knowledge of Sierra Pacific or any of its
subsidiaries after review of all plan documents, Sierra Pacific and each of its
subsidiaries may (except to the extent prohibited by applicable law), in any
manner, and without the consent of any employee, beneficiary or dependent,
employees' organization or other person, terminate, modify or amend each Sierra
Pacific Benefit Plan (or its participation in any such Sierra Pacific Benefit
Plan) at any time sponsored, maintained or contributed to by Sierra Pacific or
any of its subsidiaries effective as of any date before, on or after the
Effective Time.
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(k) LABOR AGREEMENTS. Except as disclosed in the Sierra Pacific SEC
Reports or as set forth in Section 4.10(k) of the Sierra Pacific Disclosure
Schedule: (i) neither Sierra Pacific nor any of its subsidiaries is a party to
any collective bargaining agreement or other labor agreement with any union or
labor organization; (ii) to the best knowledge of Sierra Pacific or any of its
subsidiaries, there is no current union representation question involving
employees of Sierra Pacific or any of its subsidiaries, nor does Sierra Pacific
or any of its subsidiaries know of any activity or proceeding of any labor
organization (or representative thereof) or employee group (or representative
thereof) to organize any such employees; (iii) there is no unfair labor
practice, charge or written grievance arising out of a collective bargaining
agreement or other grievance procedure against Sierra Pacific or any of its
subsidiaries pending, or to the best knowledge of Sierra Pacific or any of its
subsidiaries, threatened, which has, or reasonably may be expected by Sierra
Pacific or any of its subsidiaries to have, a Sierra Pacific Material Adverse
Effect; (iv) there is no compliant, lawsuit or proceeding in any forum by or on
behalf of any present or former employee, any applicant for employment or
classes of the foregoing alleging breach of any express or implied contract of
employment, any law or regulation governing employment or the termination
thereof or other discriminatory, wrongful or tortious conduct in connection with
the employment relationship against Sierra Pacific or any of its subsidiaries
pending, or to the best knowledge of Sierra Pacific or any of its subsidiaries,
threatened, which has, or reasonably may be expected by Sierra Pacific or any of
its subsidiaries to have, a Sierra Pacific Material Adverse Effect; (v) there is
no strike, dispute, slowdown, work stoppage or lockout pending, or to the best
knowledge of Sierra Pacific or any of its subsidiaries, threatened, against or
involving Sierra Pacific or any of its subsidiaries which has or, insofar as
reasonably can be foreseen, could have, a Sierra Pacific Material Adverse
Effect; (vi) Sierra Pacific and each of its subsidiaries are in compliance with
all applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, except for non-compliance which, in the aggregate, does not, and insofar
as reasonably can be foreseen, will not have a Sierra Pacific Material Adverse
Effect; and (vii) there is no proceeding, claim, suit, action or governmental
investigation pending or, to the best knowledge of Sierra Pacific or any of its
subsidiaries, threatened, in respect to which any director, officer, employee or
agent of Sierra Pacific or any of its subsidiaries is or may be entitled to
claim indemnification from Sierra Pacific or any of its subsidiaries pursuant to
their respective articles of incorporation or bylaws or as provided in the
indemnification agreements listed on Section 4.10(k) of the Sierra Pacific
Disclosure Schedule.
Section 4.11 ENVIRONMENTAL PROTECTION.
(a) COMPLIANCE. Except as set forth in Section 4.11(a) of the Sierra
Pacific Disclosure Schedule, each of Sierra Pacific and its subsidiaries is in
compliance with all applicable Environmental Laws (as hereinafter defined),
except where the failure to be in compliance would not have a Sierra Pacific
Material Adverse Effect. Except as set forth in Section 4.11(a) of the Sierra
Pacific Disclosure Schedule, neither Sierra Pacific nor any of its subsidiaries
has received any written, or, to the knowledge of appropriate officers of Sierra
Pacific, upon diligent review, oral communication, from any person or
Governmental Authority that alleges that Sierra Pacific or any of its
subsidiaries is not in compliance with applicable Environmental Laws, except
where the failure to be in compliance would not have a Sierra Pacific Material
Adverse Effect.
(b) ENVIRONMENTAL PERMITS. Except as set forth in Section 4.11(b) of the
Sierra Pacific Disclosure Schedule, each of Sierra Pacific and its subsidiaries
has obtained or has applied for all environmental, health and safety permits and
authorizations (collectively, the "Environmental Permits") necessary for the
construction of their facilities or the conduct of their operations, and all
such permits are in good standing or, where applicable, a renewal application
has been timely filed and is pending agency approval, and Sierra Pacific is in
material compliance with all terms and conditions of the Environmental Permits
and is not required to make any expenditure in order to obtain or renew any
Environmental Permit, except where the failure to obtain or be in compliance
with such Environmental Permit or the requirement to make any expenditure in
connection with such Environmental Permit would not have a Sierra Pacific
Material Adverse Effect.
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(c) ENVIRONMENTAL CLAIMS. Except as set forth in Section 4.11(c) of the
Sierra Pacific Disclosure Schedule, to the best knowledge of Sierra Pacific upon
diligent review, there is no Environmental Claim (as hereinafter defined)
pending (i) against Sierra Pacific or any of its subsidiaries or joint ventures,
(ii) against any person or entity whose liability for any Environmental Claim
Sierra Pacific or any of its subsidiaries or joint ventures has or may have
retained or assumed either contractually or by operation of law or (iii) against
any real or personal property or operations which Sierra Pacific or any of its
subsidiaries or joint ventures owns, leases or manages, in whole or in part,
which, if adversely determined, would have in the aggregate a Sierra Pacific
Material Adverse Effect.
(d) RELEASES. Except as set forth in Section 4.11(c) or Section 4.11(d) of
the Sierra Pacific Disclosure Schedule, Sierra Pacific has no knowledge of any
Releases (as hereinafter defined) or any Hazardous Material (as hereinafter
defined) that would be reasonably likely to form the basis of any Environmental
Claims against Sierra Pacific or any subsidiaries or joint ventures of Sierra
Pacific, or against any person or entity whose liability for any Environmental
Claim Sierra Pacific or any subsidiaries or joint ventures of Sierra Pacific has
or may have retained or assumed either contractually or by operation of law,
except for Releases of Hazardous Materials, the liability for which would not
have, in the aggregate, a Sierra Pacific Material Adverse Effect.
(e) PREDECESSORS. Except as set forth in Section 4.11(e) of the Sierra
Pacific Disclosure Schedule, Sierra Pacific has no actual knowledge, with
respect to any predecessor of Sierra Pacific or any subsidiary or joint venture
of Sierra Pacific, of any Environmental Claim pending or threatened, or of any
Release of Hazardous Materials that would be reasonably likely to form the basis
of any Environmental Claim, which would have, or which Sierra Pacific reasonably
believes would have, Sierra Pacific Material Adverse Effect.
(f) DISCLOSURE. To Sierra Pacific's best knowledge upon a good faith
effort, Sierra Pacific has disclosed to Nevada Power, in Section 4.11(f) of the
Sierra Pacific Disclosure Schedule or otherwise, all material facts which Sierra
Pacific reasonably believes form the basis of a Sierra Pacific Material Adverse
Effect arising from (i) the cost of pollution control equipment currently
required or known to be required in the future; (ii) current remediation costs
or remediation costs known to be required in the future; or (iii) any other
environmental matter affecting Sierra Pacific or its subsidiaries which would
have, or which Sierra Pacific reasonably believes would have, a Sierra Pacific
Material Adverse Effect.
(g) As used in this Agreement:
(i) "ENVIRONMENTAL CLAIM" means any and all administrative, regulatory
or judicial actions, suits, demands, demand letters, directives, claims,
liens, investigations, proceedings or notices of noncompliance or violation
(written or oral) by any person or entity (including any Governmental
Authority) alleging potential liability (including, without limitation,
potential liability for enforcement, investigatory costs, cleanup costs,
governmental resource costs, removal costs, remedial costs, natural
resources damages, property damages, personal injuries, or penalties)
arising out of, based on or resulting from (a) the presence, or Release or
threatened Release into the environment, or any Hazardous Materials at any
location operated, leased or managed by Sierra Pacific or any subsidiary or
joint venture of Sierra Pacific (for purposes of this Section 4.11), or by
Nevada Power or any of its subsidiaries or joint ventures (for purposes of
Section 5.11) or at any other location to which Sierra Pacific or any
subsidiary or joint venture of Sierra Pacific (for purposes of this Section
4.11) or Nevada Power or any subsidiary or joint venture of Nevada Power
(for purposes of Section 5.11) sent, Released, disposed of or transported
Hazardous Materials generated, treated, stored or disposed of by Sierra
Pacific or any subsidiary or joint venture of Sierra Pacific (for purposes
of this Section 4.11) or Nevada Power or any subsidiary or joint venture of
Nevada Power (for purposes of Section 5.11); or (b) circumstances forming
the basis of any violation; or alleged violation, of any Environmental Law;
or (c) any and all claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting
from the presence or Release of any Hazardous Materials.
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(ii) "ENVIRONMENTAL LAWS" means all federal, state, local laws, rules
and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without
limitation, laws and regulations relating to Releases or threatened Releases
of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.
(iii) "HAZARDOUS MATERIALS" means (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, and transformers or other
equipment that contain dielectric fluid containing polychlorinated biphenyls
("PCBs"); and (b) any chemicals, materials or substances which are now
defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants," or
words, of similar import, under any Environmental Law; and (c) any other
chemical, material, substance or waste, exposure to which is now prohibited,
limited or regulated under Environmental Law in a jurisdiction in which
Sierra Pacific or any subsidiary or joint venture of Sierra Pacific operates
(for purposes of Section 4.11) or in which Nevada Power or any of its
subsidiaries or joint ventures operate (for purposes of Section 5.11).
(iv) "RELEASES" means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, surface water, groundwater or property.
Section 4.12 REGULATION AS A UTILITY. Sierra Pacific is an exempt public
utility holding company under Section 3(a)(1) of the 1935 Act. Sierra Pacific
Power is regulated as a public utility in the States of Nevada and California
and in no other state. Except as set forth in the preceding sentence and in
Section 4.12 of the Sierra Pacific Disclosure Schedule, neither Sierra Pacific
nor any "subsidiary company" or "affiliate" (as those terms are defined in the
1935 Act) of Sierra Pacific is subject to regulation as a public utility or
public service company (or similar designation) by any other state in the United
States or any foreign country.
Section 4.13 VOTE REQUIRED. At the Sierra Pacific Special Meeting (as
hereinafter defined), Sierra Pacific will seek the approval of the First Merger
by a majority of the voting power of the holders of Sierra Pacific Common Stock
and the approval of the issuance of Sierra Pacific Common Stock in connection
with the Second Merger by a majority of the votes cast by the holders of Sierra
Pacific Common Stock, where at least a majority of all outstanding shares of
Sierra Pacific Common Stock vote on such proposal (together, the "Sierra Pacific
Stockholders' Approval"), and no other vote of the holders of any class or
series of the capital stock of Sierra Pacific is required to approve this
Agreement and the transactions contemplated hereby.
Section 4.14 NON-APPLICABILITY OF CERTAIN NEVADA LAW. None of the control
share acquisition provisions of Section 78.378 et seq. of the GCL, the business
combination provisions of Section 78.411 et seq. of the GCL or any similar
provisions of the GCL, the articles of incorporation or bylaws of Sierra Pacific
are applicable to the transactions contemplated by the Agreement because such
provisions do not apply by their terms or because any required approvals of the
Board of Directors of Sierra Pacific have been obtained.
Section 4.15 OPINION OF FINANCIAL ADVISOR. Sierra Pacific has received the
opinion of SG Barr Devlin to the effect that, as of the date hereof, the Sierra
Pacific Merger Consideration to be issued in the First Merger in light of the
Nevada Power Merger Consideration to be issued in the Second Merger is fair from
a financial point of view to the holders of Sierra Pacific Common Stock. Sierra
Pacific has also received the opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), to the effect that, as of the date hereof, the
aggregate consideration to be received by holders of Sierra Pacific Common Stock
pursuant to the transactions contemplated by this Agreement is fair from a
financial point of view to such holders.
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Section 4.16 INSURANCE. Except as set forth in Section 4.16 of the Sierra
Pacific Disclosure Schedule, each of Sierra Pacific and its subsidiaries is, and
has been continuously since January 1, 1995, insured with financially
responsible insurers in such amounts and against such risks and losses as are
customary in all material respects for companies conducting the businesses
conducted by Sierra Pacific and its subsidiaries during such time period. Except
as set forth in Schedule 4.16 of the Sierra Pacific Disclosure Schedule, neither
Sierra Pacific nor its subsidiaries have received any notice of cancellation or
termination with respect to any material insurance policy of Sierra Pacific or
its subsidiaries. All material insurance policies of Sierra Pacific and each of
its subsidiaries are valid and enforceable policies.
Section 4.17 OWNERSHIP OF NEVADA POWER COMMON STOCK. Sierra Pacific does
not "beneficially own" (as such term is defined for purposes of Section 13(d) of
the Exchange Act) any shares of Nevada Power Common Stock.
Section 4.18 SIERRA PACIFIC RIGHTS AGREEMENT. Prior hereto, Sierra Pacific
has delivered to Nevada Power and its designated counsel a true and complete
copy of the Rights Agreement, dated October 13, 1989, between Bank of America
N.T. & S.A. and Sierra Pacific (the "Sierra Pacific Rights Agreement") in effect
on the date hereof, and assuming the accuracy of the representation contained in
Section 5.17, the consummation of the transactions contemplated by this
Agreement will not result in the triggering of any right or entitlement of
Sierra Pacific stockholders under the Sierra Pacific Rights Agreement or any
similar agreement to which Sierra Pacific or any of its affiliates is a party.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF NEVADA POWER
Nevada Power represents and warrants to each of Sierra Pacific, Lake Merger
Sub and Desert Merger Sub as follows:
Section 5.1 ORGANIZATION AND QUALIFICATION. Except as set forth in Section
5.1 of the Nevada Power Disclosure Schedule (as defined in Section 7.6(ii)),
each of Nevada Power and its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation, has all requisite corporate power and authority, and has been
duly authorized by all necessary approvals and orders of the Nevada Commission,
to own, lease and operate its assets and properties and to carry on its business
as it is now being conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its assets and properties makes such qualification
necessary other than in such jurisdictions where the failure to be so qualified
and in good standing will not, when taken together with all other such failures,
have a material adverse effect on the business, operations, assets, financial
condition or the result of operations of Nevada Power and its subsidiaries taken
as a whole or on the consummation of this Agreement (any such material adverse
effect being hereinafter referred to as a "Nevada Power Material Adverse
Effect").
Section 5.2 SUBSIDIARIES. Section 5.2 of the Nevada Power Disclosure
Schedule sets forth a description of all subsidiaries and joint ventures of
Nevada Power, including the name of each such entity, the state of jurisdiction
of its incorporation or formation, a brief description of the principal line or
lines of business conducted by each such entity and Nevada Power's interest
therein. Except as set forth in Section 5.2 of the Nevada Power Disclosure
Schedule, none of such entities is a "public utility company," a "holding
company," a "subsidiary company" or an "affiliate" of any public utility company
within the meaning of Section 2(a)(5), 2(a)(7), 2(a)(8) or 2(a)(11),
respectively, of the 1935 Act. Except as set forth in Section 5.2 of the Nevada
Power Disclosure Schedule, all of the issued and outstanding shares of capital
stock or other securities of, or interests in, each subsidiary or joint venture
of Nevada Power are validly issued, fully paid, nonassessable and free of
preemptive rights, are owned directly or indirectly by Nevada Power free and
clear of any liens, claims, encumbrances, security interests, equities, charges
and options of any nature whatsoever, and there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, arrangements, rights or warrants,
including
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any right of conversion or exchange under any outstanding security, instrument
or other agreement, obligating any such subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or commitment.
Section 5.3 CAPITALIZATION. The authorized capital stock of Nevada Power
consists of 70,000,000 shares of Nevada Power Common Stock, 4,500,000 shares of
Nevada Power Cumulative Preferred Stock, par value $20 per share ("Nevada Power
Preferred Stock"), and 1,000,000 shares of preference stock, par value $20 per
share ("Nevada Power Preference Stock"). As of the close of business on April
28, 1998, (i) 50,766,586 shares of Nevada Power Common Stock, (ii) 179,245
shares of Nevada Power Preferred Stock (consisting of 108,006 shares of the
4.70% series, 34,570 shares of the 5.20% series, and 36,669 shares of the 5.40%
series) and (iii) no shares of Nevada Power Preference Stock were issued and
outstanding. Prior to the Effective Time of the Second Merger, all shares of
Nevada Power Preferred Stock will be redeemed or otherwise retired in accordance
with their terms. As of the date hereof, Nevada Power Capital I, a wholly-owned
subsidiary of Nevada Power, had 4,901,918 8.2% Cumulative Quarterly Income
Preferred Securities issued and outstanding, 147,058 of which are owned by
Nevada Power, and 147,058 Series A Common Securities issued and outstanding, all
of which are owned by Nevada Power. All of the issued and outstanding shares of
the capital stock of Nevada Power are validly issued, fully paid, nonassessable
and free of preemptive rights. Except as set forth in Section 5.3 of the Nevada
Power Disclosure Schedule, there are no outstanding subscriptions, options,
calls, contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating Nevada Power or any of its subsidiaries to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of the
capital stock of Nevada Power, or obligating Nevada Power or any of its
subsidiaries to grant, extend or enter into any such agreement or commitment
other than the Nevada Power Rights Agreement.
Section 5.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) AUTHORITY. Nevada Power has all requisite power and authority to enter
into this Agreement and, subject to the applicable Nevada Power Stockholders'
Approval (as defined in Section 5.13) and the applicable Nevada Power Required
Statutory Approvals (as hereinafter defined), to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation by Nevada Power of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Nevada Power,
subject to obtaining the applicable Nevada Power Stockholders' Approval. This
Agreement has been duly and validly executed and delivered by Nevada Power and,
assuming the due authorization, execution and delivery hereof by each of Sierra
Pacific, Lake Merger Sub and Desert Merger Sub, constitutes the valid and
binding obligation of Nevada Power enforceable against it in accordance with its
terms.
(b) NON-CONTRAVENTION. The execution and delivery of this Agreement by
Nevada Power do not, and the consummation of the transactions contemplated
hereby will not, violate, conflict with, or result in a breach of any provision
of, or constitute a default (with or without notice or lapse of time or both)
under, or result in any Violation by Nevada Power or any of its subsidiaries or
joint ventures pursuant to any provisions of (i) the articles of incorporation,
bylaws or similar governing documents of Nevada Power or any of its subsidiaries
or joint ventures, (ii) subject to obtaining the Nevada Power Required Statutory
Approvals and the receipt of the Nevada Power Stockholders' Approval, any
statute, law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any Governmental Authority applicable to Nevada Power
or any of its subsidiaries or joint ventures, or any of its respective
properties or assets, or (iii) subject to obtaining the third-party consents or
other approvals set forth in Section 5.4(b) of the Nevada Power Disclosure
Schedule (the "Nevada Power Required Consents"), any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind to which Nevada
Power or any of its subsidiaries or any joint venture of Nevada Power is now a
party or by which it or any of its properties or assets may be bound or
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affected, excluding from the foregoing clauses (ii) and (iii) such Violations
that would not, in the aggregate, have a Nevada Power Material Adverse Effect.
(c) STATUTORY APPROVALS. Except as described in Section 5.4(c) of the
Nevada Power Disclosure Schedule, no declaration, filing or registration with,
or notice to or authorization, consent or approval of, any Governmental
Authority is necessary for the execution and delivery of this Agreement by
Nevada Power or the consummation by Nevada Power of the transaction contemplated
hereby, the failure of which to obtain, make or give would have, in the
aggregate, a Nevada Power Material Adverse Effect (the "Nevada Power Required
Statutory Approvals," it being understood that references in this Agreement to
"obtaining" such Nevada Power Required Statutory Approvals shall mean making
such declarations, filings or registrations, giving such notices, obtaining such
authorizations, consents or approvals, and having such waiting periods expire as
are necessary to avoid a violation of law).
(d) COMPLIANCE. Except as set forth in Section 5.4(d) or Section 5.11 of
the Nevada Power Disclosure Schedule or as disclosed in the Nevada Power SEC
Reports (as defined in Section 5.5), neither Nevada Power nor any of its
subsidiaries nor, to the knowledge of Nevada Power, any of its joint ventures,
is in violation of, or is under investigation with respect to, or has been given
notice or been charged with any violation of, any law, statute, order, rule,
regulation, ordinance or judgment (including, without limitation, applicable
Environmental Laws) of any Governmental Authority, except for violations which,
in the aggregate do not have, and, to the knowledge of Nevada Power, are not
reasonably likely to have, a Nevada Power Material Adverse Effect. Except as set
forth in Section 5.4(d) or Section 5.11 of the Nevada Power Disclosure Schedule,
Nevada Power and each of its subsidiaries and joint ventures have all permits,
licenses, franchises and other governmental authorizations, consents and
approvals necessary to conduct their businesses as currently conducted except
those of which the failure to obtain would not, individually or in the
aggregate, have a Nevada Power Material Adverse Effect. Except as set forth in
Section 5.4(d) of the Nevada Power Disclosure Schedule, neither Nevada Power or
any of its subsidiaries nor, to the knowledge of Nevada Power, any joint venture
of Nevada Power is in breach or violation of or in default in the performance or
observance of any term or provision of, and no event has occurred which, with
lapse of time or action by a third party or both could result in a default by
Nevada Power or any Nevada Power subsidiary or, to the knowledge of Nevada
Power, any joint venture of Nevada Power under (i) its articles of incorporation
or bylaws or (ii) any contract, commitment, agreement, indenture, mortgage, loan
agreement, note, lease, bond, license, approval or other instrument to which it
is a party or by which Nevada Power or any subsidiary or joint venture of Nevada
Power is bound or to which any of its property is subject, except for possible
violations, breaches or defaults which individually or in the aggregate would
not have a Nevada Power Material Adverse Effect.
Section 5.5 REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1995, the
filings required to be made by Nevada Power and its subsidiaries under the
Securities Act, the Exchange Act, applicable Nevada laws and regulations
regulating public utilities, the Power Act or the 1935 Act have been filed with
the SEC, the Nevada Commission or the FERC, as the case may be, including all
forms, statements, reports, agreements (oral or written) and all documents,
exhibits, amendments and supplements appertaining thereto, and complied in all
material respects with all applicable requirements of the appropriate act and
the rules and regulations thereunder. Nevada Power has made available to Sierra
Pacific a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by Nevada Power with the SEC
since January 1, 1995 (as such documents have since the time of their filing
been amended, the "Nevada Power SEC Reports"). As of their respective dates, the
Nevada Power SEC Reports did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim financial statements of Nevada Power included in the Nevada
Power SEC Reports (collectively, the "Nevada Power Financial Statements") have
been prepared in accordance with GAAP (except as may be indicated therein or in
the notes thereto and except with respect to unaudited statements as permitted
by Form 10-Q of the SEC) and
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fairly present the financial position of Nevada Power and its subsidiaries as of
the dates thereof and the results of its operations and cash flows for the
periods then ended, subject, in the case of the unaudited interim financial
statements, to normal recurring audit adjustments. True, accurate and complete
copies of the articles of incorporation and bylaws of Nevada Power as in effect
on the date hereof have been delivered to Sierra Pacific.
Section 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS; ABSENCE OF UNDISCLOSED
LIABILITIES. (a) Except as set forth in the Nevada Power SEC Reports or Section
5.6 of the Nevada Power Disclosure Schedule, from December 31, 1997, through the
date hereof, each of Nevada Power and its subsidiaries has conducted its
business only in the ordinary course of business consistent with past practice
and there has not been, and no fact or condition exists which would have or, to
the knowledge of Nevada Power, is reasonably likely to have, a Nevada Power
Material Adverse Effect.
(b) Neither Nevada Power nor any of its subsidiaries has any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of a nature
required by GAAP to be reflected in a consolidated corporate balance sheet,
except liabilities, obligations or contingencies that are accrued or reserved
against in the consolidated financial statements of Nevada Power or reflected in
the notes thereto for the year ended December 31, 1997, or which were incurred
after December 31, 1997 in the ordinary course of business and would not, in the
aggregate, have a Nevada Power Material Adverse Effect.
Section 5.7 LITIGATION. Except as disclosed in the Nevada Power SEC
Reports or as set forth in Section 5.7 or Section 5.11 of the Nevada Power
Disclosure Schedule, (i) there are no claims, suits, actions or proceedings,
pending or, to the knowledge of Nevada Power, threatened, nor are there, to the
knowledge of Nevada Power, any investigations or reviews pending or threatened
against, relating to or affecting Nevada Power or any of its subsidiaries and
(ii) there are no judgments, decrees, injunctions, rules or orders of any court,
governmental department, commission, agency, instrumentality or authority or any
arbitrator applicable to Nevada Power or any of its subsidiaries, which, when
taken together with any of the matters described in clauses (i) or (ii), would
have, or to the knowledge of Nevada Power is reasonably likely to have, a Nevada
Power Material Adverse Effect. In addition, except as disclosed in the Nevada
Power SEC Reports or as set forth in Section 5.7 or Section 5.11 of the Nevada
Power Disclosure Schedule, there have not been any developments since December
31, 1997, with respect to such disclosed claims, suits, actions, proceedings,
investigations or reviews, which, in the aggregate, would have, or to the
knowledge of Nevada Power is reasonably likely to have, a Nevada Power Material
Adverse Effect.
Section 5.8 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of Nevada Power for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time the Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and (ii) the Proxy
Statement will not, at the dates mailed to stockholders and at the times of the
meetings of stockholders to be held in connection with the Mergers, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
Registration Statement and the Proxy Statement, insofar as they relate to Nevada
Power or any of its subsidiaries, will comply as to form in all material
respects with the applicable provisions of the Securities Act and the Exchange
Act and the rules and regulations thereunder.
Section 5.9 TAX MATTERS.
(a) FILING OF TIMELY TAX RETURNS. Nevada Power and each of its
subsidiaries have filed all Tax Returns required to be filed by each of them
under applicable law. All Tax Returns were in all material respects (and, as to
Tax Returns not filed as of the date hereof, will be) true, complete and correct
and filed on a timely basis.
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(b) PAYMENT OF TAXES. Nevada Power and each of its subsidiaries have,
within the time and in the manner prescribed by law, paid (and until the Closing
Date will pay within the time and in the manner prescribed by law) all Taxes
that are currently due and payable except for those contested in good faith and
for which adequate reserves have been taken.
(c) TAX LIENS. There are no material Tax liens upon the assets of Nevada
Power or any of its subsidiaries except liens for Taxes not yet due.
(d) WITHHOLDING TAXES. Nevada Power and each of its subsidiaries have
complied (and until the Closing Date will comply) in all respects with the
provisions of the Code relating to the payment and withholding of Taxes,
including, without limitation, the withholding and reporting requirements under
Code Section 1441 through 1464, 3401 through 3606, and 6041 and 6049, as well as
similar provisions under any other laws, and have, within the time and in the
manner prescribed by law, withheld from employee wages and paid over to the
proper governmental authorities all amounts required.
(e) EXTENSIONS OF TIME FOR FILING TAX RETURNS. Except as set forth in
Section 5.9(e) of the Nevada Power Disclosure Schedule, neither Nevada Power nor
any of its subsidiaries has requested any extension of time within which to file
any Tax Return, which Tax Return has not since been filed.
(f) WAIVERS OF STATUTE OF LIMITATIONS. Except as set forth in Section
5.9(f) of the Nevada Power Disclosure Schedule, neither Nevada Power nor any of
its subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(g) EXPIRATION OF STATUTE OF LIMITATIONS. Except as set forth in Section
5.9(g) of the Nevada Power Disclosure Schedule, the statute of limitations for
the assessment of all Taxes has expired for all applicable Tax Returns of Nevada
Power and each of its subsidiaries or those Tax Returns have been examined by
the appropriate taxing authorities for all periods through the date hereof, and
no deficiency for any Taxes has been proposed, asserted or assessed against
Nevada Power or any of its subsidiaries that has not been resolved and paid in
full.
(h) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. Except as set forth in
Section 5.9(h) of the Nevada Power Disclosure Schedule, no audits or other
administrative proceedings or court proceedings are presently pending, and no
material issue raised remains unsettled, with regard to any Taxes or Tax Returns
of Nevada Power or any of its subsidiaries.
(i) POWER OF ATTORNEY. Except as set forth in Section 5.9(i) of the Nevada
Power Disclosure Schedule, no power of attorney currently in force has been
granted by Nevada Power or any of its subsidiaries concerning any Tax matter.
(j) TAX RULINGS. Except as set forth in Section 5.9(j) of the Nevada Power
Disclosure Schedule, neither Nevada Power nor any of its subsidiaries has
received a Tax Ruling or entered into a Closing Agreement with any taxing
authority that would have a continuing adverse effect after the Closing Date.
(k) AVAILABILITY OF TAX RETURNS. As soon as practicable after the date
hereof, Nevada Power and its subsidiaries will make available to Sierra Pacific
and SPC complete and accurate copies of (i) all Tax Returns, and any amendments
thereto, filed by Nevada Power or any of its subsidiaries since January 1, 1990,
(ii) all audit reports received from any taxing authority relating to any Tax
Return filed by Nevada Power or any of its subsidiaries and (iii) any Closing
Agreement entered into by Nevada Power or any of its subsidiaries with any
taxing authority.
(l) TAX SHARING AGREEMENTS. Except as disclosed in Section 5.9(l) of the
Nevada Power Disclosure Schedule, no agreements relating to allocating or
sharing of Taxes exist between or among Nevada Power and any of its
subsidiaries.
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(m) CODE SECTION 341(F). Neither Nevada Power nor any of its subsidiaries
has filed (or will file prior to the Closing) a consent pursuant to Code Section
341(f) or has agreed to have Code Section 341(f)(2) apply to any disposition of
a subsection (f) asset (as that term is defined in Code Section 341(f)(4)) owned
by Nevada Power or any of its subsidiaries.
(n) CODE SECTION 168. Except as set forth in Section 5.9(n) of the Nevada
Power Disclosure Schedule, no property of Nevada Power or any of its
subsidiaries is property that Nevada Power or any such subsidiary or any party
to this transaction is or will be required to treat as being owned by another
person pursuant to the provisions of Code Section 168(f)(8) (as in effect prior
to its amendment by the Tax Reform Act of 1986) or is "tax-exempt use property"
within the meaning of Code Section 168.
(o) CODE SECTION 481 ADJUSTMENTS. Except as set forth in Section 5.9(o) of
the Nevada Power Disclosure Schedule, neither Nevada Power nor any of its
subsidiaries is required to include in income any adjustment pursuant to Code
Section 481(a) by reason of a voluntary change in accounting method initiated by
Nevada Power or any of its subsidiaries, and to the best of the knowledge of
Nevada Power, the IRS has not proposed any such adjustment or change in
accounting method.
(p) CODE SECTION 6661 AND SECTION 6662. All transactions that could give
rise to an understatement of federal income tax (within the meaning of Code
Section 6661 or Code Section 6662) that could reasonably be expected to result
in a Nevada Power Material Adverse Effect have been adequately disclosed (or,
with respect to Tax Returns filed following the Closing will be adequately
disclosed) on the Tax Return of Nevada Power and its subsidiaries in accordance
with Code 6661(h)(2)(B) or Code 6662(d)(2)(B).
(q) CODE SECTION 280G. Except as set forth in Section 5.9(q) of the Nevada
Power Disclosure Schedule, neither Nevada Power nor any of its subsidiaries is a
party to any agreement, contract, or arrangement that could result, on account
of the transactions contemplated hereunder, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of the Code
Section 280G.
(r) LIABILITY FOR OTHERS. Neither Nevada Power nor any of its subsidiaries
has any liability for Taxes of any person other than Nevada Power and its
subsidiaries under Treasury Regulations Section 1.1502-6 (or any similar
provision of state, local or foreign law) as a transferee or successor, by
contract, or otherwise.
Section 5.10 EMPLOYEE MATTERS; ERISA.
(a) BENEFIT PLANS. Section 5.10(a) of the Nevada Power Disclosure Schedule
contains a true and complete list of each employee benefit plan, program or
arrangement sponsored, maintained or contributed to by and covering employees,
former employees, directors or former directors of Nevada Power (or any of its
subsidiaries or any other entity which would be treated under Section 414 of the
Code as a single employer with Nevada Power) or any of their dependents or
beneficiaries, or providing benefits to such persons in respect of services
provided to any such entity including, but not limited to, any employee benefit
plans within the meaning of Section 3(3) of ERISA, any management, employment,
deferred compensation, severance (including any payment, right or benefit
resulting from a change in control), bonus or other contract for personal
services with any current or former officer, director or employee, any
consulting contract with any person who prior to entering into such contract was
a director or officer of Nevada Power or any of its subsidiaries or any plan,
agreement, arrangement or understanding similar to any of the foregoing
(collectively, the "Nevada Power Benefit Plans"). None of the Nevada Power
Benefit Plans is a multiemployer plan within the meaning of ERISA.
(b) CONTRIBUTIONS. Except as set forth in Section 5.10(b) of the Nevada
Power Disclosure Schedule, all contributions and other payments required to have
been made by Nevada Power or any of its subsidiaries (including any pre- or
post-tax contributions or payments by employees or their dependents) to any
Nevada Power Benefit Plan (or to any person pursuant to the terms thereof) have
been so made or the amount of such payment or contribution obligations has been
reflected in the Nevada Power Financial Statements.
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(c) QUALIFICATION; COMPLIANCE. Except as set forth in Section 5.10(c) of
the Nevada Power Disclosure Schedule, each of the Nevada Power Benefit Plans
that are intended to be "qualified" within the meaning of Code Section 401(a)
has been determined by the IRS to be so qualified, and, to the best knowledge of
Nevada Power, no circumstances exist that are reasonably expected by Nevada
Power to result in the revocation of any such determination. Nevada Power is not
in noncompliance in any respect with, and no Nevada Power Benefit Plan is or has
been operated in noncompliance with its terms and with, any applicable law, rule
or regulation governing such plan, including, without limitation, ERISA and the
Code, which would have a Nevada Power Material Adverse Effect.
(d) LIABILITIES. With respect to the Nevada Power Benefit Plans,
individually and in the aggregate, no event has occurred, and, to the best
knowledge of Nevada Power, there exists no condition or set of circumstances
that could subject Nevada Power or any of its subsidiaries to any liability
arising under the Code, ERISA or any other applicable law (including, without
limitation, any liability to any such plan or the PBGC), or under any indemnity
agreement to which Nevada Power is a party, which liability, excluding liability
for benefit claims and funding obligations payable in the ordinary course and
liability for premiums due to the PBGC, would have, or insofar as reasonably can
be foreseen, could have, a Nevada Power Material Adverse Effect.
(e) WELFARE PLANS. Except as set forth in Section 5.10(e) of the Nevada
Power Disclosure Schedule, none of the Nevada Power Benefit Plans that are
"welfare plans," within the meaning of Section 3(1) of ERISA, provides for any
retiree benefits.
(f) DOCUMENTS MADE AVAILABLE. Nevada Power has made available to Sierra
Pacific a true and correct copy of each collective bargaining agreement to which
Nevada Power is a party or under which Nevada Power has obligations, and with
respect to each Nevada Power Benefit Plan, (i) such plan and the most recent
summary plan description, (ii) the most recent annual report filed with the IRS,
(iii) each related trust agreement, insurance contract, service provider or
investment management agreement (including all amendments to each such
document), (iv) the most recent determination of the IRS with respect to the
qualified status of such plan, and (v) the most recent actuarial report or
valuation.
(g) PAYMENTS RESULTING FROM MERGER. Other than as set forth in Section
7.11 or in Section 5.10(g) of the Nevada Power Disclosure Schedule, the
consummation, announcement or other action relating to any transactions
contemplated by this Agreement will not (either alone or upon the occurrence of
any additional or further acts or events) result in any (A) payment (whether of
severance pay or otherwise) becoming due from Nevada Power or any of its
subsidiaries to any officer, employee, former employee, director or former
director thereof or to the trustee under any "rabbi trust" or similar
arrangement, or (B) benefit under any Nevada Power Benefit Plan being
established or becoming accelerated, vested or payable.
(h) FUNDED STATUS OF PLANS. Except as set forth in Section 5.10(h) of the
Nevada Power Disclosure Schedule, the failure of any Nevada Power Benefit Plan
which is subject to the requirements of Code Section 412, part 3 of Title 1 of
ERISA or Title IV of ERISA to hold assets, the fair market value of which, as of
the date thereof, are at least equal in value to the greatest of the projected
benefit obligations, the accumulated benefit obligations or accrued benefit
obligations (each determined as of the date hereof) of the participants and
beneficiaries under such plan, based on actuarial methods, tables and
assumptions theretofore utilized by such plan's actuary to determine the plan's
funded status would not give rise to a Nevada Power Material Adverse Effect.
(i) CERTAIN OTHER OBLIGATIONS. Except as set forth in Section 5.10(i) of
the Nevada Power Disclosure Schedule, the termination of, or withdrawal from,
any employee pension benefit plan within the meaning of Section 3(2) of ERISA
(including any single employer, multiple employer or multiemployer plan) or
subject to Title IV of ERISA by Nevada Power or any corporation or other entity
which is, or at any time was, a subsidiary of Nevada Power or would be treated
under Section 414 of the Code as a single employer with Nevada Power has not,
and will not, subject Nevada Power (or any subsidiary of Nevada Power) to any
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liability of or to any governmental authority, corporation or other person or
such employee pension plan which individually or in the aggregate would have a
Nevada Power Material Adverse Effect.
(j) MODIFICATION OR TERMINATION OF PLANS. Except as set forth in Section
5.10(j) of the Nevada Power Disclosure Schedule: (A) neither Nevada Power nor
any subsidiary of Nevada Power is subject to any legal, contractual, equitable
or other obligation to establish or contribute to as of any date any new Nevada
Power Benefit Plan or amend any existing Nevada Power Benefit Plan; and (B) to
the best knowledge of Nevada Power and each of its subsidiaries after review of
all plan documents, Nevada Power and each of its subsidiaries may (except to the
extent prohibited by applicable law), in any manner, and without the consent of
any employee, beneficiary or dependent, employees' organization or other person,
terminate, modify or amend each Nevada Power Benefit Plan (or its participation
in any such Nevada Power Benefit Plan) at any time sponsored, maintained or
contributed to by Nevada Power or any of its subsidiaries effective as of any
date before, on or after the Effective Time.
(k) LABOR AGREEMENTS. Except as disclosed in the Nevada Power SEC Reports
or as set forth in Section 5.10(k) of the Nevada Power Disclosure Schedule: (i)
neither Nevada Power nor any of its subsidiaries is a party to any collective
bargaining agreement or other labor agreement with any union or labor
organization; (ii) to the best knowledge of Nevada Power and its subsidiaries,
there is no current union representation question involving employees of Nevada
Power (or any of its subsidiaries), nor does Nevada Power or any of its
subsidiaries know of any activity or proceeding of any labor organizations (or
representative thereof) or employee group (or representative thereof) to
organize any such employees; (iii) there is no unfair labor practice, charge or
written grievance arising out of a collective bargaining agreement or other
grievance procedure against Nevada Power or any of its subsidiaries pending, or
to the best knowledge of Nevada Power or any of its subsidiaries, threatened,
which has, or reasonably may be expected by Nevada Power or any of its
subsidiaries to have, a Nevada Power Material Adverse Effect; (iv) there is no
complaint, lawsuit or proceeding in any forum by or on behalf of any present or
former employee, any applicant for employment or classes of the foregoing
alleging breach of any express or implied contract of employment, any law or
regulation governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the employment
relationship against Nevada Power or any of its subsidiaries, or to the best
knowledge of Nevada Power or any of its subsidiaries, threatened, which has, or
reasonably may be expected by Nevada Power or any of its subsidiaries to have, a
Nevada Power Material Adverse Effect; (v) there is no strike, dispute, slowdown,
work stoppage or lockout pending, or, to the best knowledge of Nevada Power or
any of its subsidiaries, threatened, against or involving Nevada Power or any of
its subsidiaries which has or, insofar as reasonably can be foreseen, could
have, a Nevada Power Material Adverse Effect; (vi) Nevada Power and its
subsidiaries are in compliance with all applicable laws respecting employment
and employment practices, terms and conditions of employment, wages, hours of
work and occupational safety and health, except for noncompliance which, in the
aggregate, does not, and insofar as reasonably can be foreseen, will not, have a
Nevada Power Material Adverse Effect; and (vii) there is no proceeding, claim,
suit, action or governmental investigation pending or, to the best knowledge of
Nevada Power and its subsidiaries, threatened, in respect of which any director,
officer, employee or agent of Nevada Power or any of its subsidiaries is or may
be entitled to claim indemnification from Nevada Power pursuant to its articles
of incorporation or regulations or as provided in the indemnification agreements
listed on Section 5.10(k) of the Nevada Power Disclosure Schedule.
Section 5.11 ENVIRONMENTAL PROTECTION.
(a) COMPLIANCE. Except as set forth in Section 5.11(a) of the Nevada Power
Disclosure Schedule, each of Nevada Power and its subsidiaries is in compliance
with all applicable Environmental Laws, except where the failure to be in
compliance would not have a Nevada Power Material Adverse Effect. Except as set
forth in Section 5.11(a) of the Nevada Power Disclosure Schedule, neither Nevada
Power nor any of its subsidiaries has received any written, or, to the knowledge
of appropriate officers of Nevada Power upon diligent review, oral
communication, from any person or Governmental Authority, that alleges that
Nevada
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Power or any of its subsidiaries is not in compliance with applicable
Environmental Laws, except where the failure to be in compliance would not have
a Nevada Power Material Adverse Effect.
(b) ENVIRONMENTAL PERMITS. Except as set forth in Section 5.11(b) of the
Nevada Power Disclosure Schedule, each of Nevada Power and its subsidiaries has
obtained or has applied for all Environmental Permits necessary for the
construction of their facilities or the conduct of their operations, and all
such permits are in good standing or, where applicable, a renewal application
has been timely filed and is pending agency approval, and Nevada Power is in
material compliance with all terms and conditions of the Environmental Permits
and is not required to make any expenditure in order to obtain or renew any
Environmental Permit, except where the failure to obtain or be in compliance
with the Environmental Permit or the requirement to make any expenditure in
connection with such Environmental Permit would not have a Nevada Power Material
Adverse Effect.
(c) ENVIRONMENTAL CLAIMS. Except as set forth in Section 5.11(c) of the
Nevada Power Disclosure Schedule, to the best knowledge of Nevada Power upon
diligent review, there is no Environmental Claim pending (i) against Nevada
Power or any of its subsidiaries or joint ventures, (ii) against any person or
entity whose liability for any Environmental Claim Nevada Power or any of its
subsidiaries or joint ventures has or may have retained or assumed either
contractually or by operation of law, or (iii) against any real or personal
property or operations which Nevada Power or any of its subsidiaries or joint
ventures owns, leases or manages, in whole or in part, which if adversely
determined, would have in the aggregate a Nevada Power Material Adverse Effect.
(d) RELEASES. Except as set forth in Section 5.11(c) or Section 5.11(d) of
the Nevada Power Disclosure Schedule, Nevada Power has no knowledge of any
Releases of any Hazardous Material that would be reasonably likely to form the
basis of any Environmental Claim against Nevada Power or any of its subsidiaries
or joint ventures, or against any person or entity whose liability for any
Environmental Claim Nevada Power or any of its subsidiaries or joint ventures
has or may have retained or assumed either contractually or by operation of law,
except for Releases of Hazardous Materials, the liability for which would not
have, in the aggregate, a Nevada Power Material Adverse Effect.
(e) PREDECESSORS. Except as set forth in Section 5.11(e) of the Nevada
Power Disclosure Schedule, Nevada Power has no actual knowledge, with respect to
any predecessor of Nevada Power or any of its subsidiaries or joint ventures, of
any Environmental Claim pending or threatened, or of any Release of Hazardous
Materials that would be reasonably likely to form the basis of any Environmental
Claim, which would have, or which Nevada Power reasonably believes would have, a
Nevada Power Material Adverse Effect.
(f) DISCLOSURE. To Nevada Power's best knowledge upon a good faith effort,
Nevada Power has disclosed to Sierra Pacific, in Section 5.11(f) of the Nevada
Power Disclosure Schedule or otherwise, all material facts which Nevada Power
reasonably believes form the basis of a Nevada Power Material Adverse Effect
arising from (i) the cost of pollution control equipment currently required or
known to be required in the future; (ii) current remediation costs or
remediation costs known to be required in the future; or (iii) any other
environmental matter affecting Nevada Power or its subsidiaries which would
have, or which Nevada Power reasonably believes would have, a Nevada Power
Material Adverse Effect.
Section 5.12 REGULATION AS A UTILITY. Nevada Power is regulated as a
public utility in the State of Nevada and in no other state. Except as set forth
in the preceding sentence and in Section 5.12 of the Nevada Power Disclosure
Schedule, neither Nevada Power nor any "subsidiary company" or "affiliate" of
Nevada Power is subject to regulation as a public utility or public service
company (or similar designation) by any other state in the United States or any
foreign country.
Section 5.13 VOTE REQUIRED. The approval of the Second Merger by a
majority of the voting power of the holders of Nevada Power Common Stock (the
"Nevada Power Stockholders' Approval") is the only
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vote of the holders of any class or series of the capital stock of Nevada Power
required to approve this Agreement and the transactions contemplated hereby.
Section 5.14 NON-APPLICABILITY OF CERTAIN NEVADA LAW. None of the control
share acquisition provisions of Section 78.378 et seq. of the GCL, the business
combination provisions of Section 78.411 et seq. of the GCL or any similar
provisions of the GCL, the articles of incorporation or bylaws of Nevada Power
are applicable to the transactions contemplated by the Agreement because such
provisions do not apply by their terms or because any required approvals of the
Board of Directors of Nevada Power have been obtained.
Section 5.15 OPINION OF FINANCIAL ADVISOR. Nevada Power has received the
opinion of PaineWebber Incorporated, to the effect that, as of the date hereof,
the Nevada Power Merger Consideration to be received in connection with the
Mergers is fair from a financial point of view to the holders of Nevada Power
Common Stock.
Section 5.16 INSURANCE. Except as set forth in Section 5.16 of the Nevada
Power Disclosure Schedule, each of Nevada Power and its subsidiaries is, and has
been continuously since January 1, 1995, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary in
all material respects for companies conducting the businesses conducted by
Nevada Power and its subsidiaries during such time period. Except as set forth
in Schedule 5.16 of the Nevada Power Disclosure Schedule neither Nevada Power
nor its subsidiaries has received any notice of cancellation or termination with
respect to any material insurance policy of Nevada Power or its subsidiaries.
All material insurance policies of Nevada Power and each of its subsidiaries are
valid and enforceable policies.
Section 5.17 OWNERSHIP OF SIERRA PACIFIC COMMON STOCK. Nevada Power does
not "beneficially own" (as such term is defined for purposes of Section 13(d) of
the Exchange Act) any shares of Sierra Pacific Common Stock.
Section 5.18 NEVADA POWER RIGHTS AGREEMENT. Prior hereto, Nevada Power has
delivered to Sierra Pacific and its designated counsel a true and complete copy
of the Rights Agreement, dated October 15, 1990, between Manufacturers Hanover
Trust Company and Nevada Power (the "Nevada Power Rights Agreement") in effect
on the date hereof, and assuming the accuracy of the representation contained in
Section 4.17, the consummation of the transactions contemplated by this
Agreement will not result in the triggering of any right or entitlement of
Nevada Power stockholders under the Nevada Power Rights Agreement or any similar
agreement to which Nevada Power or any of its affiliates is a party.
ARTICLE 6
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 COVENANTS OF THE PARTIES. After the date hereof and prior to
the Effective Time or earlier termination of this Agreement, Nevada Power and
Sierra Pacific each agrees as to itself and its subsidiaries, except as
expressly contemplated or permitted in this Agreement, or to the extent the
other parties hereto shall otherwise consent in writing:
(a) ORDINARY COURSE OF BUSINESS. Each party hereto shall, and shall cause
its respective subsidiaries to, carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and use all commercially reasonable efforts to preserve
intact their present business organizations and goodwill, preserve the goodwill
and relationships with customers, suppliers and others having business dealings
with them and, subject to prudent management of workforce needs and ongoing
programs currently in force, keep available the services of their present
officers and employees. Except as set forth in Section 6.1(a) of the Sierra
Pacific Disclosure Schedule or the Nevada Power Disclosure Schedule, no party
shall, nor shall any party permit any of its subsidiaries to, enter into a new
line of business, or make any change in the line of business it engaged in as of
the date hereof
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involving any material investment of assets or resources or any material
exposure to liability or loss, in the case of Sierra Pacific, to Sierra Pacific
and its subsidiaries taken as a whole, and in the case of Nevada Power, to
Nevada Power and its subsidiaries taken as a whole.
(b) DIVIDENDS. No party shall, nor shall any party permit any of its
subsidiaries to (i) declare or pay any dividends on or make other distributions
in respect of any of their capital stock other than to such party or its
wholly-owned subsidiaries and other than dividends required to be paid on any
series of Nevada Power Preferred Stock, Sierra Pacific Power Preferred Stock and
Sierra Pacific Power Class A Preferred Stock in accordance with the terms
thereof, regular quarterly dividends on Nevada Power Common Stock with usual
record and payment dates in an amount not in excess of $0.40 per share payable
on or about May 1, 1998, not in excess of $0.40 per share payable on or about
August 3, 1998, and thereafter not in excess of $0.25 per share and regular
quarterly dividends on Sierra Pacific Common Stock with usual record and payment
dates in an amount declared in any period of February 1 through the following
January 31 not in excess of 105% of the dividends per share declared during the
immediately preceding February 1 through January 31 period; (ii) split, combine
or reclassify any of their capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of, or in substitution
for, shares of its capital stock; or (iii) redeem, repurchase or otherwise
acquire any shares of their capital stock, other than redemptions, purchases or
acquisitions required by the respective terms of any series of Nevada Power
Preferred Stock, Nevada Power Preference Stock, Sierra Pacific Power Preferred
Stock, Sierra Pacific Power Class A Preferred Stock or tax preference preferred
securities, other than in connection with refunding of securities with preferred
stock, debt or tax preference preferred securities at a lower cost of funds or
in connection with intercompany purchases of capital stock, other than the
redemption of the Sierra Pacific Rights or Nevada Power Rights pursuant to the
terms of the Sierra Pacific Rights Agreement and the Nevada Power Rights
Agreement, other than redemptions, purchases or acquisitions of Nevada Power
Preferred Stock or other action with respect to Nevada Power Preferred Stock to
comply with Section 8.2(h) hereof, and other than open market purchases of
Sierra Pacific Common Stock or Nevada Power Common Stock for purposes of
satisfying any currently existing plans, programs or arrangements to be funded
with such stock.
(c) ISSUANCE OF SECURITIES. No party shall, nor shall any party permit any
of its subsidiaries to, issue, agree to issue, deliver, sell, award, pledge,
dispose of or otherwise encumber or authorize or propose the issuance, delivery,
sale, award, pledge, disposition or encumbrance of, any shares of their capital
stock of any class or any securities convertible into or exchangeable for, or
any rights, warrants or options to acquire, any such shares or convertible or
exchangeable securities other than intercompany issuances of capital stock,
other than employee stock options in the ordinary course of business consistent
with past practice and other than issuances, in the case of Sierra Pacific and
its subsidiaries, (i) in connection with refunding of Sierra Pacific Power
Preferred Stock, Sierra Pacific Power Class A Preferred Stock or tax preference
preferred securities with preferred stock or tax preference preferred securities
at a lower cost of funds; (ii) of up to 300,000 shares of Sierra Pacific Common
Stock, including shares to be issued pursuant all plans, programs or
arrangements providing for the issuance of Sierra Pacific Common Stock; (iii) of
capital stock under the Sierra Pacific Rights Agreement if required by the terms
thereof; (iv) of up to, together with all amounts of long-term debt incurred in
accordance with Section 6.1(h), $200 million in the aggregate of new issuances
of preferred stock or tax preference preferred securities and (v) open market
purchases for all plans, programs or arrangements; and in the case of Nevada
Power (i) in connection with refunding of Nevada Power Preferred Stock or Nevada
Power Preference Stock with preferred stock or tax preference preferred
securities at a lower cost of funds; (ii) of up to 500,000 shares of Nevada
Power Common Stock, including shares to be issued pursuant to all plans,
programs or arrangements providing for the issuance of Nevada Power Common
Stock; (iii) of capital stock under the Nevada Power Rights Agreement if
required by the terms thereof; (iv) of up to, together with all amounts of
long-term debt incurred in accordance with Section 6.1(h), $350 million in the
aggregate of new issuances of preferred stock or tax preference preferred
securities; and (v) open market purchases for all plans, programs or
arrangements.
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(d) CHARTER DOCUMENTS. Except as set forth in Section 6.1(d) of the Sierra
Pacific Disclosure Schedule or the Nevada Power Disclosure Schedule, no party
shall amend or propose to amend its respective articles of incorporation or
bylaws, except as contemplated herein and except to the extent that any document
setting forth the terms of a series of preferred stock issued as contemplated in
Section 6.1(c) constitutes an amendment to the articles of incorporation.
(e) NO ACQUISITIONS. Except (i) as set forth in Section 6.1(e) of the
Sierra Pacific Disclosure Schedule or the Nevada Power Disclosure Schedule, (ii)
for acquisitions by Sierra Pacific and its affiliates of less than $25 million
in the aggregate that are not set forth in Section 6.1(e) of the Sierra Pacific
Disclosure Schedule, and (iii) for acquisitions by Nevada Power and its
affiliates of less than $25 million in the aggregate that are not set forth in
Section 6.1(e) of the Nevada Power Disclosure Schedule, no party shall, nor
shall any party permit any of its subsidiaries to, acquire, or publicly propose
to acquire, or agree to acquire, by merger or consolidation with, or by purchase
or otherwise, a substantial equity interest in or a substantial portion of the
assets of, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire a material amount of assets, other than in the ordinary course of
business consistent with past practice.
(f) CAPITAL EXPENDITURES: ADDITIONAL FACILITIES, ETC. Except as set forth
in Section 6.1(f) of the Sierra Pacific Disclosure Schedule or the Nevada Power
Disclosure Schedule, each of which sets forth capital expenditures budgeted on
the date hereof through December 31, 2000 (including without limitation projects
ongoing or mandated by a binding legal commitment existing on the date hereof)
and except as required by law or regulatory action, no party shall, nor shall
any party permit any of its subsidiaries to, (i) make capital expenditures, (ii)
commence construction of any additional facilities for (A) the generation or
transmission of electric energy, (B) in the case of Sierra Pacific, the
production, gathering, storage or transmission of natural gas, or (C) in the
case of Sierra Pacific, the production, gathering, storage, treatment,
filtration or transmission of water, or (iii) obligate itself to purchase or
otherwise acquire, or to share, any of such facilities, in excess of $25 million
in any individual transaction or, together with all amounts spent in accordance
with Section 6.1(e), $100 million in the aggregate.
(g) NO DISPOSITIONS. Other than dispositions by a party and its affiliates
of less than $25 million individually or in the aggregate, no party shall, nor
shall any party permit any of its subsidiaries to, sell, lease, license,
encumber or otherwise dispose of, any of its assets, other than dispositions in
the ordinary course of their business consistent with past practice and other
than as required by law or regulatory action.
(h) INDEBTEDNESS. Except as contemplated by this Agreement to pay the
Sierra Pacific Cash Consideration and the Nevada Power Cash Consideration, no
party shall, nor shall any party permit any of its subsidiaries to, incur or
guarantee any indebtedness (including any debt borrowed or guaranteed or
otherwise assumed, including, without limitation, the issuance of debt
securities or warrants or rights to acquire debt) or enter into any "keep well"
or other agreement to maintain any financial statement condition of another
person or entity or enter into any arrangement having the economic effect of any
of the foregoing other than (i) short-term indebtedness or guarantees or "keep
well" or other agreements in the ordinary course of business consistent with
past practice (such as the issuance of commercial paper or the use of existing
credit facilities or hedging activities); (ii) long-term indebtedness or "keep
well" or other agreements not aggregating more than, together with any preferred
stock or tax preference preferred securities issued by Sierra Pacific or Nevada
Power, as the case may be, in accordance with Section 6.1(c)(iv), $200 million
in the case of Sierra Pacific and its subsidiaries or $350 million in the case
of Nevada Power and its subsidiaries; (iii) arrangements between Sierra Pacific
and any of its wholly-owned subsidiaries or among any of Sierra Pacific's
wholly-owned subsidiaries; (iv) as set forth in Section 6.1(h) of the Sierra
Pacific Disclosure Schedule; (v) in connection with the refunding with preferred
stock, tax preference preferred securities or debt at a lower cost of funds of
Nevada Power Preferred Stock, Nevada Power Preference Stock, Sierra Pacific
Power Preferred Stock, Sierra Pacific Power Class A Preferred Stock or tax
preference preferred securities permitted in Section 6.1(b); or (vi) as may be
necessary in
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connection with acquisitions permitted by Section 6.1(e) or capital expenditures
permitted by Section 6.1(f) provided that, in the case of this clause (vi), such
acquisitions are identified by project and amount on Section 6.1(e) or 6.1(f) of
the Sierra Pacific Disclosure Schedule or the Nevada Power Disclosure Schedule,
as the case may be.
(i) COMPENSATION, BENEFITS. Except as set forth in the last sentence of
this Section 6.1(i), Section 7.10, Section 7.11 and Section 7.15 hereof or
Section 6.1(i) of the Sierra Pacific Disclosure Schedule and Nevada Power
Disclosure Schedule, no party shall, nor shall any party permit any of its
subsidiaries to, in the absence of the written agreement of the other party
hereto, (i) enter into, adopt or amend (except as may be required by applicable
law), or increase the amount or accelerate the payment or vesting of any benefit
or amount payable, or grant any discretionary awards or benefits under, any
employee benefit plan or other contract, agreement, commitment, arrangement,
plan or policy maintained by, contributed to or entered into by such party or
any of its subsidiaries, or increase, or enter into any contract, agreement,
commitment or arrangement to increase in any manner, the compensation or fringe
benefits, or otherwise to extend, expand or enhance the engagement, employment
or any related rights, of any director, officer or other employee of such party
or any of its subsidiaries, except for normal increases in salary in the
ordinary course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits or compensation
expense to such party or any of it subsidiaries, or (ii) enter into or amend any
employment contract, special pay arrangement with respect to termination of
employment or other similar contract, agreement or arrangement with any director
or officer. Notwithstanding anything herein to the contrary, except as set forth
in Section 6.1(i) of the Sierra Pacific Disclosure Schedule or Section 6.1(i) of
the Nevada Power Disclosure Schedule, (i) no party shall, nor shall any party
permit any of its subsidiaries to, establish or maintain any severance plan,
program, policy, agreement or arrangement under which any person would be
entitled to any benefits as a result of the transactions contemplated herein,
(ii) Sierra Pacific may enter into employment agreements substantially in the
form previously delivered to Nevada Power with the officers set forth in Section
6.1(i) of the Sierra Pacific Disclosure Schedule, and (iii) Nevada Power may
enter into employment agreements substantially in the form previously delivered
to Sierra Pacific with the officers set forth in Section 6.1(i) of the Nevada
Power Disclosure Schedule.
(j) 1935 ACT. No party shall, nor shall any party permit any of its
subsidiaries to, except as required or contemplated by this Agreement, engage in
any activities which would cause a change in its status, or that of its
subsidiaries, under the 1935 Act, or that would require the approval of the SEC
under Section 9(a)(2) of the 1935 Act for any of the transactions contemplated
by this Agreement.
(k) ACCOUNTING. No party shall, nor shall any party permit any of its
subsidiaries to, make any changes in their accounting methods, except as
required by law, rule, regulation or GAAP. Any party making any such change will
give written notice to the other party of such change.
(l) TAX-FREE STATUS. No party shall, nor shall any party permit any of its
subsidiaries to, take any actions which would, or would be reasonably likely to,
adversely affect the status of the Mergers as tax-free transactions, both to the
parties and their respective stockholders (except to the extent of any cash
received), and each party hereto shall use all reasonable efforts to achieve
such result.
(m) AFFILIATE TRANSACTIONS. Except as set forth in Section 6.1(m) of the
Sierra Pacific Disclosure Schedule or the Nevada Power Disclosure Schedule, no
party shall, nor shall any party permit any of its subsidiaries to, enter into
any material agreement or arrangement with any other person which, directly or
indirectly, controls or is under common control with or is controlled by such
party, or any of its respective subsidiaries on terms to such party or its
subsidiaries materially less favorable than could be reasonably expected to have
been obtained with an unaffiliated third party on an arm's-length basis.
(n) COOPERATION, NOTIFICATION. Each party shall, and shall cause its
subsidiaries to, (i) confer on a regular and frequent basis with one or more
representatives of the other party to discuss, subject to applicable law,
material operational matters and the general status of its ongoing operations;
(ii) promptly notify the other party of any significant changes in its business,
properties, assets, financial condition or
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results of operations; (iii) promptly advise the other party of any change or
event which has had or, to the knowledge of such party, is reasonably likely to
result in, a Sierra Pacific Material Adverse Effect or a Nevada Power Material
Adverse Effect, as the case may be; and (iv) promptly provide the other party
with copies of all filings made by such party or any of its subsidiaries with
any state or federal court, administrative agency, commission or other
Governmental Authority in connection with this Agreement and the transactions
contemplated hereby.
(o) RATE MATTERS. Each party shall, and shall cause its subsidiaries to,
discuss with the other party any changes in its or its subsidiaries' rates or
charges, standards of service, other regulatory matters or accounting from those
in effect on the date of this Agreement and consult with the other party prior
to making any filing (or any amendment thereto), or effecting any agreement,
commitment, arrangement or consent, whether written or oral, formal or informal,
with respect thereto, and no party will make any filing to change its or its
subsidiaries' rates on file with any Governmental Authority that would have a
Sierra Pacific Material Adverse Effect or Nevada Power Material Adverse Effect.
(p) THIRD-PARTY CONSENTS. Each party shall, and shall cause its respective
subsidiaries to, use all commercially reasonable efforts to obtain all Sierra
Pacific Required Consents or Nevada Power Required Consents, as the case may be.
Each party shall promptly notify the other party of any failure or prospective
failure to obtain any such consents and, if requested by the other party, shall
provide to the other party copies of all Sierra Pacific Required Consents or
Nevada Power Required Consents, as the case may be, obtained by such party.
(q) NO BREACH, ETC. No party shall, nor shall any party permit any of its
subsidiaries to, willfully take any action that would, or is reasonably likely
to, result in a material breach of any provision of this Agreement or in any of
its representations and warranties set forth in this Agreement being untrue on
and as of the Closing Date.
(r) TAX EXEMPT STATUS. No party shall, nor shall any party permit any
subsidiary to, take any action that would likely jeopardize the exclusion from
gross income, for purposes of federal income taxation, of the interest on the
outstanding revenue bonds issued for the benefit of Sierra Pacific or Nevada
Power, or any subsidiary of either, which qualify on the date hereof under Code
Section 142(a) as "exempt facility bonds" or as tax-exempt industrial
development bonds under Section 103(b)(4) of the Internal Revenue Code of 1954,
as amended prior to the Tax Reform Act of 1986.
(s) CONTRACTS. No party shall, nor shall any party permit any of its
respective subsidiaries to modify, amend, terminate, renew or fail to use
reasonable business efforts to renew any material contract or agreement to which
such party or any subsidiary of such party is a party or waive, release or
assign any material rights or claims under such contracts except (i) in the
ordinary course of business consistent with past practice or (ii) other than in
the ordinary course of business consistent with past practice, to the extent
such action or failure to act does not have an adverse effect in excess of $10
million calculated on a net present value basis.
(t) DISCHARGE OF LIABILITIES. No party shall, nor shall any party permit
any of its respective subsidiaries to, pay, discharge or satisfy any material
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than any payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice (which includes
the payment of final and unappealable judgments), not in excess of $10 million
calculated on a net present value basis or in accordance with their terms, of
(i) indebtedness or (ii) liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the notes
thereto) of such party included in such party's reports filed with the SEC, or
incurred in the ordinary course of business consistent with past practice.
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ARTICLE 7
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS TO INFORMATION. Upon reasonable notice and during
normal business hours, each party shall, and shall cause its subsidiaries to,
afford to the officers, directors, employees, accountants, counsel, investment
banker, financial advisor and other representatives of the other (collectively,
"Representatives") reasonable access, during normal business hours throughout
the period prior to the Effective Time, to all of its properties, books,
contracts, commitments and records (including, but not limited to, Tax Returns)
and, during such period, each party shall, and shall cause its subsidiaries to,
furnish promptly to the other (i) a copy of each reasonably available report,
schedule and other document filed or received by it or any of its subsidiaries
pursuant to the requirements of federal or state securities laws or filed with
the SEC, the FERC, the Department of Justice, the Federal Trade Commission, the
Nevada Commission, the California Commission or any other federal or state
regulatory agency or commission, and (ii) all information concerning themselves,
their subsidiaries, their respective businesses and properties, directors,
officers and stockholders and such other matters as may be reasonably requested
by the other party in connection with any filings, applications or approvals
required or contemplated by this Agreement, in each case except as such access
may be prohibited by law. All documents and information furnished pursuant to
this Section 7.1 shall be subject to the Confidentiality Agreement, dated as of
March 10, 1998, between Sierra Pacific and Nevada Power (the "Confidentiality
Agreement").
Section 7.2 JOINT PROXY STATEMENT AND REGISTRATION STATEMENT.
(a) PREPARATION AND FILING. The parties will prepare and file with the SEC
as soon as reasonably practicable after the date hereof the Registration
Statement and the Proxy Statement (together, the "Joint Proxy/Registration
Statement"). The parties hereto shall each use reasonable efforts to cause the
Joint Proxy/Registration Statement to be declared effective under the Securities
Act as promptly as practicable after such filing. Each party hereto shall also
take such action as may be reasonably required to cause the shares of Sierra
Pacific Common Stock issuable in connection with the Mergers to be registered or
to obtain an exemption from registration under applicable state "blue sky" or
securities laws; PROVIDED, HOWEVER, that no party shall be required to register
or qualify as a foreign corporation or to take other action which would subject
it to service of process in any jurisdiction where it will not be, following the
Mergers, so subject. Each of the parties hereto shall furnish all information
concerning itself which is required or customary for inclusion in the Joint
Proxy/Registration Statement. The parties shall use reasonable efforts to cause
the shares of Sierra Pacific Common Stock issuable in the Mergers to be approved
for listing on the NYSE upon official notice of issuance. The information
provided by any party hereto for use in the Joint Proxy/Registration Statement
shall be true and correct in all material respects without omission of any
material fact which is required to make such information not false or
misleading. No representation, covenant or agreement is made by or on behalf of
any party hereto with respect to information supplied by any other party for
inclusion in the Joint Proxy Statement/Registration Statement.
(b) AMENDMENTS AND SUPPLEMENTS. No amendment or supplement to the Proxy
Statement or the Registration Statement shall be made without the approval of
all parties. Each party shall advise the others, promptly after it receives
notice thereof, of the time the Registration Statement has become effective or
any supplement or amendment thereto has been filed, the issuance of any stop
order, the suspension, if applicable, of the qualification of such party's
common stock for sale in any jurisdiction, or any request by the SEC for
amendment of the Proxy Statement or the Registration Statement or comments
thereon and responses thereto or requests by the SEC for additional information.
(c) LETTER OF SIERRA PACIFIC'S ACCOUNTANTS. Sierra Pacific shall use best
efforts to cause to be delivered to Nevada Power a letter of Deloitte & Touche
LLP dated a date within two business days before the date of the Joint
Proxy/Registration Statement, and addressed to Nevada Power, in form and
substance
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reasonably satisfactory to Nevada Power and customary in scope and substance for
"cold comfort" letters delivered by independent public accountants in connection
with registration statements on Form S-4.
(d) LETTER OF NEVADA POWER'S ACCOUNTANTS. Nevada Power shall use best
efforts to cause to be delivered to Sierra Pacific a letter of Deloitte & Touche
LLP, dated a date within two business days before the date of the Joint
Proxy/Registration Statement, and addressed to Sierra Pacific, in form and
substance reasonably satisfactory to Sierra Pacific and customary in scope and
substance for "cold comfort" letters delivered by independent public accountants
in connection with registration statements on Form S-4.
(e) FAIRNESS OPINIONS. It shall be a condition to the mailing of the Joint
Proxy/Registration Statement to the stockholders of Sierra Pacific and Nevada
Power that (i) neither SG Barr Devlin nor Merrill Lynch has withdrawn its
opinion referred to in Section 4.15 and (ii) PaineWebber Incorporated has not
withdrawn its opinion referred to in Section 5.15.
Section 7.3 REGULATORY MATTERS.
(a) HSR FILINGS. Each party hereto shall file or cause to be filed with
the Federal Trade Commission and the Department of Justice any notifications
required to be filed under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and the rules and regulations promulgated
thereunder with respect to the transactions contemplated hereby. Such parties
will use all commercially reasonable efforts to make such filings promptly and
to respond promptly to any requests for additional information made by either of
such agencies.
(b) OTHER REGULATORY APPROVALS. Each party hereto shall cooperate and use
its best efforts to promptly prepare and file all necessary documentation, to
effect all necessary applications, notices, petitions, filings and other
documents, and to use all commercially reasonable efforts to obtain all
necessary permits, consents, approvals and authorizations of all Governmental
Authorities necessary or advisable to consummate the transactions contemplated
by this Agreement, including, without limitation, the Sierra Pacific Required
Statutory Approvals and the Nevada Power Required Statutory Approvals, such
commercially reasonable efforts to include, in the case of Sierra Pacific,
obtaining the necessary permits, consents, approvals and authorizations of the
Federal Energy Regulatory Commission, of any state regulatory agencies and under
the 1935 Act. Sierra Pacific shall have the right to review and approve in
advance all characterizations of the information relating to Sierra Pacific, on
the one hand, and Nevada Power shall have the right to review and approve in
advance all characterizations of the information relating to Nevada Power, on
the other hand, in either case, which appear in any filing made in connection
with the transactions contemplated by this Agreement or the Mergers. Sierra
Pacific and Nevada Power agree that they will consult with each other with
respect to the obtaining of all such necessary permits, consents, approvals and
authorizations of Governmental Authorities.
Section 7.4 SHAREHOLDER APPROVAL.
(a) APPROVAL OF NEVADA POWER STOCKHOLDERS. Subject to the provisions of
Section 7.4(c) and Section 7.4(d), Nevada Power shall, as soon as reasonably
practicable after the date hereof (i) take all steps necessary to duly call,
give notice of, convene and hold a special meeting of its stockholders (the
"Nevada Power Special Meeting") for the purpose of securing the Nevada Power
Stockholders' Approval, (ii) distribute to its stockholders the Proxy Statement
in accordance with applicable federal and state law and with its articles of
incorporation and bylaws, (iii) subject to the fiduciary duties of its Board of
Directors, recommend to its stockholders the approval of this Agreement and the
transactions contemplated hereby and (iv) cooperate and consult with Sierra
Pacific with respect to each of the foregoing matters.
(b) APPROVAL OF SIERRA PACIFIC STOCKHOLDERS. Subject to the provisions of
Section 7.4(c) and Section 7.4(d), Sierra Pacific shall, as soon as reasonably
practicable after the date hereof (i) take all steps necessary to duly call,
give notice of, convene and hold a meeting of its stockholders (the "Sierra
Pacific Special Meeting") for the purpose of securing the Sierra Pacific
Stockholders' Approval, (ii) distribute to
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its stockholders the Proxy Statement in accordance with applicable federal and
state law and with its articles of incorporation and by-laws, (iii) subject to
the fiduciary duties of its Board of Directors, recommend to its stockholders
the approval of this Agreement and the transactions contemplated hereby and (iv)
cooperate and consult with Nevada Power with respect to each of the foregoing
matters.
(c) MEETING DATE. The Nevada Power Special Meeting for the purpose of
securing the Nevada Power Stockholders' Approval and the Sierra Pacific Special
Meeting for the purpose of securing the Sierra Pacific Stockholders' Approval
shall be held on such dates as Sierra Pacific and Nevada Power shall mutually
determine.
(d) FAIRNESS OPINIONS NOT WITHDRAWN. It shall be a condition to the
obligation of Sierra Pacific to hold the Sierra Pacific Special Meeting that the
opinion of each of SG Barr Devlin and Merrill Lynch, referred to in Section
4.15, shall not have been withdrawn, and it shall be a condition to the
obligation of Nevada Power to hold the Nevada Power Special Meeting that the
opinion of PaineWebber Incorporated, referred to in Section 5.15, shall not have
been withdrawn.
Section 7.5 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) INDEMNIFICATION. From and after the Effective Time, Sierra Pacific and
the Surviving Corporation shall, to the fullest extent permitted by applicable
law, indemnify, defend and hold harmless each person who is now, or has been at
any time prior to the date hereof, or who becomes prior to the Effective Time,
an officer, director or employee of Sierra Pacific or Nevada Power,
respectively, or any of their subsidiaries (each an "Indemnified Party" and
collectively, the "Indemnified Parties") against (i) all losses, expenses
(including reasonable attorney's fees and expenses), claims, damages or
liabilities or, subject to the proviso of the next succeeding sentence, amounts
paid in settlement, arising out of actions or omissions occurring at or prior to
the Effective Time (and whether asserted or claimed prior to, at or after the
Effective Time) that are, in whole or in part, based on or arising out of the
fact that such person is or was a director, officer or employee of Sierra
Pacific or Nevada Power or any of their subsidiaries (the "Indemnified
Liabilities"), and (ii) all Indemnified Liabilities to the extent they are based
on or arise out of or pertain to the transactions contemplated by this
Agreement. In the event of any such loss, expense, claim, damage or liability
(whether or not arising before the Effective Time), (i) Sierra Pacific or the
Surviving Corporation, as the case may be, shall pay the reasonable fees and
expenses of counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to Sierra Pacific or the Surviving Corporation, as the
case may be, promptly after statements therefor are received and otherwise
advance to such Indemnified Party upon request reimbursement of documented
expenses reasonably incurred, (ii) Sierra Pacific or the Surviving Corporation,
as the case may be, will cooperate in the defense of any such matter and (iii)
any determination required to be made with respect to whether an Indemnified
Party's conduct complies with the standards set forth under Nevada law and the
articles of incorporation or bylaws shall be made by independent counsel
mutually acceptable to Sierra Pacific or the Surviving Corporation, as the case
may be, and the Indemnified Party; PROVIDED, HOWEVER, that neither Sierra
Pacific nor the Surviving Corporation, as the case may be, shall be liable for
any settlement effected without its written consent (which consent shall not be
unreasonably withheld). The Indemnified Parties as a group may retain only one
law firm with respect to each related matter except to the extent there is, in
the opinion of counsel to an Indemnified Party, under applicable standards of
professional conduct, a conflict on any significant issue between positions of
such Indemnified Party and any other Indemnified Party or Indemnified Parties.
(b) INSURANCE. For a period of six years after the Effective Time, Sierra
Pacific and the Surviving Corporation shall cause to be maintained in effect
policies of directors' and officers' liability insurance maintained by Sierra
Pacific or Nevada Power, as the case may be, for the benefit of those persons
who are currently covered by such policies on terms no less favorable than the
terms of such current insurance coverage; PROVIDED, HOWEVER, that neither Sierra
Pacific nor the Surviving Corporation, as the case may be, shall be required to
expend in any year an amount in excess of 200% of the annual aggregate premiums
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currently paid by Sierra Pacific or Nevada Power, as the case may be, for such
insurance; and provided, further, that if the annual premiums of such insurance
coverage exceed such amount, Sierra Pacific or the Surviving Corporation, as the
case may be, shall be obligated to obtain a policy with the best coverage
available, in the reasonable judgment of the respective Board of Directors, for
a cost not exceeding such amount.
(c) SUCCESSORS. In the event Sierra Pacific or the Surviving Corporation
or any of their successors or assigns (i) consolidates with or merges into any
other person and shall not be the continuing or surviving corporation or entity
of such consolidation or merger or (ii) transfers all or substantially all of
its properties and assets to any person, then and in either such case, proper
provisions shall be made so that the successors and assigns of Sierra Pacific or
the Surviving Corporation, as the case may be, shall assume the obligations set
forth in this Section 7.5.
(d) SURVIVAL OF INDEMNIFICATION. To the fullest extent permitted by law,
from and after the Effective Time, all rights to indemnification as of the date
hereof in favor of the employees, agents, directors and officers of Sierra
Pacific or Nevada Power and their subsidiaries with respect to their activities
as such prior to the Effective Time, as provided in the articles of
incorporation and bylaws in effect on the date hereof, or otherwise in effect on
the date hereof, shall survive the Mergers and shall continue in full force and
effect for a period of not less than six years from the Effective Time.
(e) BENEFIT. The provisions of this Section 7.5 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.
Section 7.6 DISCLOSURE SCHEDULES. On the date hereof, (i) Nevada Power has
delivered to Sierra Pacific a schedule (the "Nevada Power Disclosure Schedule"),
accompanied by a certificate signed by the chief financial officer of Nevada
Power stating the Nevada Power Disclosure Schedule is being delivered pursuant
to this Section 7.6(i) and (ii) Sierra Pacific has delivered to Nevada Power a
schedule (the "Sierra Pacific Disclosure Schedule"), accompanied by a
certificate signed by the chief financial officer of Sierra Pacific stating the
Sierra Pacific Disclosure Schedule is being delivered pursuant to this Section
7.6(ii). The Sierra Pacific Disclosure Schedule and the Nevada Power Disclosure
Schedule are collectively referred to herein as the "Disclosure Schedules." The
Disclosure Schedules constitute an integral part of this Agreement and modify
the respective representations, warranties, covenants or agreements of the
parties hereto contained herein to the extent that such representations,
warranties, covenants or agreements expressly refer to the Disclosure Schedules.
Anything to the contrary contained herein or in the Disclosure Schedules
notwithstanding, any and all statements, representations, warranties or
disclosures set forth in the Disclosure Schedules shall be deemed to have been
made on and as of the date hereof.
Section 7.7 PUBLIC ANNOUNCEMENTS. Subject to each party's disclosure
obligations imposed by law, Sierra Pacific and Nevada Power will cooperate with
each other in the development and distribution of all news releases and other
public information disclosures with respect to this Agreement or any of the
transactions contemplated hereby and shall not issue any public announcement or
statement with respect hereto without the consent of the other party (which
consent shall not be unreasonably withheld).
Section 7.8 RULE 145 AFFILIATES. Within 30 days after the date of this
Agreement, Sierra Pacific shall identify in a letter to Nevada Power, and Nevada
Power shall identify in a letter to Sierra Pacific, all persons who are, and to
such person's best knowledge who will be at the Closing Date, "affiliates" of
Sierra Pacific and Nevada Power, respectively, as such term is used in Rule 145
under the Securities Act. Each of Sierra Pacific and Nevada Power shall use all
reasonable best efforts to cause their respective affiliates (including any
person who may be deemed to have become an affiliate after the date of the
letter referred to in the prior sentence) to deliver to Sierra Pacific on or
prior to the Closing Date a written agreement substantially in the form attached
as Exhibit 7.8 (each, an "Affiliate Agreement").
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Section 7.9 EMPLOYEE AGREEMENTS AND WORKFORCE MATTERS.
(a) CERTAIN EMPLOYEE AGREEMENTS. The Surviving Corporation and its
subsidiaries shall honor, without modification, all collective bargaining
agreements and, subject to Section 7.10 and Section 7.15, all contracts,
agreements and commitments of Nevada Power which apply to any current or former
employee or current or former director of Nevada Power; PROVIDED, HOWEVER, that
this undertaking is not intended to prevent the Surviving Corporation from
enforcing such contracts, agreements, collective bargaining agreements and
commitments in accordance with their terms, including, without limitation, any
reserved right to amend, modify, suspend, revoke or terminate any such contract,
agreement, collective bargaining agreement or commitment.
(b) WORKFORCE MATTERS. Subject to compliance with applicable law and
obligations under applicable collective bargaining agreements, for a period of
three years following the Effective Time, any reductions in workforce in respect
of employees of Sierra Pacific and its subsidiaries, including the Surviving
Corporation and its subsidiaries, shall be made on a fair and equitable basis,
in light of the circumstances and the objectives to be achieved, giving
consideration to previous work history, job experience, qualifications, and
business needs without regard to whether employment prior to the Effective Time
was with Sierra Pacific or its subsidiaries or Nevada Power or its subsidiaries,
and any employees whose employment is terminated or jobs are eliminated by
Sierra Pacific or any of its subsidiaries, including the Surviving Corporation
or its subsidiaries, during such period shall be entitled to participate on a
fair and equitable basis in the job opportunity and employment placement
programs offered by Sierra Pacific or any of its subsidiaries. Any workforce
reductions carried out following the Effective Time by Sierra Pacific and its
subsidiaries, including the Surviving Corporation and its subsidiaries, shall be
done in accordance with all applicable collective bargaining agreements, and all
laws and regulations governing the employment relationship and termination
thereof including, without limitation, the Worker Adjustment and Retraining
Notification Act and regulations promulgated thereunder, and any comparable
state or local law.
Section 7.10 EMPLOYEE BENEFIT PLANS. Except as may be required by
applicable law and obligations under applicable collective bargaining agreements
or as the parties may otherwise agree, each of the Nevada Power Benefit Plans
and the Sierra Pacific Benefit Plans in effect on the date hereof (or as amended
or established in accordance with or as permitted by this Agreement) shall be
maintained in effect, except with respect to Nevada Power's 1993 Long-Term
Incentive Plan, as provided in Section 7.11 and as provided in the employment
contracts referred to in Section 7.15, with respect to the employees, former
employees, directors or former directors of Nevada Power and any of its
subsidiaries and of Sierra Pacific and any of its subsidiaries, respectively,
who are covered by such plans or agreements immediately prior to the Effective
Time until Sierra Pacific determines otherwise on or after the Effective Time
and the Surviving Corporation shall assume as of the Effective Time each Nevada
Power Benefit Plan maintained by Nevada Power immediately prior to the Effective
Time and perform such plan or agreement in the same manner and to the same
extent that Nevada Power would be required to perform thereunder; PROVIDED,
HOWEVER, that nothing herein contained, other than the provisions of Section
6.1(i), shall limit any reserved right contained in any such Nevada Power
Benefit Plan or Sierra Pacific Benefit Plan to amend, modify, suspend, revoke or
terminate any such plan or agreement. Without limiting the foregoing, each
participant in any Nevada Power Benefit Plan or Sierra Pacific Benefit Plan
shall receive credit for purposes of eligibility to participate, vesting and
eligibility to receive benefits (but specifically excluding for benefit accrual
purposes) under any benefit plan of Sierra Pacific or any of its subsidiaries or
affiliates for service credited for the corresponding purpose under any such
benefit plan; PROVIDED, HOWEVER, that such crediting of service shall not
operate to cause any such plan or agreement to fail to comply with the
applicable provisions of the Code and ERISA. Sierra Pacific and Nevada Power
will cooperate on and after the date hereof to develop appropriate employee
benefit plans, programs and arrangements, including but not limited to,
executive and incentive compensation, stock option and supplemental executive
retirement plans, for employees and directors of Sierra Pacific and its
subsidiaries from and after the Effective Time including, without limitation, a
successor to Nevada Power's 1993 Long-Term Incentive Plan. However, no
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provision contained in this Section 7.10 shall be deemed to constitute an
employment contract between Sierra Pacific or any of its subsidiaries and any
individual, or a waiver of Sierra Pacific's or its subsidiary's right to
discharge any employee at any time, with or without cause.
Section 7.11 INCENTIVE, STOCK AND OTHER PLANS.
(a) SIERRA PACIFIC ACTION. With respect to each of the Nevada Power 1993
Long-Term Incentive Plan and 401(k) Savings Plan under which the delivery of
Nevada Power Common Stock is required upon payment of benefits or grant of
awards (the "Stock Plans"), (i) Sierra Pacific and Nevada Power shall take such
action as may be necessary so that, after the Effective Time of the Second
Merger, the Stock Plans provide only for the issuance or purchase in the open
market only of Sierra Pacific Common Stock rather than Nevada Power Common
Stock, and (ii) Sierra Pacific shall take all corporate action necessary or
appropriate to (x) obtain shareholder approval with respect to such plan to the
extent such approval is required for purposes of the Code or other applicable
law, or to the extent Sierra Pacific deems it desirable, (y) reserve for
issuance under such plan or otherwise provide a sufficient number of shares of
Sierra Pacific Common Stock for delivery upon payment of benefits or grants of
awards under such plan and (z) as soon as practicable after the Effective Time
of the Second Merger, file registration statements on Form S-3 or Form S-8, as
the case may be (or any successor or other appropriate forms), with respect to
the shares of the Sierra Pacific Common Stock subject to such plan to the extent
such registration statement is required under applicable law, and Sierra Pacific
shall use its best efforts to maintain the effectiveness of such registration
statements (and maintain the current status of the prospectuses contained
therein or related thereto) for so long as such benefits and grants remain
payable.
(b) DIVIDEND REINVESTMENT PLANS. The dividend reinvestment plan of Nevada
Power shall terminate as of the Effective Time of the Second Merger and Nevada
Power shall send notices of termination to participants therein prior to the
Effective Time of the Second Merger. The Board of Directors of Sierra Pacific
shall approve an amendment to the Sierra Pacific dividend reinvestment plan to
provide for the automatic participation therein effective immediately after the
Effective Time of the Second Merger by participants who participate in the
Nevada Power dividend reinvestment plan immediately prior to Effective Time of
the Second Merger.
Section 7.12 NO SOLICITATIONS. From and after the date hereof, each party
hereto shall not, and shall cause its subsidiaries not to, and shall not
authorize or permit any of its Representatives to, directly or indirectly,
initiate, solicit or encourage (including by way of furnishing information) or
take any other action to facilitate knowingly any inquiries or the making of any
offer or proposal which constitutes or is reasonably likely to lead to, any
Business Combination (as defined below), or, in the event of an unsolicited
Business Combination proposal, engage in negotiations or provide any information
or data to any person relating to any Business Combination; PROVIDED, HOWEVER,
that notwithstanding any other provision hereof Sierra Pacific or Nevada Power
may, at any time prior to the time at which the Sierra Pacific Stockholders'
Approval, in the case of Sierra Pacific, or the Nevada Power Stockholders'
Approval, in the case of Nevada Power, has been obtained, (i) engage in
discussions or negotiations with a third party who (without any solicitation,
initiation, encouragement, discussion or negotiation, directly or indirectly, by
or with the party or its Representatives after the date hereof) seeks to
initiate such discussions or negotiations, furnish such third party information
concerning itself and its business, properties and assets and accept a Business
Combination proposal from such third party if, and only to the extent that,
(A)(x) such third party shall first have made an unsolicited Business
Combination proposal to Sierra Pacific or Nevada Power, as the case may be, that
the Sierra Pacific Board of Directors or the Nevada Power Board of Directors, as
the case may be, reasonably believes in good faith, after consultation with its
financial advisors, may be more favorable to the stockholders of such party than
the Mergers and (y) the Board of Directors of Sierra Pacific or Nevada Power, as
the case may be, shall have determined in good faith, after consultation with
its financial advisors and outside counsel, that failing to take such action
could reasonably be expected to be a breach of its fiduciary duties under
applicable law and (B) prior to furnishing such information to, entering into
negotiations with or accepting the Business Combination proposal from, such
third party,
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Sierra Pacific or Nevada Power, as the case may be, (x) provides prompt notice
to Sierra Pacific or Nevada Power, as the case may be, to the effect that it is
furnishing information to or entering into discussions or negotiations with such
third party and (y) receives from such third party an executed confidentiality
agreement in reasonably customary form on terms not materially more favorable to
such third party than the terms contained in the Confidentiality Agreement, and,
prior to accepting the Business Combination proposal from such third party,
terminates this Agreement pursuant to Section 9.1(e) or by Section 9.1(f), as
applicable and (ii) comply with Rules 14d-9 and 14e-2 promulgated under the
Exchange Act. Each party hereto shall notify the other party orally and in
writing of any such inquiries, offers or proposals (including, without
limitation, the terms and conditions of any such proposal and the identity of
the person making it), within 24 hours of the receipt thereof, shall keep the
other party informed of the status and details of any such inquiry, offer or
proposal, and shall give the other party five day's advance notice of any
agreement to be entered into with or any information to be supplied to any
person making such inquiry, offer or proposal. Each party hereto shall
immediately cease and cause to be terminated all existing discussions and
negotiations, if any, with any parties conducted heretofore with respect to any
Business Combination. As used in this Section 7.12, "Business Combination" shall
mean any tender or exchange offer, proposal for a merger, consolidation or other
business combination involving any party to this Agreement or any of its
subsidiaries, or any proposal or offer (in each case, whether or not in writing
and whether or not delivered to the stockholders of a party generally) to
acquire in any manner, directly or indirectly, a substantial equity interest in
or a substantial portion of the assets of any party to this Agreement or any of
its subsidiaries, other than pursuant to the transactions contemplated by this
Agreement or any spinoff or similar transaction.
Section 7.13 SIERRA PACIFIC BOARD OF DIRECTORS. Nevada Power's and Sierra
Pacific's Boards of Directors will take such action as may be necessary to cause
the number of directors comprising the full Board of Directors of Sierra Pacific
at the Effective Time to consist of 14 members, with one-half to be selected by
Nevada Power and one-half to be selected by Sierra Pacific. The initial
designation of such directors among the three classes of the Board of Directors
of Sierra Pacific shall be agreed among the parties, the designees of each party
to be divided as equally as is feasible among such classes; PROVIDED, HOWEVER,
that if, prior to the Effective Time, any of such designee shall decline or be
unable to serve, the party which designated such person shall designate another
person to serve in such person's stead. At the Effective Time, the Board of
Directors of Sierra Pacific shall have such number of standing committees, with
such names and functions as shall be agreed upon by Nevada Power and Sierra
Pacific prior to the Effective Time. Nevada Power and Sierra Pacific shall each
select one-half of the members of each committee and the chairperson of one-half
of the committees.
Section 7.14 OFFICERS. After the Effective Time, the President and Chief
Operating Officer of Nevada Power will be the Chairman and Chief Executive
Officer of Sierra Pacific and the Chairman of each of Sierra Pacific's
subsidiaries, and the Chairman, Chief Executive Officer and President of Sierra
Pacific will be the President and Chief Operating Officer of Sierra Pacific and
the President and Chief Executive Officer of Sierra Pacific Power and the
Surviving Corporation. The provisions of this Section 7.14 are subject to the
specific terms of the employment contracts referred to in Section 7.15 and the
duties and responsibilities attributable to the positions referred to in this
Section 7.14 shall be as set forth in such contracts.
Section 7.15 EMPLOYMENT CONTRACTS. Sierra Pacific shall, as soon as
practicable after the date hereof but in any event prior to the Effective Time,
enter into employment contracts in the forms set forth in Exhibit 7.15.1 and
Exhibit 7.15.2, respectively.
Section 7.16 CORPORATE OFFICES. At the Effective Time, (a) the corporate
headquarters of Sierra Pacific and the principal executive offices of the gas
and water business units will be located in R and (b) the headquarters of Sierra
Pacific Power and the Surviving Corporation and principal executive offices of
the electric business unit will be located in L.
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Section 7.17 TRANSITION MANAGEMENT. As promptly as practicable after the
date hereof, the parties shall create a transition management plan under the
direction of the President and Chief Operating Officer of Nevada Power or an
individual designated by him and the Chairman, Chief Executive Officer and
President of Sierra Pacific or an individual designated by him. The plan shall
examine the manner in which to best organize and manage the business of Sierra
Pacific, Sierra Pacific Power and the Surviving Corporation after the Effective
Time. From time to time, the plan shall be presented to the Board of Directors
of each of Sierra Pacific and Nevada Power. After the date hereof and prior to
the Effective Time, the President and Chief Operating Officer of Nevada Power
shall frequently attend meetings of Sierra Pacific's Board of Directors and the
Chairman, Chief Executive Officer and President of Sierra Pacific shall
frequently attend meetings of Nevada Power's Board of Directors as they deem
appropriate in consultation with each other. In connection with their
responsibilities with respect to the plan, such individuals shall together
recommend to the Board of Directors of Sierra Pacific and the Surviving
Corporation candidates to serve as the officers of Sierra Pacific, Sierra
Pacific Power and the Surviving Corporation, as the case may be, who are not
otherwise designated by this Agreement. Such officers shall be appointed by the
Board of Directors of Sierra Pacific, Sierra Pacific Power or the Surviving
Corporation, as the case may be, in accordance with its Bylaws.
Section 7.18 EXPENSES. Subject to Section 9.3, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that those
expenses (i) incurred in connection with printing the Joint Proxy Statement/
Registration Statement, as well as the filing fee relating thereto, (ii) seeking
approvals under the HSR Act, from the Federal Energy Regulatory Commission and
from state utility regulatory agencies and (iii) relating to public relations,
Nevada corporate counsel, accounting and other consultants mutually retained by
the parties in connection with the transactions contemplated hereby, shall be
shared equally by Nevada Power, on the one hand, and Sierra Pacific, on the
other.
Section 7.19 COVENANT TO SATISFY CONDITIONS. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use its best
efforts, taking into account the circumstances and giving due weight to the
materiality of the matter involved or the action required, to take, or cause to
be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the Mergers and the transactions contemplated by this Agreement.
ARTICLE 8
CONDITIONS
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
MERGERS. The respective obligations of each party to effect the Mergers shall
be subject to the satisfaction on or prior to the Closing Date of the following
conditions, except, to the extent permitted by applicable law, that such
conditions may be waived in writing pursuant to Section 9.5:
(a) SHAREHOLDER APPROVALS. The Sierra Pacific Stockholders' Approvals and
the Nevada Power Stockholders' Approval shall have been obtained.
(b) NO INJUNCTION. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court preventing
consummation of either of the Mergers shall have been issued and continuing in
effect, and neither of the Mergers nor any of the other transactions
contemplated hereby shall have been prohibited under any applicable federal or
state law or regulation.
(c) REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act, and no stop
order suspending such effectiveness shall have been issued and remain in effect.
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(d) LISTING OF SHARES. The shares of Sierra Pacific Common Stock issuable
in the Mergers pursuant to Article 2 shall have been approved for listing on the
NYSE upon official notice of issuance.
(e) STATUTORY APPROVALS. The Nevada Power Required Statutory Approvals and
the Sierra Pacific Required Statutory Approvals shall have been obtained at or
prior to the Effective Time; such approvals shall have become Final Orders (as
hereinafter defined); and no Final Order shall impose terms or conditions that
would have, or would be reasonably likely to have, a Sierra Pacific Material
Adverse Effect or a Nevada Power Material Adverse Effect. A "Final Order" means
action by the relevant regulatory authority which has not been reversed, stayed,
enjoined, set aside, annulled or suspended, with respect to which any waiting
period prescribed by law before the transactions contemplated hereby may be
consummated has expired, and as to which all conditions to the consummation of
such transactions prescribed by law, regulation or order have been satisfied,
and as to which all opportunities for rehearing are exhausted (whether or not
any appeal thereof is pending).
Section 8.2 CONDITIONS TO OBLIGATIONS OF SIERRA PACIFIC, LAKE MERGER SUB
AND DESERT MERGER SUB TO EFFECT THE MERGERS. The obligation of Sierra Pacific,
Lake Merger Sub and Desert Merger Sub to effect the Mergers is further subject
to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by Sierra Pacific in writing pursuant to
Section 9.5:
(a) PERFORMANCE OF OBLIGATIONS OF NEVADA POWER. Nevada Power will have
performed in all material respects its agreements and covenants contained in or
contemplated by this Agreement required to be performed by it at or prior to the
Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Nevada Power set forth in this Agreement shall be true and correct in all
material respects as of the date hereof (except to the extent such
representations and warranties speak as of any other date) and as of the Closing
Date as if made on and as of the Closing Date, except as otherwise contemplated
by this Agreement.
(c) CLOSING CERTIFICATES. Sierra Pacific shall have received a certificate
signed by the chief executive officer and chief financial officer of Nevada
Power, dated the Closing Date, to the effect that, to the best of each officer's
knowledge, the conditions set forth in Section 8.2(a) and Section 8.2(b) have
been satisfied.
(d) NEVADA POWER MATERIAL ADVERSE EFFECT. No material adverse effect on
the business. operations, assets, prospects, financial condition or the results
of operations of Nevada Power and its subsidiaries taken as a whole or on the
consummation of this Agreement shall have occurred and there shall exist no fact
or circumstance which would have, or would be reasonably likely to have, such an
effect.
(e) TAX OPINION. Sierra Pacific shall have received an opinion of counsel,
in form and substance satisfactory to Sierra Pacific, dated the Closing Date, to
the effect that (i) the First Merger will be a tax-free transaction under the
Code and that Sierra Pacific, Lake Merger Sub and the stockholders of Sierra
Pacific who exchange their shares solely for the stock of Sierra Pacific will
recognize no gain or loss for federal income tax purposes as a result of the
consummation of the First Merger and (ii) the Second Merger will be a tax-free
reorganization under the Code and that Nevada Power, Desert Merger Sub and the
stockholders of Nevada Power who exchange their shares solely for the shares of
Sierra Pacific will recognize no gain or loss for federal income tax purposes as
a result of the consummation of the Second Merger.
(f) NEVADA POWER REQUIRED CONSENTS. The material Nevada Power Required
Consents shall have been obtained.
(g) TRIGGER OF NEVADA POWER RIGHTS. No event that would result in the
triggering of any right or entitlement of Nevada Power stockholders under the
Nevada Power Rights Agreement, including a "flip-in" or "flip-over" or similar
event commonly described in such rights plans shall have occurred, which, in the
reasonable judgment of Sierra Pacific, would have or be reasonably likely to
result in a Nevada Power Material Adverse Effect or materially change the number
of outstanding equity securities of Nevada
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Power, and the Nevada Power Rights shall not have become nonredeemable by any
action of the Nevada Power Board of Directors.
(h) CANCELLATION OF NEVADA POWER PREFERRED STOCK. Each issued and
outstanding share of Nevada Power Preferred Stock shall have been redeemed or
otherwise retired in accordance with its terms.
Section 8.3 CONDITIONS TO OBLIGATIONS OF NEVADA POWER TO EFFECT THE
MERGERS. The obligations of Nevada Power to effect the Mergers is further
subject to the satisfaction, prior to the Closing Date, of the following
conditions, except as may be waived by Nevada Power in writing pursuant to
Section 9.5:
(a) PERFORMANCE OF OBLIGATIONS. Each of Sierra Pacific, Lake Merger Sub
and Desert Merger Sub will have performed in all material respects its
agreements and covenants contained in or contemplated by this Agreement required
to be performed at or prior to the Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
each of Sierra Pacific, Lake Merger Sub and Desert Merger Sub set forth in this
Agreement shall be true and correct in all material respects as of the date
hereof (except to the extent such representations and warranties speak as of any
other date) and as of the Closing Date as if made on and as of the Closing Date,
except as otherwise contemplated by this Agreement.
(c) CLOSING CERTIFICATES. Nevada Power shall have received certificates
signed by the chief executive officer and chief financial officer of Sierra
Pacific, dated the Closing Date, to the effect that, to the best of each such
officer's knowledge, the conditions set forth in Section 8.3(a) and Section
8.3(b) have been satisfied.
(d) SIERRA PACIFIC MATERIAL ADVERSE EFFECT. No material adverse effect on
the business, operations, assets, prospects, financial condition or the results
of operations of Sierra Pacific and its subsidiaries taken as a whole or on the
consummation of this Agreement shall have occurred and there shall exist no fact
or circumstance which would have, or would be reasonably likely to have, such an
effect.
(e) TAX OPINION. Nevada Power shall have received an opinion of counsel,
in form and substance satisfactory to Nevada Power, dated the Closing Date, to
the effect that (i) the First Merger will be a tax-free transaction under the
Code and that Sierra Pacific, Lake Merger Sub and the stockholders of Sierra
Pacific who exchange their shares solely for the stock of Sierra Pacific will
recognize no gain or loss for federal income tax purposes as a result of the
consummation of the First Merger and (ii) the Second Merger will be a tax-free
reorganization under the Code and that Nevada Power, Desert Merger Sub and the
stockholders of Nevada Power who exchange their shares solely for the shares of
Sierra Pacific will recognize no gain or loss for federal income tax purposes as
a result of the consummation of the Second Merger.
(f) SIERRA PACIFIC REQUIRED CONSENTS. The material Sierra Pacific Required
Consents shall have been obtained.
(g) TRIGGER OF SIERRA PACIFIC RIGHTS. No event that would result in the
triggering of any right or entitlement of Sierra Pacific stockholders under any
Sierra Pacific Rights Agreement, including a "flip-in" and "flip-over" or
similar event commonly described in such rights plans shall have occurred which,
in the reasonable judgment of Nevada Power, would have or be reasonably likely
to result in a Sierra Pacific Material Adverse Effect or materially change the
number of outstanding equity securities of Sierra Pacific, and the Sierra
Pacific Rights shall not have become unredeemable by the Sierra Pacific Board of
Directors.
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ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after approval by the stockholders
of the respective parties hereto contemplated by this Agreement:
(a) by mutual written consent of the Boards of Directors of Nevada Power and
Sierra Pacific;
(b) by any party hereto, by written notice to the other, if the Effective
Time shall not have occurred on or before the day that is eighteen months after
the date hereof (the "Initial Termination Date"); PROVIDED, HOWEVER, that the
right to terminate the Agreement under this Section 9.1(b) shall not be
available to any party whose failure to fulfill any obligations under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before this date; and provided, further, that if on the
Initial Termination Date the conditions to the Closing set forth in Section
8.1(e) shall not have been fulfilled but all other conditions to the Closing
shall be fulfilled or shall be capable of being fulfilled, then the Initial
Termination Date shall be extended to the second anniversary of the date hereof;
(c) by any party hereto, by written notice to the other party, if the Nevada
Power Stockholders' Approval shall not have been obtained at a duly held Nevada
Power Special Meeting, including any adjournments thereof, or the Sierra Pacific
Stockholders' Approvals shall not have been obtained at duly held Sierra Pacific
Special Meeting, including any adjournments thereof;
(d) by any party hereto, if any state or federal law, order, rule or
regulation is adopted or issued, which has the effect, as supported by the
written opinion of outside counsel for such party, of prohibiting either of the
Mergers, or by any party hereto, if any court of competent jurisdiction in the
United States or any State shall have issued an order, judgment or decree
permanently restraining, enjoining or otherwise prohibiting either of the
Mergers, and such order, judgment or decree shall have become final and
nonappealable;
(e) by Sierra Pacific, at any time prior to the time at which the Sierra
Pacific Stockholders' Approval has been obtained, upon five days' prior notice
to Nevada Power, if, as a result of a Business Combination proposal by a party
other than Nevada Power or any of its affiliates, the Board of Directors of
Sierra Pacific determines in good faith, after considering applicable provisions
of state law, giving effect to all concessions that may be offered by the other
party and consulting with financial advisors and outside counsel, that failing
to accept the Business Combination proposal could reasonably be expected to be a
breach of its fiduciary duties under applicable law; PROVIDED, HOWEVER, that
prior to any such termination, Sierra Pacific shall, and shall cause its
respective financial and legal advisors to, negotiate with Nevada Power to make
such adjustments in the terms and conditions of this Agreement as would enable
Sierra Pacific to proceed with the Transactions contemplated herein on such
adjusted terms; provided further that, notwithstanding anything in this Section
9.1(e) to the contrary, Sierra Pacific and Nevada Power intend this Agreement to
be an exclusive agreement and, accordingly, nothing in this Agreement is
intended to constitute a solicitation of a Business Combination proposal, it
being acknowledged and agreed that any such proposal would interfere with the
strategic advantages and benefits that Sierra Pacific and Nevada Power expect to
derive from this Agreement and the transactions contemplated hereby;
(f) by Nevada Power, at any time prior to the time at which the Nevada Power
Stockholders' Approval has been obtained, upon five days' prior notice to Sierra
Pacific, if, as a result of a Business Combination proposal by a party other
than Sierra Pacific or any of its affiliates, the Board of Directors of Nevada
Power determines in good faith, after considering applicable provisions of state
law, giving effect to all concessions that may be offered by the other party and
consulting with its financial advisors and outside counsel, that failing to
accept the Business Combination proposal could reasonably be expected to be a
breach of its fiduciary duties under applicable law; PROVIDED, HOWEVER, that
prior to any such termination, Nevada Power shall, and shall cause its
respective financial and legal advisors to, negotiate
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with Sierra Pacific to make such adjustments in the terms and conditions of this
Agreement as would enable Nevada Power to proceed with the transactions
contemplated herein on such adjusted terms; provided further that,
notwithstanding anything in this Section 9.1(f) to the contrary, Sierra Pacific
and Nevada Power intend this Agreement to be an exclusive agreement and,
accordingly, nothing in this Agreement is intended to constitute a solicitation
of a Business Combination proposal, it being acknowledged and agreed that any
such proposal would interfere with the strategic advantages and benefits that
Sierra Pacific and Nevada Power expect to derive from this Agreement and the
transactions contemplated hereby;
(g) by Sierra Pacific, by written notice to Nevada Power, if (i) there exist
inaccuracies of the representations and warranties of Nevada Power made herein
as of the date hereof, which inaccuracies, individually or in the aggregate,
would or would be reasonably likely to result in a Nevada Power Material Adverse
Effect, and such inaccuracies shall not have been remedied within 20 days after
receipt by Nevada Power of notice in writing from Sierra Pacific, specifying the
nature of such inaccuracies and requesting that they be remedied, (ii) Nevada
Power (and/or its appropriate subsidiaries) shall not have performed and
complied with its agreements and covenants contained in Sections 6.1(b) and
6.1(c) or shall have failed to perform and comply with, in all material
respects, its other agreements and covenants hereunder and such failure to
perform or comply shall not have been remedied within 20 days after receipt by
Nevada Power of notice in writing from Sierra Pacific, specifying the nature of
such failure and requesting that it be remedied; or (iii) the Board of Directors
of Nevada Power or any committee thereof (A) shall withdraw or modify in any
manner adverse to Sierra Pacific its approval or recommendation of this
Agreement or the Mergers, (B) shall approve or recommend any acquisition of
Nevada Power or a material portion of its assets or any tender offer for shares
of capital stock of Nevada Power, in each case, by a party other than Sierra
Pacific or any of its affiliates or (C) shall resolve to take any of the actions
specified in clause (A) or (B);
(h) by Nevada Power, by written notice to Sierra Pacific, if (i) there exist
inaccuracies of the representations and warranties of Sierra Pacific made herein
as of the date hereof, which inaccuracies, individually or in the aggregate,
would or would be reasonably likely to result in a Sierra Pacific Material
Adverse Effect, and such inaccuracies shall not have been remedied within 20
days after receipt by Sierra Pacific of notice in writing from Nevada Power,
specifying the nature of such inaccuracies and requesting that they be remedied,
(ii) Sierra Pacific (and/or its appropriate subsidiaries) shall not have
performed and complied with its agreements and covenants contained in Sections
6.1(b) and 6.1(c) or shall have failed to perform and comply with, in all
material respects, its other agreements and covenants hereunder and such failure
to perform or comply shall not have been remedied within 20 days after receipt
by Sierra Pacific of notice in writing from Nevada Power, specifying the nature
of such failure and requesting that it be remedied; or (iii) the Board of
Directors of Sierra Pacific or any committee thereof (A) shall withdraw or
modify in any manner adverse to Nevada Power its approval or recommendation of
this Agreement or the Mergers, (B) shall approve or recommend any acquisition of
Sierra Pacific or a material portion of its assets or any tender offer for
shares of capital stock of Sierra Pacific, in each case, by a party other than
Nevada Power or any of its affiliates or (C) shall resolve to take any of the
actions specified in clause (A) or (B);
(i) by Sierra Pacific, by written notice to Nevada Power, if (A) a third
party acquires securities representing greater than 50% of the voting power of
the outstanding voting securities of Nevada Power or (B) individuals who as of
the date hereof constitute the board of directors of Nevada Power (together with
any new directors whose election by such board of directors or whose nomination
for election by the stockholders of Nevada Power was approved by a vote of a
majority of the directors of Nevada Power then still in office who are either
directors as of the date hereof or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
board of directors of Nevada Power then in office;
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(j) by Nevada Power, by written notice to Sierra Pacific, if (A) a third
party acquires securities representing greater than 50% of the voting power of
the outstanding voting securities of Sierra Pacific or (B) individuals who as of
the date hereof constitute the board of directors of Sierra Pacific (together
with any new directors whose election by such board of directors or whose
nomination for election by the stockholders of Sierra Pacific was approved by a
vote of a majority of the directors of Sierra Pacific then still in office who
are either directors as of the date hereof or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the board of directors of Sierra Pacific then in office.
Section 9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Nevada Power or Sierra Pacific pursuant to Section 9.1,
there shall be no liability on the part of either Nevada Power or Sierra Pacific
or their respective officers or directors hereunder, except that (i) Section
7.18 and Section 9.3 and the agreement contained in the last sentence of Section
7.1 shall survive any such termination, and (ii) no such termination shall
relieve any party from liability by reason of any wilful breach of any
representation, warranty or covenant contained in this Agreement.
Section 9.3 TERMINATION FEE; EXPENSES.
(a) EXPENSES PAYABLE UPON NON-WILFUL BREACH. If this Agreement is
terminated at such time that this Agreement is terminable pursuant to one (but
not both) of (x) Section 9.1(g)(i) or (ii) or (y) Section 9.1(h)(i) or (ii),
then (i) the breaching party shall promptly (but not later than five business
days after receipt of notice from the other party) pay to the other party an
amount equal to all documented out-of-pocket expenses and fees incurred by the
other party (including, without limitation, fees and expenses payable to all
legal, accounting, financial, public relations and other professional advisors
arising out of, in connection with or related to the Mergers or the other
transactions contemplated by this Agreement) not to exceed $10 million in the
aggregate ("Out-of-Pocket Expenses"); PROVIDED, HOWEVER, that, (i) if this
Agreement is terminated by a party as a result of a willful breach by the other
party, the non-breaching party may pursue any remedies available to it at law or
in equity and shall, in addition to its Out-of-Pocket Expenses (which shall be
paid as specified above and shall not be limited to $10 million), be entitled to
recover such additional amounts as such non-breaching party may be entitled to
receive at law or in equity; and (ii) if (x) at the time of the breaching
party's willful breach of this Agreement, there shall have been a third-party
tender offer for shares of, or a third party offer or proposal with respect to a
Business Combination involving, such party or any of its affiliates which at the
time of such termination shall not have been rejected by such party and its
board of directors and withdrawn by the third party, and (y) within two and
one-half years of any termination by the non-breaching party, the breaching
party or an affiliate thereof becomes a subsidiary of such offeror or a
subsidiary of an affiliate of such offeror or accepts a written offer to
consummate or consummates a Business Combination with such offeror or an
affiliate thereof, then such breaching party (jointly and severally with its
affiliates), upon the signing of a definitive agreement relating to such a
Business Combination, or, if no such agreement is signed then at the closing
(and as a condition to the closing) of such breaching party becoming such a
subsidiary or of such Business Combination, will pay to the non-breaching party
a fee equal to $52.5 million in cash minus any amounts as may have been
previously paid by the breaching party as Out-of-Pocket Expenses; PROVIDED that
in no event shall the termination fee provided for in Section 9.3(b) be payable
if the fee referred to in this Section 9.3(a)(ii) has been paid.
(b) TERMINATION FEE IN CERTAIN OTHER EVENTS.
(i) If (A) this Agreement (w) is terminated by Sierra Pacific pursuant
to Section 9.1(e), (x) is terminated by Nevada Power pursuant to Section
9.1(h)(iii), (y) is terminated pursuant to Section 9.1(c) following a
failure of the stockholders of Sierra Pacific to grant the necessary
approvals described in Section 4.13 (provided that the stockholders of
Nevada Power shall not also have failed to grant the necessary approvals
described in Section 5.13) or (z) is terminated as a result of Sierra
Pacific's material breach of Section 7.4, and (B) at the time of such
termination or prior to the meeting of Sierra Pacific's stockholders there
shall have been a third-party tender offer for shares of,
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or a third-party offer or proposal with respect to a Business Combination
involving, Sierra Pacific or any of its affiliates which at the time of such
termination or of the meeting of Sierra Pacific's stockholders shall not
have been (1) rejected by Sierra Pacific and its board of directors and (2)
withdrawn by the third-party, and (C) within two and one-half years of any
such termination described in clause (A) above, Sierra Pacific or its
affiliate which is the subject of the tender offer or offer or proposal with
respect to a Business Combination (the "Sierra Pacific Target Party")
becomes a subsidiary of such offeror or a subsidiary of an affiliate of such
offeror or accepts a written offer to consummate or consummates a Business
Combination with such offeror or affiliate thereof, then such Sierra Pacific
Target Party (jointly and severally with its affiliates), upon the signing
of a definitive agreement relating to such a Business Combination, or, if no
such agreement is signed, then at the closing (and as a condition to the
closing) of such Sierra Pacific Target Party becoming such a subsidiary or
of such Business Combination, will pay to Nevada Power a termination fee
equal to $52.5 million in cash minus any amounts as may have been previously
paid by the Sierra Pacific Target Party as Out-of-Pocket Expenses.
(ii) If (A) this Agreement (w) is terminated by Nevada Power pursuant to
Section 9.1(f), (x) is terminated by Sierra Pacific pursuant to Section
9.1(g)(iii), (y) is terminated pursuant to Section 9.1(c) following a
failure of the stockholders of Nevada Power to grant the necessary approvals
described in Section 5.13 (provided that the stockholders of Sierra Pacific
shall not also have failed to grant the necessary approvals described in
Section 4.13) or (z) is terminated as a result of Nevada Power's material
breach of Section 7.4, and (B) at the time of such termination or prior to
the meeting of Nevada Power's stockholders there shall have been a
third-party tender offer for shares of, or a third-party offer or proposal
with respect to a Business Combination involving, Nevada Power or any of its
affiliates which at the time of such termination or of the meeting of Nevada
Power's stockholders shall not have been (1) rejected by Nevada Power and
its board of directors and (2) withdrawn by the third-party, and (C) within
two and one-half years of any such termination described in clause (A)
above, Nevada Power or its affiliate which is the subject of the tender
offer or offer or proposal with respect to a Business Combination (the
"Nevada Power Target Party") becomes a subsidiary of such offeror or a
subsidiary of an affiliate of such offeror or accepts a written offer to
consummate or consummates a Business Combination with such offeror or
affiliate thereof, then such Nevada Power Target Party (jointly and
severally with its affiliates), upon the signing of a definitive agreement
relating to such a Business Combination, or, if no such agreement is signed,
then at the closing (and as a condition to the closing) of such Nevada Power
Target Party becoming such a subsidiary or of such Business Combination,
will pay to Sierra Pacific a termination fee equal to $52.5 million in cash
minus any amounts as may have been previously paid by the Nevada Power
Target Party as Out-of-Pocket Expenses.
(c) EXPENSES. The parties agree that the agreements contained in this
Section 9.3 are an integral part of the transactions contemplated by the
Agreement and constitute liquidated damages and not a penalty. If one party
fails to promptly pay to the other any fees due hereunder, the defaulting party
shall pay the costs and expenses (including legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other legal
action, taken to collect payment, together with interest on the amount of any
unpaid fee at the publicly announced prime rate of Wells Fargo from the date
such fee was required to be paid.
Section 9.4 AMENDMENT. This Agreement may be amended by the parties hereto
pursuant to action of their respective Boards of Directors, at any time before
or after approval hereof by the stockholders of Nevada Power and Sierra Pacific
and prior to the Effective Time, but after such approvals, no such amendment
shall (i) alter or change the amount or kind of shares, rights or any of the
proceedings of the exchange and/or conversion under Article 2 and (ii) alter or
change any of the terms and conditions of this Agreement if any of the
alterations or changes, alone or in the aggregate, would materially and
adversely affect the rights of holders of Nevada Power Common Stock, Nevada
Power Preferred Stock or Sierra
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Pacific Common Stock. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
Section 9.5 WAIVER. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed by a duly authorized officer of such party.
ARTICLE 10
GENERAL PROVISIONS
Section 10.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. All representations, warranties, covenants and agreements in this
Agreement shall not survive the Mergers, except the covenants and agreements
contained in this Section 10.1, the last sentence of Section 7.1 and Sections
7.5, 7.9, 7.10, 7.11, 7.14, 7.15, 7.16, 7.18 and 10.7, each of which shall
survive in accordance with its terms.
Section 10.2 BROKERS. Nevada Power represents and warrants that, except
for PaineWebber Incorporated, its investment banking firm, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Mergers or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Nevada Power.
Sierra Pacific represents and warrants that, except for SG Barr Devlin and
Merrill Lynch, its investment banking firms, no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the Mergers or the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Sierra Pacific.
Section 10.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if (i) delivered personally, or (ii)
sent by overnight courier service (receipt confirmed in writing), or (iii)
delivered by facsimile transmission (with receipt confirmed), or (iv) five days
after being mailed by registered or certified mail (return receipt requested) to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) If to Nevada Power, to:
Nevada Power Company
6226 West Sahara Avenue
Las Vegas, Nevada 89102
Attention: Corporate Secretary
Telephone: (702) 367-5000
Telecopy: (702) 367-5004
with a copy to:
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601-1692
Attention: Robert A. Yolles, Esq.
Telephone: (312) 782-3939
Telecopy: (312) 782-8585
(b) If to Sierra Pacific, to:
Sierra Pacific Resources
6100 Neil Road
Reno, Nevada 89511
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<PAGE>
Attention: Corporate Secretary
Telephone: (702) 689-3600
Telecopy: (702) 689-5463
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Sheldon S. Adler, Esq.
Telephone: (212) 735-3000
Telecopy: (212) 735-2000
Section 10.4 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (i) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
other than the Confidentiality Agreement; (ii) shall not be assigned by
operation of law or otherwise; and (iii) shall be governed by and construed in
accordance with the laws of the State of Nevada applicable to contracts executed
in and to be fully performed in such State, without giving effect to its
conflicts of law, rules or principles.
Section 10.5 INTERPRETATION. When a reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section or Exhibit of this
Agreement, respectively, unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words, "include," "includes," or "including" are used in this Agreement,
they shall be deemed to be followed by the words "without limitation."
Section 10.6 COUNTERPARTS; EFFECT. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
Section 10.7 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, except for rights of
Indemnified Parties as set forth in Section 7.5, nothing in this Agreement,
express or implied, is intended to confer upon any persons, any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Notwithstanding the foregoing and any other provision of this Agreement, and in
addition to any other required action of the Board of Directors of Sierra
Pacific (a) a majority of the Sierra Pacific Directors (or their successors)
serving on the Board of Directors of Sierra Pacific who are designated by Sierra
Pacific pursuant to Section 7.13 shall be entitled during the three year period
commencing at the Effective Time (the "Three Year Period") to enforce the
provisions of the final sentence of Section 7.13 and Section 7.14 on behalf of
the Sierra Pacific officers, directors and employees, as the case may be, and
(b) a majority of the Nevada Power directors (or their successors) serving on
the Board of Directors of Sierra Pacific who are designated by Nevada Power
pursuant to Section 7.13 shall be entitled during the Three Year Period to
enforce the provisions of Section 7.9, Section 7.10, Section 7.11, the final
sentence of Section 7.13 and Section 7.14, on behalf of the Nevada Power
officers, directors and employees, as the case may be. Such directors' rights
and remedies under the preceding sentence are cumulative and are in addition to
any other rights and remedies they may have at law or in equity, but in no event
shall this Section 10.7 be deemed to impose any additional duties on any such
directors. Sierra Pacific shall pay, at the time they are incurred, all
reasonable costs, fees and expenses of such directors incurred in connection
with the assertion of any rights on behalf of the persons set forth above
pursuant to this Section 10.7.
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Section 10.8 FURTHER ASSURANCES. Each party will execute such further
documents and instruments and take such further actions as may reasonably be
requested by any other party in order to consummate the Mergers in accordance
with the terms hereof.
IN WITNESS WHEREOF, Nevada Power, Sierra Pacific, Desert Merger Sub and Lake
Merger Sub have caused this Agreement to be signed by their respective officers
thereunto duly authorized as of the date first written above.
<TABLE>
<S> <C> <C>
NEVADA POWER COMPANY
By: /s/ CHARLES A. LENZIE
-----------------------------------------
Name: Charles A. Lenzie
Title: Chairman and Chief Executive
Officer
SIERRA PACIFIC RESOURCES
By: /s/ MALYN K. MALQUIST
-----------------------------------------
Name: Malyn K. Malquist
Title: Chairman, Chief Executive Officer
and President
DESERT MERGER SUB, INC.
By: /s/ MALYN K. MALQUIST
-----------------------------------------
Name: Malyn K. Malquist
Title: Chief Executive Officer
LAKE MERGER SUB, INC.
By: /s/ MALYN K. MALQUIST
-----------------------------------------
Name: Malyn K. Malquist
Title: Chief Executive Officer
</TABLE>
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<PAGE>
INVESTMENT BANKING DIVISION
PaineWebber Incorporated
1285 Avenue of the Americas
New York, NY 10019
212 713-2000
[LOGO]
ANNEX B
September 4, 1998
Board of Directors
Nevada Power Company
6226 West Sahara Avenue
Las Vegas, Nevada 89102
Ladies and Gentlemen:
Nevada Power Company ("Nevada Power" or the "Company"), Sierra Pacific
Resources ("Sierra Pacific") , Lake Merger Sub, Inc., a wholly-owned subsidiary
of Sierra Pacific ("Lake Merger Sub") and Desert Merger Sub, Inc., a
wholly-owned subsidiary of Sierra Pacific ("Desert Merger Sub") have entered
into an Agreement and Plan of Merger dated April 29, 1998 (the "Agreement")
which provides for the merger (the "First Merger") of Sierra Pacific with Lake
Merger Sub, pursuant to which Sierra Pacific will be the surviving corporation,
immediately prior to the merger (the "Second Merger") of the Company with and
into Desert Merger Sub, pursuant to which Desert Merger Sub will be the
surviving corporation (the Second Merger and together with the First Merger
hereinafter referred to as the "Mergers"). At the Effective Time of the First
Merger, each issued and outstanding share of common stock, par value $1.00 per
share, of Sierra Pacific ("Sierra Pacific Common Stock") will be converted as
the holder shall have elected or be deemed to have elected, as specified in the
Agreement, into either $37.55 in cash (the "Sierra Pacific Cash Consideration")
or 1.44 fully paid and non-assessable shares of Sierra Pacific Common Stock (the
"Sierra Pacific Stock Consideration" and, together with the Sierra Pacific Cash
Consideration, the "Sierra Pacific Merger Consideration"). At the Effective Time
of the Second Merger, each issued and outstanding share of common stock, par
value $1.00 per share, of Nevada Power ("Nevada Power Common Stock") will be
converted as the holder shall have elected or be deemed to have elected, as
specified in the Agreement, into either $26.00 in cash (the "Nevada Power Cash
Consideration") or 1.00 fully paid and non-assessable share of Sierra Pacific
Common Stock (the "Nevada Power Stock Consideration" and, together with the
Nevada Power Cash Consideration, the "Nevada Power Merger Consideration"). The
Sierra Pacific Merger Consideration and the Nevada Power Merger Consideration
are subject to the allocation procedures as specified in the Agreement.
On April 29, 1998, we delivered our opinion that, as of that date, based
upon the assumptions made, procedures followed, matters considered and
limitations on the review undertaken set forth in such opinion, the Nevada Power
Merger Consideration to be received in connection with the Mergers is fair from
a financial point of view, to the holders of Nevada Power Common Stock. You have
asked us to update our opinion with respect to whether the Nevada Power Merger
Consideration to be received in
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<PAGE>
[LOGO]
Board of Directors
Nevada Power
September 4, 1998
Page 2
connection with the Mergers is fair from a financial point of view, to the
holders of Nevada Power Common Stock.
In arriving at the opinion set forth below, we have, among other things:
1. Reviewed, among other public information, the Company's Annual Reports,
Forms 10-K and related financial information for the four fiscal years
ended December 31, 1997;
2. Reviewed, among other public information, Sierra Pacific's Annual
Reports, Forms 10-K and related financial information for the four fiscal
years ended December 31, 1997;
3. Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of the Company
and Sierra Pacific, furnished to us by the Company and Sierra Pacific,
respectively;
4. Conducted discussions with members of senior management of the Company
and Sierra Pacific concerning their respective businesses and prospects;
5. Compared the historical market prices and trading activity for the
Nevada Power Common Stock and the Sierra Pacific Common Stock with those
of certain publicly traded companies which we deemed to be relevant;
6. Compared the financial position and operating results of the Company and
Sierra Pacific with those of certain publicly traded companies which we
deemed to be relevant;
7. Considered the potential pro forma results of the Mergers;
8. Reviewed the Agreement in the form presented to the Company's Board of
Directors;
9. Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed to be necessary, including our assessment of regulatory, general
economic, market and monetary conditions; and
10. Confirmed with members of senior management of the Company and Sierra
Pacific that there have been no material changes to the current financial
and operating condition of their respective companies since April 29,
1998.
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was publicly available, supplied or otherwise communicated
to us by the Company and Sierra Pacific, and we have not assumed any
responsibility to independently verify such information. We have assumed that
the financial forecasts examined by us were reasonably prepared on bases
reflecting the best currently available estimates and good faith judgements of
the management of the Company and Sierra Pacific as to the future performance of
the Company and Sierra Pacific, respectively. We have also relied upon
assurances of the management of the Company and Sierra Pacific that they are
unaware of any facts that would make the information or financial forecasts
provided to us incomplete or misleading. We have also assumed, with your
consent, that (i) the Sierra Pacific Stock Consideration will be tax-free to
holders who receive all Sierra Pacific Stock Consideration; (ii) the Nevada
Power Stock Consideration will be tax-free to holders who receive all Nevada
Power Stock Consideration; and (iii) all material assets and liabilities
(contingent or otherwise, known or unknown) of the Company and Sierra Pacific
are as set forth in their respective financial statements or disclosed in the
Agreement. We have not made an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of the Company or Sierra
B-2
<PAGE>
[LOGO]
Board of Directors
Nevada Power
September 4, 1998
Page 3
Pacific, nor have we been furnished with any such evaluations or appraisals. Our
opinion is based upon regulatory, general economic, market and monetary
conditions existing on the date hereof. Furthermore, we express no opinion as to
the price or trading ranges at which the Company Common Stock or Sierra Pacific
Common Stock will trade from the date hereof.
Our opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any shareholder of the Company as to how any
such shareholder should vote on the Mergers. This opinion does not address the
relative merits of the Mergers and other transactions or business strategies
discussed by the Board of Directors of the Company as alternatives to the
Mergers or the decision of the Board of Directors of the Company to proceed with
the Mergers. We were not requested to, and did not, solicit third party
indications of interest in acquiring all or any portion of the Company.
This opinion has been prepared for the use of the Board of Directors of the
Company and shall not be reproduced, summarized, described or referred to or
given to any other person or otherwise made public without the prior written
consent of PaineWebber Incorporated; provided, however, that this letter may be
reproduced in full in the Proxy Statement/Prospectus relating to the Mergers.
PaineWebber Incorporated is currently acting as financial advisor to the
Board of Directors of the Company in connection with the Mergers and has
received a fee upon the delivery of this opinion, and upon the execution of the
Agreement and will receive a fee upon consummation of the Mergers. In the past,
PaineWebber Incorporated and its affiliates have provided investment banking
services to the Company and have received fees for rendering these services.
In the ordinary course of our business, we may trade the securities of the
Company and Sierra Pacific for our own account and for the accounts of our
customers and, accordingly, may at any time hold long or short positions in such
securities.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of April 29, 1998 and as of the date hereof, the Nevada Power Merger
Consideration to be received in connection with the Mergers is fair from a
financial point of view, to the holders of Nevada Power Common Stock.
Very truly yours,
PAINEWEBBER INCORPORATED
/s/ PaineWebber Incorporated
B-3
<PAGE>
SG BARR DEVLIN
----------------------
ANNEX C
September 4, 1998
The Board of Directors
Sierra Pacific Resources
6100 Neil Road
Reno, Nevada 89520
Dear Members of the Board:
We understand that Sierra Pacific Resources, a Nevada corporation
("Sierra"), Nevada Power Company, a Nevada corporation ("Nevada Power"), Lake
Merger Sub, Inc., a Nevada corporation and a wholly-owned subsidiary of Sierra
("Lake Merger Sub"), and Desert Merger Sub, Inc., a Nevada corporation and a
wholly-owned subsidiary of Sierra ("Desert Merger Sub"), have determined to
enter into an Agreement and Plan of Merger, dated as of April 29, 1998 (the
"Agreement"), by and among Sierra, Nevada Power, Lake Merger Sub and Desert
Merger Sub. The Agreement provides for, among other things, the merger of Lake
Merger Sub with and into Sierra (the "First Merger") whereby each issued and
outstanding share of common stock, $1.00 par value per share, of Sierra ("Sierra
Common Stock") (other than any shares of Sierra Common Stock held as treasury
shares and canceled pursuant to Section 2.1(b) of the Agreement) will be
converted into either (i) $37.55 in cash (the "Sierra Cash Consideration") or
(ii) 1.44 fully paid and non-assessable shares of Sierra Common Stock (the
"Sierra Stock Consideration"), in each case as the holder thereof shall have
elected or be deemed to have elected, subject to certain procedures and
limitations contained in the Agreement, as to which procedures and limitations
we are expressing no opinion. In aggregate, holders of Sierra Common Stock shall
receive Sierra Cash Consideration for 4,037,809 shares of Sierra Common Stock
and Sierra Stock Consideration for all remaining shares of Sierra Common Stock
(collectively, the "Sierra Merger Consideration"). The Agreement also provides
for the merger of Desert Merger Sub with and into Nevada Power (the "Second
Merger", taken together with the First Merger, the "Mergers") whereby each
issued and outstanding share of common stock, $1.00 par value per share, of
Nevada Power ("Nevada Power Common Stock") (other than any shares of Nevada
Power Common Stock held as treasury shares and canceled pursuant to Section
2.2(b) of the Agreement) will be converted into either (i) $26.00 in cash (the
"Nevada Power Cash Consideration") or (ii) 1.00 fully paid and non-assessable
shares of Sierra Common Stock (the "Nevada Power Stock Consideration"), in each
case as the holder thereof shall have elected or be deemed to have elected,
subject to certain procedures and limitations contained in the Agreement, as to
which procedures and limitations we are expressing no opinion. In aggregate,
holders of Nevada Power Common Stock shall receive Nevada Power Cash
Consideration for 11,715,084 shares of Nevada Power Common Stock and Nevada
Power Stock Consideration for all remaining shares of Nevada Power Common Stock
(collectively, the "Nevada Power Merger Consideration"). The terms and
conditions of the Mergers are set forth in more detail in the Agreement.
Capitalized terms used herein without definition have the respective meanings
assigned to such terms in the Agreement.
We have been requested by Sierra to render our opinion with respect to the
fairness, from a financial point of view, to holders of Sierra Common Stock of
the Sierra Merger Consideration to be issued
450 PARK AVENUE NEW YORK NEW YORK 10022 (212) 308-2700 FAX (212) 308-2706
Societe Generale
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<PAGE>
The Board of Directors, Sierra Pacific Resources
September 9, 1998
Page 2
pursuant to the First Merger, in light of the Nevada Power Merger Consideration
to be issued pursuant to the Second Merger.
In arriving at our opinion, we have, among other things:
(1) Reviewed the Annual Reports, Forms 10-K and the related financial
information for the three-year period ended December 31, 1997, and the
Forms 10-Q and the related unaudited financial information for the
quarterly periods ended March 31, 1998 and June 30, 1998 for Sierra and
Sierra Pacific Power Company;
(2) Reviewed the Annual Reports, Forms 10-K and the related financial
information for the three-year period ended December 31, 1997, and the
Forms 10-Q and the related unaudited financial information for the
quarterly periods ended March 31, 1998 and June 30, 1998 for Nevada
Power;
(3) Reviewed certain other filings with the Securities and Exchange
Commission and other regulatory authorities made by Sierra, Sierra
Pacific Power Company and Nevada Power during the last three years,
including proxy statements, FERC Forms 1 and 2, Forms 8-K and
registration statements;
(4) Reviewed certain internal information, including financial forecasts,
relating to the business, earnings, capital expenditures, cash flow,
assets and prospects of Sierra and Nevada Power furnished to us by
Sierra and Nevada Power;
(5) Conducted discussions with members of senior management of Sierra and
Nevada Power concerning their respective businesses, regulatory
environments, prospects, strategic objectives and possible operating
and administrative synergies and other benefits which might be realized
for the benefit of the combined company following the Mergers;
(6) Reviewed the historical market prices and trading activity for shares
of Sierra Common Stock and Nevada Power Common Stock and compared them
with those of certain publicly traded companies which we deemed to be
relevant;
(7) Compared the results of operations of Sierra and Nevada Power with
those of certain companies which we deemed to be relevant;
(8) Compared the proposed financial terms of the First Merger, in light of
the Second Merger, with the financial terms of certain business
combinations which we deemed to be relevant;
(9) Analyzed the respective contributions in terms of assets, earnings,
cash flow and shareholders' equity of Sierra and Nevada Power to the
combined company;
(10) Analyzed the valuation of shares of Sierra Common Stock and Nevada
Power Common Stock using various valuation methodologies which we
deemed to be appropriate;
(11) Considered the pro forma capitalization, earnings and cash flow of the
combined company;
(12) Compared the pro forma capitalization ratios, earnings per share,
dividends per share, cash flow per share and payout ratio of the
combined company with each of the corresponding current and projected
values for Sierra and Nevada Power on a stand-alone basis;
(13) Reviewed the Agreement;
(14) Reviewed the Registration Statement, including the Proxy
Statement/Prospectus dated the date hereof; and
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The Board of Directors, Sierra Pacific Resources
September 9, 1998
Page 3
(15) Reviewed such other studies, conducted such other analyses, considered
such other financial, economic and market criteria, performed such
other investigations and taken into account such other matters as we
deemed necessary or appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification,
upon the accuracy and completeness of all financial and other information
publicly available or otherwise furnished or made available to us by Sierra and
Nevada Power and have further relied upon the assurances of management of Sierra
and Nevada Power that they are not aware of any facts that would make such
information inaccurate or misleading. With respect to the financial projections
of Sierra and Nevada Power, we have relied upon the assurances of management of
Sierra and Nevada Power that such projections have been reasonably prepared and
reflect the best currently available estimates and judgments of the respective
managements of Sierra and Nevada Power as to the future financial performance of
Sierra and Nevada Power and as to the projected outcomes of legal, regulatory
and other contingencies. In arriving at our opinion, we have not made or been
provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Sierra or Nevada Power, nor have we
made any physical inspection of the properties or assets of Sierra or Nevada
Power. We have assumed that the Mergers will be tax-free reorganizations as
described in the Internal Revenue Code of 1986, as amended, and that Sierra,
Nevada Power, Lake Merger Sub, Desert Merger Sub and holders of Sierra Common
Stock and Nevada Power Common Stock who exchange their shares solely for the
stock of the combined company will recognize no gain or loss for federal income
tax purposes as a result of the consummation of the First Merger or the Second
Merger, as the case may be. We have also assumed that the combination will be
accounted for by the purchase method of accounting. You have not authorized us
to solicit, and we have not solicited, any indications of interest from any
third party with respect to the purchase of all or a part of Sierra. Our opinion
herein is necessarily based upon financial, stock market and other conditions
and circumstances existing and disclosed to us as of the date hereof.
We have acted as financial advisor to Sierra in connection with the Mergers
and will receive certain fees for our services. In addition, we have in the past
rendered certain investment banking and financial advisory services to Sierra
for which we received customary compensation.
Our advisory services and the opinion expressed herein are for the
information of Sierra's Board of Directors in evaluating the Mergers. Except for
its publication in the Joint Proxy/Registration Statement which will be
distributed to holders of Sierra Common Stock and Nevada Power Common Stock in
connection with approval of the Mergers, our opinion may not be published or
otherwise referred to without our prior written consent, and it is not intended
to be, and does not constitute, a recommendation to any stockholder as to how
such stockholder should act with respect to the Mergers. This opinion is
directed to the fairness, from a financial point of view, of the Sierra Merger
Consideration taken as a whole (in light of the Nevada Power Merger
Consideration taken as a whole), and not to the fairness of the Sierra Stock
Consideration or the Sierra Cash Consideration individually, as to which we are
expressing no opinion.
Based upon and subject to the foregoing, our experience as investment
bankers and other factors we deem relevant, we are of the opinion that, as of
the date hereof, the Sierra Merger Consideration to be issued in the First
Merger, in light of the Nevada Power Merger Consideration to be issued in the
Second Merger, is fair, from a financial point of view, to the holders of Sierra
Common Stock.
Very truly yours,
SG BARR DEVLIN
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<PAGE>
ANNEX D
September 4, 1998
Board of Directors
Sierra Pacific Resources
6100 Neil Road
Reno, Nevada 89511
Members of the Board of Directors:
Sierra Pacific Resources (the "Company"), Nevada Power Company (the "Merger
Partner"), and Lake Merger Sub, Inc. ("Lake Merger Sub") and Desert Merger Sub,
Inc. ("Desert Merger Sub"), each a wholly-owned subsidiary of the Company, have
entered into an Agreement and Plan of Merger, dated as of April 29, 1998 (the
"Agreement"). The Agreement provides for, among other things, the merger of Lake
Merger Sub with and into the Company in a transaction (the "First Merger") in
which each issued and outstanding share of the Company's common stock, par value
$1.00 per share (the "Company Shares"), other than any Company Shares owned by
the Company or any wholly-owned subsidiary thereof, all of which shall be
canceled, will be converted into either $37.55 in cash (the "Sierra Pacific Cash
Consideration") or 1.44 fully paid and non-assessable shares of the Company
Shares (the "Sierra Pacific Stock Consideration"), in each case as the holder
thereof shall have elected or be deemed to have elected, subject to the terms,
limitations and procedures of the Agreement. The holders of the Company Shares
in the aggregate shall receive the Sierra Pacific Cash Consideration for
4,037,809 shares of the Company Shares and the Sierra Pacific Stock
Consideration for all remaining shares of the Company Shares (collectively, the
"Sierra Pacific Merger Consideration"). The Agreement also provides for the
merger of the Merger Partner with and into Desert Merger Sub in a transaction
(the "Second Merger", and collectively with the First Merger, the "Transaction")
in which each issued and outstanding share of the Merger Partner's common stock,
par value $1.00 per share (the "Merger Partner Shares"), other than any Merger
Partner Shares owned by the Merger Partner or the Company or any of their
respective wholly-owned subsidiaries, all of which shall be canceled, will be
converted into either $26.00 in cash (the "Nevada Power Cash Consideration") or
1.00 fully paid and non-assessable share of the Company Shares (the "Nevada
Power Stock Consideration"), in each case as the holder thereof shall have
elected or be deemed to have elected, subject to the terms, limitations and
procedures of the Agreement. The holders of the Merger Partner Shares in the
aggregate shall receive the Nevada Power Cash Consideration for 11,715,084
shares of the Merger Partner Shares and the Nevada Power Stock Consideration for
all remaining shares of the Merger Partner Shares (collectively, the "Nevada
Power Merger Consideration"). As a result of the Second Merger, the Merger
Partner will become a wholly-owned subsidiary of the Company.
You have asked us whether, in our opinion, the Sierra Pacific Merger
Consideration to be issued pursuant to the First Merger, in light of the Nevada
Power Merger Consideration to be issued pursuant to the Second Merger, is fair
from a financial point of view to the holders of the Company Shares.
In arriving at the opinion set forth below, we have, among other things:
1. Reviewed certain publicly available business and financial information
relating to the Merger Partner and the Company that we deemed to be
relevant;
2. Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects
of the Merger Partner and the Company, as well as the amount and timing
of the cost savings and related expenses and synergies estimated to
result
D-1
<PAGE>
from the Transaction (the "Estimated Synergies") furnished to us by the
Merger Partner and the Company, respectively;
3. Conducted discussions with members of senior management and
representatives of the Merger Partner and the Company concerning the
matters described in clauses 1 and 2 above, as well as their respective
businesses and prospects before and after giving effect to the
Transaction and the Estimated Synergies;
4. Reviewed the market prices and valuation multiples for the Merger
Partner Shares and the Company Shares and compared them with those of
certain publicly traded companies that we deemed to be relevant;
5. Reviewed the results of operations of the Merger Partner and the
Company and compared them with those of certain publicly traded
companies that we deemed to be relevant;
6. Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions that we deemed to be
relevant;
7. Participated in certain discussions and negotiations among
representatives of the Merger Partner and the Company and their
financial and legal advisors;
8. Reviewed the potential pro forma impact of the Transaction;
9. Reviewed the Agreement; and
10. Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Merger Partner or the Company or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Merger
Partner or the Company. With respect to the financial forecast information and
the Estimated Synergies furnished to or discussed with us by the Merger Partner
or the Company, we have assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgment of the Merger
Partner's or the Company's management as to the expected future financial
performance of the Merger Partner or the Company, as the case may be, and the
Estimated Synergies. We have further assumed that the First Merger will
constitute a tax-free transaction to the Company and that the Second Merger will
qualify as a tax-free reorganization, respectively, for U.S. federal income tax
purposes.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Transaction, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Transaction.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third party indications of interest for the acquisition of all or any
part of the Company.
We are acting as financial advisor to the Company in connection with the
Transaction and will receive a fee from the Company for our services, a
significant portion of which is contingent upon the consummation of the
Transaction. In addition, the Company has agreed to indemnify us for certain
liabilities arising
D-2
<PAGE>
out of our engagement. We have, in the past, provided financial advisory and
financing services to the Company and financing services to the Merger Partner
and may continue to do so, and have received, and may receive, fees for the
rendering of such services. In addition, in the ordinary course of our business,
we may actively trade the Merger Partner Shares and other securities of the
Merger Partner, as well as the Company Shares and other securities of the
Company, for our own account and for the accounts of customers and, may at any
time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company in evaluating the aggregate Sierra Pacific Merger Consideration to be
issued pursuant to the First Merger. Because different holders of Company Shares
may receive different combinations of cash and Company Shares pursuant to the
First Merger, our opinion addresses the fairness from a financial point of view
of the Sierra Pacific Merger Consideration to be issued to the holders of
Company Shares pursuant to the First Merger as a group, rather than the fairness
of the Sierra Pacific Merger Consideration to be issued to any individual holder
of Company Shares. Our opinion does not address the merits of the underlying
decision by the Company to engage in the Transaction and does not constitute a
recommendation to any shareholder of the Company as to how such shareholder
should vote on the proposed Transaction or any matter related thereto or as to
whether any shareholder should elect to receive cash or Company Shares.
We are not expressing any opinion herein as to the prices at which the
Company Shares will trade following the consummation of the Transaction.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Sierra Pacific Merger Consideration to be issued in the
First Merger, in light of the Nevada Power Merger Consideration to be issued in
the Second Merger, is fair from a financial point of view to the holders of the
Company Shares.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
D-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.502 of the Nevada Revised Statutes Annotated (the "NRS") provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
Section 78.502 of the NRS also provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses, including amounts paid in settlement and attorneys'
fees actually and reasonably incurred by him in connection with the defense or
settlement of the action or suit if he acted in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue or matter as
to which such a person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the corporation or
for amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in the paragraphs above, or in defense of any claim,
issue or matter therein, the corporation shall indemnify him against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense.
Article IX, Section 3 of Sierra Pacific's Restated Articles of Incorporation
(the "Sierra Pacific Restated Charter") and Article XXXII, Section 3 of Sierra
Pacific's By-laws provide for indemnification of Sierra Pacific's directors and
officers to the fullest extent permitted under the NRS.
As permitted by Section 78.037 of the NRS, Sierra Pacific's Restated Charter
contains provisions limiting the personal liability of Sierra Pacific's
directors and officers in certain cases. In addition, pursuant to Section 78.752
of the General Corporation Law of Nevada, Sierra Pacific's Restated Charter and
By-laws provide that Sierra Pacific may purchase insurance policies covering its
directors, officers, employees or agents for certain personal liability.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed with or incorporated by reference in this
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS.
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger by and among Sierra Pacific Resources, Nevada Power Company, LAKE Merger
Sub, Inc. and DESERT Merger Sub, Inc., dated as of April 29, 1998; (included as Annex A to the Joint
Proxy Statement/Prospectus included in Part I of this Registration Statement).
2.2 Employment Agreement by and between Sierra Pacific Resources and Michael R. Niggli (Exhibit 7.15.1 to
the Merger Agreement).
2.3 Employment Agreement by and between Sierra Pacific Resources and Malyn K. Malquist (Exhibit 7.15.2 to
the Merger Agreement).
3.1 Form of Certificate of Amendment to Certificate of Restated Articles of Incorporation For Sierra Pacific
Resources.
3.2 Restated Articles of Incorporation of Sierra Pacific Resources (incorporated by reference to Sierra
Pacific's Annual Report on Form 10-K for the year ended December 31, 1993).
3.3 By-laws of Sierra Pacific Resources (incorporated by reference to Sierra Pacific Resource's Annual
Report on Form 10-K for the year ended December 31, 1993).
5.1 Opinion and Consent of William E. Peterson, Esq., as to the legality of the Common Stock to be issued in
the Mergers.
8.1 Opinion of Jones, Day, Reavis & Pogue, as to certain tax matters.
8.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, as to certain tax matters.
23.1 Consent of Deloitte & Touche LLP, Nevada Power Company's independent accountants
23.2 Consent of Deloitte & Touche LLP, Sierra Pacific Resource's independent accountants
23.3 Consent of William E. Peterson, Esq. (contained in his opinion filed as Exhibit 5.1 to this Registration
Statement.)
23.4 Consent of Jones, Day, Reavis & Pogue (contained in their opinion filed as Exhibit 8.1 to this
Registration Statement.)
23.5 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained in its opinion filed as Exhibit 8.2 to
this Registration Statement.)
23.6 Consent of PaineWebber Incorporated, financial advisor to Nevada Power Company.
23.7 Consent of SG Barr Devlin, financial advisor to Sierra Pacific Resources.
23.8 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated, financial advisor to Sierra Pacific
Resources.
24.1 Powers of Attorney (included on the signature page to this Registration Statement).
99.1 Form of proxy to be used in connection with the Nevada Power Special Meeting.
99.2 Form of proxy to be used in connection with the Sierra Pacific Special Meeting.
99.3 Form of summary information booklet accompanying Joint Proxy Statement/Prospectus for holders of Nevada
Power Common Stock.
99.4 Form of summary information booklet accompanying Joint Proxy Statement/Prospectus for holders of Sierra
Pacific Common Stock.
99.5 Consent of Michael R. Niggli.
</TABLE>
II-2
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes
(1) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(2) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(3) That every prospectus: (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(4) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referred to in Item 20 of
this Registration Statement, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(5) To respond to requests for information that is incorporated by reference
into the Joint Proxy Statement/Prospectus pursuant to Items 4, 10(b), 11, or 13
of this Form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding to
the request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), Sierra Pacific Resources has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Reno, in the State of Nevada, on this 4th day of
September, 1998.
<TABLE>
<S> <C> <C>
SIERRA PACIFIC RESOURCES
By: /s/ MALYN K. MALQUIST
-----------------------------------------
Name: Malyn K. Malquist
Title:Chairman of the Board, President and
Chief Executive Officer
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes Malyn K.
Malquist and William E. Peterson and each of them, as their attorneys-in-fact
and agents, with full power of substitution, for such person and in such
person's name, place and stead, in any and all capacities, to execute one or
more amendments (including post-effective amendments) to this Registration
Statement and to file any such amendment, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act an thing requisite and necessary to be done in
and about the premises, as fully and to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Director and Chairman of
/s/ MALYN K. MALQUIST the Board of Directors,
- ------------------------------ President and Chief September 4, 1998
Malyn K. Malquist Executive Officer
/s/ MARK A. RUELLE Senior Vice President,
- ------------------------------ Chief Financial Officer September 4, 1998
Mark A. Ruelle and Treasurer
/s/ WILLIAM E. PETERSON Senior Vice President,
- ------------------------------ General Counsel and September 4, 1998
William E. Peterson Corporate Secretary
/s/ EDWARD P. BLISS
- ------------------------------ Director September 4, 1998
Edward P. Bliss
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ KRESTINE M. CORBIN
- ------------------------------ Director September 4, 1998
Krestine M. Corbin
/s/ THEODORE J. DAY
- ------------------------------ Director September 4, 1998
Theodore J. Day
/s/ HAROLD P. DAYTON, JR.
- ------------------------------ Director September 4, 1998
Harold P. Dayton, Jr.
/s/ JAMES R. DONNELLEY
- ------------------------------ Director September 4, 1998
James R. Donnelley
/s/ RICHARD N. FULSTONE
- ------------------------------ Director September 4, 1998
Richard N. Fulstone
/s/ JAMES L. MURPHY
- ------------------------------ Director September 4, 1998
James L. Murphy
/s/ DENNIS E. WHEELER
- ------------------------------ Director September 4, 1998
Dennis E. Wheeler
/s/ ROBERT B. WHITTINGTON
- ------------------------------ Director September 4, 1998
Robert B. Whittington
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger by and among Sierra Pacific Resources, Nevada Power Company, LAKE Merger
Sub, Inc. and DESERT Merger Sub, Inc., dated as of April 29, 1998; (included as Annex A to the Joint
Proxy Statement/Prospectus included in Part I of this Registration Statement).
2.2 Employment Agreement by and between Sierra Pacific Resources and Michael R. Niggli (Exhibit 7.15.1 to
the Merger Agreement).
2.3 Employment Agreement by and between Sierra Pacific Resources and Malyn K. Malquist (Exhibit 7.15.2 to
the Merger Agreement).
3.1 Form of Certificate of Amendment to Certificate of Restated Articles of Incorporation For Sierra Pacific
Resources.
3.2 Restated Articles of Incorporation of Sierra Pacific Resources (incorporated by reference to Sierra
Pacific's Annual Report on Form 10-K for the year ended December 31, 1993).
3.3 By-laws of Sierra Pacific Resources (incorporated by reference to Sierra Pacific Resource's Annual
Report on Form 10-K for the year ended December 31, 1993).
5.1 Opinion and Consent of William E. Peterson, Esq., as to the legality of the Common Stock to be issued in
the Mergers.
8.1 Opinion of Jones, Day, Reavis & Pogue, as to certain tax matters.
8.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, as to certain tax matters.
23.1 Consent of Deloitte & Touche LLP, Nevada Power Company's independent accountants
23.2 Consent of Deloitte & Touche LLP, Sierra Pacific Resource's independent accountants
23.3 Consent of William E. Peterson, Esq. (contained in his opinion filed as Exhibit 5.1 to this Registration
Statement.)
23.4 Consent of Jones, Day, Reavis & Pogue (contained in their opinion filed as Exhibit 8.1 to this
Registration Statement.)
23.5 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained in its opinion filed as Exhibit 8.2 to
this Registration Statement.)
23.6 Consent of PaineWebber Incorporated, financial advisor to Nevada Power Company.
23.7 Consent of SG Barr Devlin, financial advisor to Sierra Pacific Resources.
23.8 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated, financial advisor to Sierra Pacific
Resources.
24.1 Powers of Attorney (included on the signature page to this Registration Statement).
99.1 Form of proxy to be used in connection with the Nevada Power Special Meeting.
99.2 Form of proxy to be used in connection with the Sierra Pacific Special Meeting.
99.3 Form of summary information booklet accompanying Joint Proxy Statement/Prospectus for holders of Nevada
Power Common Stock.
99.4 Form of summary information booklet accompanying Joint Proxy Statement/Prospectus for holders of Sierra
Pacific Common Stock.
99.5 Consent of Michael R. Niggli.
</TABLE>
<PAGE>
PLEASE SEE ANNEX A TO THE
JOINT PROXY STATEMENT/PROSPECTUS FOR A COPIES OF
EXHIBITS (2)-1, (2)-2, (2)-3 RESPECTIVELY.
<PAGE>
EXHIBIT 7-15-1
EMPLOYMENT CONTRACT
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), dated as of April 29,
1998, but effective as provided herein, is made and entered into by and between
Sierra Pacific Resources, a Nevada corporation (the "Company"), and Michael R.
Niggli (the "Executive").
WHEREAS, the Executive has been serving as the President and Chief
Operating Officer of Nevada Power Company, a Nevada corporation ("Nevada
Power");
WHEREAS, the Company and Nevada Power have executed a merger agreement
(the "Merger Agreement") which contemplates the merger (the "Merger") of Nevada
Power with and into a subsidiary ("Desert Sub") of the Company, with Desert Sub
(to be renamed Nevada Power Company) as the survivor (the "Surviving Company")
and certain other transactions, all of which will become effective at the
Effective Time (as defined in the Merger Agreement);
WHEREAS, in order to induce Executive to serve, on and after the
Effective Time, as the Chairman of the Board and Chief Executive Officer of the
Company and Chairman of the Board of each of Sierra Pacific Power Company and
Surviving Company (collectively, the "Utility Subsidiaries"), the Company
desires to provide Executive with compensation and other benefits on the terms
and conditions set forth in this Agreement;
WHEREAS, the Company considers it in the best interests of its
stockholders to foster the continuous employment of certain key management
personnel;
WHEREAS, the Company recognizes that, as is the case for most publicly
held companies, the possibility of a Change in Control (as defined herein)
exists;
<PAGE>
WHEREAS, the Company wishes to assure itself of continuation of
management following the Effective Time, including in the event of a Change in
Control; and
WHEREAS, the Company wishes to employ the Executive and the Executive
is willing to render services, both on the terms and subject to the conditions
set forth in this Agreement;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants herein contained, it is agreed as follows:
1. EMPLOYMENT.
1.1 The Company hereby agrees to employ the Executive, and the
Executive hereby agrees to undertake employment with the Company, upon the terms
and conditions herein set forth.
1.2 Employment will be for a term commencing on the Effective Time
(the "Effective Date") and, subject to earlier expiration upon the Executive's
termination under Section 5, expiring on the third anniversary of the Effective
Time (the "Employment Term"). The Employment Term may be extended by mutual
written agreement of the parties. In the event a Change in Control (as defined
in Section 6.2) occurs less than three years before the end of the Employment
Term, the Employment Term will be extended for a period ending on the third
anniversary of the occurrence of the Change in Control, except that in the event
the occurrence of a Change in Control as described in Section 6.2(iv) occurs
less than three years before the end of the Employment Term, the Employment Term
will be extended for a period ending on the later of (i) the third anniversary
of the occurrence of such Change in Control or (ii) the earlier of (a) the day
after any transaction, occurrence or event described in any agreement,
announcement or resolution referred to in Section 6.2(iv) (a "Transaction") is
consummated or (b) the date it is determined by resolution of the Board of
Directors of the Company (the "Board") adopted in good faith that such
Transaction will not be consummated. (The Employment Term, as so extended under
this Section 1.2, will thereafter constitute the "Employment Term" hereunder and
is subject to further extension as provided in this Section 1.2.)
2. POSITIONS AND DUTIES.
2.1 POSITIONS AND DUTIES. During the Employment Term, the Executive
will serve in the positions of Chairman of the
-2-
<PAGE>
Board and Chief Executive Officer of the Company and of Chairman of the Board of
each of the Utility Subsidiaries, and will have such powers, duties, functions,
responsibilities and authority as are (i) consistent with the Executive's
position as the Company's most senior executive officer and as Chairman of the
Boards of Directors of the Company and the Utility Subsidiaries; or
(ii) assigned to his office in the Company's and the Utility Subsidiaries'
bylaws; or (iii) reasonably assigned to him by the Board or the Board of
Directors of the Utility Subsidiaries. The Executive will report directly to
the Board. The Company will use its best efforts to cause the Executive to be
elected as a member of the Board and as Chairman of the Board throughout the
Employment Term and will use its best efforts to cause him to be included in the
management slate for election as a director at every stockholders' meeting at
which his term as a director would otherwise expire. In addition, the Company
will cause the Executive to be elected a member of the Board of Directors, and
as Chairman thereof, of each Utility Subsidiary throughout the Employment Term.
2.2 COMMITMENT. During the Employment Term, the Executive will be
the Company's full-time employee and, except as may otherwise be approved in
advance in writing by the Board, and except during vacation periods and
reasonable periods of absence due to sickness, personal injury or other
disability, the Executive will devote substantially all of his business time and
attention to the performance of his duties hereunder. Notwithstanding the
foregoing, the Executive may, (i) subject to the approval of the Board, serve as
a director of a company which is not engaged in "Competition" (as defined in
Section 9.1) with the Company or any Subsidiary (as defined in Section 6.2),
(ii) serve as an officer, director or otherwise participate in purely
educational, welfare, social, religious and civic organizations, and (iii)
manage personal and family investments.
3. PLACE OF PERFORMANCE. In connection with his employment during the
Employment Term, unless otherwise agreed by the Executive, the Executive will
have offices at each of the Company's and Surviving Company's principal
executive offices. The Executive will undertake normal business travel on
behalf of the Company.
-3-
<PAGE>
4. COMPENSATION AND RELATED MATTERS.
4.1 COMPENSATION.
(i) ANNUAL BASE SALARY. During the Employment Term, the
Company will pay to the Executive an annual base salary ("Base Salary") in such
amount as shall be commensurate with his position and level of responsibility as
determined by the Board (or the Compensation Committee thereof) in its sole
discretion from time to time; provided, however, that in no event shall such
Base Salary be less than the Executive's annual base salary at Nevada Power as
in effect immediately prior to the Effective Time. Base salary shall be payable
at the times and in the manner consistent with the Company's general policies
regarding compensation of executive employees. Base Salary may not be
decreased. The Board may from time to time authorize such additional
compensation to the Executive, in cash or in property, as the Board may
determine in its sole discretion to be appropriate.
(ii) ANNUAL INCENTIVE COMPENSATION. If the Board (or the
Compensation Committee thereof) authorizes any annual cash incentive
compensation or approves any other annual management incentive program or
arrangement, the Executive will be eligible to participate in such plan, program
or arrangement under the general terms and conditions applicable to executive
and management employees. The Executive's target payout under such annual
incentive compensation plans, programs and arrangements will be, subject to
achievement of applicable performance measures, on an annual level of not less
than a percentage of Base Salary equal to the target percentage of annual base
salary in effect for the Executive under Nevada Power's annual incentive
compensation plan immediately prior to the Effective Time; provided, however,
that such percentage shall in no event be less than the target payout percentage
applicable for the year to the President and Chief Operating Officer of the
Company. Subject to the foregoing, nothing in this Section 4.1(ii) will
guarantee to the Executive any specific amount of incentive compensation, or
prevent the Board (or the Compensation Committee thereof) from establishing
performance goals and compensation targets applicable only to the Executive.
(iii) LONG-TERM INCENTIVE COMPENSATION PLANS AND PROGRAMS. If
the Board (or the Compensation Committee thereof) authorizes any long-term cash
incentive plan or program, the Executive will be eligible to participate in such
plan or program under the general terms and conditions applicable to executive
and management employees. The Executive's participation in any such plan or
program
-4-
<PAGE>
will be, subject to achievement of applicable performance measures, at annual
target level grant of not less than a percentage of Base Salary equal to the
most recent percentage of annual base salary granted to the Executive prior to
the Effective Time as a target level grant under Nevada Power's long-term
incentive plan; provided, however, that such percentage shall in no event be
less than the target level grant percentage applicable for the year to the
President and Chief Operating Officer of the Company. Subject to the foregoing,
nothing in this Section 4.1(iii) will guarantee the Executive any specific
amount of long-term incentive compensation, or prevent the Board (or the
Compensation Committee thereof) from establishing performance goals and
compensation targets applicable only to the Executive.
4.2 EMPLOYEE AND EXECUTIVE BENEFITS. In addition to the compensation
described in Section 4.1 and subject to the following provisions of this Section
4, the Company will make or cause to be made available to the Executive and his
eligible dependents, subject to the terms and conditions of the applicable
plans, including without limitation the eligibility rules, participation in all
employee benefit plans, including all employee retirement income and welfare
benefit policies, plans, programs or arrangements, in which senior executives of
the Company participate from time to time, including any stock option, stock
purchase, stock appreciation, savings, pension, supplemental executive
retirement or other retirement income or welfare benefit, disability, salary
continuation, and any other deferred compensation, incentive compensation, group
and/or executive life, health, medical/hospital or other insurance (whether
funded by actual insurance or self-insured by the Company or an affiliate),
expense reimbursement or other employee benefit policies, plans, programs or
arrangements.
4.3 VACATION AND FRINGE BENEFITS. During the Employment Term, the
Executive shall be entitled to vacation in such amounts as would be available
under the Company's normal vacation policies applicable to senior executives, as
in effect from time to time, to an employee who as of the Effective Date would
have service with the Company equal to the aggregate of his service with Nevada
Power prior to the Effective Date plus an additional 26 years, such vacation to
be taken in accordance such normal vacation policies; and the Executive shall be
entitled to the perquisites and other fringe benefits made available to
-5-
<PAGE>
senior executives of the Company, commensurate with his position and level of
responsibility with the Company.
4.4 EXPENSES. The Company will promptly reimburse the Executive for
all travel and other business expenses the Executive incurs in order to perform
his duties to the Company under this Agreement in a manner commensurate with the
Executive's position and level of responsibility with the Company, and in
accordance with the Company's policy regarding substantiation of expenses.
4.5 RELOCATION EXPENSES. If the Company requests that the Executive
relocate after the Effective Date to the general area of the Company's current
headquarters in Reno, Nevada, the Company will pay the Executive and, where
applicable, upon substantiation of expenses (i) at the time of relocation a
relocation allowance equal to 1/24th of the Executive's Base Salary at the time
of relocation, (ii) an allowance for up to two months' rent for temporary
housing following relocation at a rate of not more than $2,000 per month, (iii)
any additional expenses incurred by the Executive associated with up to two
house hunting trips to the Reno, Nevada area for the Executive and his wife,
(iv) relocation expenses associated with moving the Executive's family and
household goods from Las Vegas, Nevada to the Reno, Nevada area, and (v) the
normal seller's broker's commission associated with the sale of the Executive's
existing residence in Las Vegas, Nevada. In lieu of the payment provided for in
clause (v), the Executive may elect to have the Company purchase the Executive's
existing home in Las Vegas, Nevada at a price equal to the average of the fair
market values as reported in two appraisals submitted by appraisers jointly
agreed to by the Executive and the Company.
4.6 SUPPLEMENTAL RETIREMENT BENEFITS. (i) The Executive will be
eligible for a benefit under a supplemental retirement plan heretofore
established by Nevada Power for the Executive. The benefit, if any, to which
the Executive is entitled under such supplemental retirement plan will be
payable at the same time and in the same form as the benefit to which the
Executive would be entitled under the Surviving Company Retirement Plan (the
"Qualified Plan") if he were a participant therein and will be equal to:
(a) the benefit to which the Executive would be entitled under the
Qualified Plan (after application of the limitations included therein that
are imposed by the Code,
-6-
<PAGE>
such as Code Sections 401(a)(17) and 415) determined as if the Executive (I)
were a participant in the Qualified Plan, (II) had an additional twenty-six (26)
"Years of Credited Service" under the Qualified Plan, and (III) had an
additional twenty-six (26) "Years of Vesting Service" under the Qualified Plan,
LESS
(b) the sum of (I) the actual amount, if any, payable to or on behalf
of the Executive under the Qualified Plan and (II) the actuarial equivalent
amounts, if any, of the vested retirement benefits to which the Executive
is entitled under any qualified or non-qualified defined benefit plan in
which the Executive participated while previously employed by Entergy
Services, Inc. and San Diego Gas & Electric Company or their affiliates
(such amounts under clauses (a) and (b) to be determined without regard to
any assignment of benefits under a qualified domestic relations order, and
the actuarial equivalents under clause (b)(II) to be determined using the
applicable actuarial assumptions as specified in the Qualified Plan).
(ii) The Executive will be eligible to continue to participate in the
Surviving Company Supplemental Executive Retirement Plan, as amended from time
to time (the "SERP"). For purposes of applying the SERP and without further
need to amend the SERP, the Executive will be credited with two (2) years of
"Service" under the SERP for each of the first five years of actual "Service"
thereunder.
5. TERMINATION. Notwithstanding the Employment Term specified in Section
1.2, the termination of the Executive's employment hereunder will be governed by
the following provisions:
5.1 DEATH. In the event of the termination of the Executive's
employment during the Employment Term by reason of the Executive's death, the
Company will pay to the Executive's beneficiaries or estate, as appropriate,
promptly after the Executive's death, (i) the unpaid Base Salary to which the
Executive is entitled, pursuant to Section 4.1, through the date of the
Executive's death, and (ii) for any accrued but unused vacation days, to the
extent and in the amounts, if any, provided under the usual policies and
arrangements, as modified by Section 4.3, which cover the Executive. This
Section 5.1 will not limit the entitlement of the Executive's estate or
beneficiaries to any death or other benefits then available to the Executive
under any
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life insurance, stock ownership, stock options, or other benefit plan or policy
that is maintained by the Company or its affiliates for the Executive's benefit
or in which the Executive participated.
5.2 DISABILITY.
(i) If the Executive has incurred a Disability (as defined
below) during the Employment Term, the Company may give the Executive written
notice of its intention to terminate the Executive's employment. In such event,
the Executive's employment with the Company will terminate effective on the 30th
calendar day after receipt of such notice by the Executive, provided that within
the 30 calendar days after such receipt, the Executive will not have returned to
full-time performance of his duties. The Executive will continue to receive his
Base Salary (less any amounts payable to the Executive for such period under any
short- or long-term disability plan maintained by the Company or an affiliate)
and benefits until the date of termination. In the event of the Executive's
Disability, the Company will pay the Executive, promptly after the Executive's
termination, (a) the unpaid Base Salary to which he is entitled, pursuant to
Section 4.1, through the date of the Executive's termination (less any amounts
payable to the Executive for such period under any short- or long-term
disability plan maintained by the Company or an affiliate), and (b) for any
accrued but unused vacation days, to the extent and in the amounts, if any,
provided under the usual policies and arrangements, as modified by Section 4.3,
which cover the Executive. This Section 5.2 will not limit the entitlement of
the Executive or the Executive's estate or beneficiaries to any disability or
other benefits then available to the Executive under any disability insurance or
other benefit plan or policy that is maintained by the Company or its affiliates
for the Executive's benefit or in which the Executive participated.
(ii) For purposes of this Agreement, "Disability" will mean the
Executive's incapacity due to physical or mental illness or injury substantially
to perform his duties on a full-time basis for six consecutive months and within
30 calendar days after a notice of termination is thereafter given by the
Company the Executive will not have returned to the full-time performance of the
Executive's duties; provided, however, if the Executive disagrees with a
determination to terminate him because of Disability, the question of the
Executive's Disability will be subject to the certification of a qualified
medical doctor agreed
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to by the Company and the Executive or, in the event of the Executive's
incapacity to designate a doctor, the Executive's legal representative. In the
absence of agreement between the Company and the Executive, each party will
nominate a qualified medical doctor and the two doctors will select a third
doctor, who will make the determination as to Disability. In order to
facilitate such determination, the Executive will, as reasonably requested by
the Company, (a) make himself available for medical examinations by a doctor in
accordance with this Section 5.2(ii), and (b) grant the Company and any such
doctor access to all relevant medical information concerning him, arrange to
furnish copies of medical records to such doctor and use his best efforts to
cause his own doctor to be available to discuss his health with such doctor.
5.3 CAUSE.
(i) The Company may terminate the Executive's employment
hereunder for Cause (as defined below) during the Employment Term by written
notice as provided in Section 12.6. In the event of the Executive's termination
for Cause, the Company will promptly pay to the Executive (or his
representative) the unpaid Base Salary to which he is entitled, pursuant to
Section 4.1, through the date the Executive is terminated and the Executive will
be entitled to no other compensation or benefits, except as otherwise due to him
under applicable law or pursuant to any benefit plan or policy that is
maintained by the Company or its affiliates in which the Executive participated.
(ii) For purposes of this Agreement, "Cause" means that, prior
to the end of the Employment Term, (a) the Executive shall have committed or
engaged in:
(1) an intentional act of fraud, embezzlement or theft in
connection with the Executive's duties or in the course of the
Executive's employment with the Company;
(2) an intentional breach of any of the express covenants
set forth in Section 9.1, 9.2 or 9.3;
(3) intentional wrongful damage to property of the Company
or any Subsidiary; or
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(4) gross negligence or gross misconduct against the
Company or another employee, or in carrying out the Executive's duties
and responsibilities;
and any such act shall have been materially harmful to the Company, (b) the
Executive shall have engaged in intentional and repeated failure substantially
to carry out the Executive's duties and responsibilities (other than any such
failure resulting from the Executive's incapacity due to physical or mental
illness or injury that qualifies as a Disability or would qualify as a
Disability if such incapacity continued for the required length of time), which
failure is not or cannot be cured within five business days after the Company
has given written notice to the Executive specifying in detail the particulars
of the acts of omissions deemed to constitute such failure, or (c) the Executive
shall have been convicted of a felony. For purposes of this Agreement, no act
or failure to act on the part of the Executive shall be deemed "intentional" if
it was due primarily to an error in judgment or negligence, but shall be deemed
"intentional" only if done or omitted to be done by the Executive not in good
faith and without reasonable belief that the Executive's action or omission was
in the best interest of the Company. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for "Cause" hereunder
unless and until there shall have been delivered to the Executive a written
notice from the Company stating that it has determined that the Executive had
committed an act constituting "Cause" as herein defined and specifying the
particulars thereof in detail. Nothing herein will limit the right of the
Executive or the Executive's beneficiaries to contest the validity or propriety
of any such determination.
5.4 TERMINATION.
(i) INVOLUNTARY TERMINATION. The Executive's employment
hereunder may be terminated during the Employment Term by the Company for any
reason other than death, Disability or for Cause by written notice as provided
in Section 12.6. In the event of such an involuntary termination, the Executive
will be entitled to the payments and benefits provided in Section 5.5. This
Section 5.4(i) and Section 5.5, however, will not limit the entitlement of the
Executive to any other benefits then available to the Executive under any
benefit plan or policy that is maintained by the Company or its affiliates for
the Executive's benefit or in which the Executive participated. The Executive
will be treated for purposes of this Agreement as having been
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involuntarily terminated by the Company for reasons other than death, Disability
or for Cause if the Executive terminates his employment with the Company for any
of the following reasons (each, a "Good Reason") prior to the date of the
Executive's death, Disability or on which the Executive has committed or engaged
in an act constituting Cause: (a) the Company has materially breached any
provision of this Agreement and within 10 calendar days after notice thereof
from the Executive, the Company fails to cure such breach; (b) a successor or
assign (whether direct or indirect, by purchase, merger, consolidation,
operation of law or otherwise) to all or substantially all of the business
and/or assets of the Company fails to assume all duties, obligations and
liabilities of the Company under the Agreement pursuant to Section 12.2(i); (c)
a reduction in the scope or value of the aggregate benefits and incentive
compensation described in Sections 4.1(iii), 4.2, 4.3, 4.5 and 4.6 provided to
the Executive or the termination or denial of the Executive's rights to such
benefits or incentive compensation, any of which is not remedied by the Company
within 10 calendar days after receipt by the Company of written notice from the
Executive of such reduction or termination; (d) the Executive is not elected to
or is removed from the Board; (e) the Board fails to appoint the Executive as
Chief Executive Officer of the Company or to elect the Executive as Chairman of
the Board, or the Executive is removed from any such position; (f) the Executive
is not elected to or is removed from any of the Boards of Directors of the
Utility Subsidiaries or the position of Chairman of the Boards of Directors of
any of the Utility Subsidiaries; or (g) a reduction in the Executive's Base
Salary or the opportunity to earn annual incentive compensation under Section
4.1(ii) on a basis at least as favorable to the Executive (in terms of each of
the amount of benefits, levels of coverage and performance measures and levels
of required performance) as the benefits payable thereunder prior to the
reduction or the failure to pay the Executive Base Salary or incentive
compensation earned when due. Notwithstanding the provisions of clauses (e) or
(f) of the preceding sentence or Section 6.1(a) or (b), any change in the
Executive's title or titles required by law, rule, order or regulation of any
agency with competent jurisdiction shall not be deemed Good Reason for purposes
of this Agreement.
(ii) VOLUNTARY TERMINATION. The Executive may voluntarily
terminate the Agreement at any time by notice to the Company as provided in
Section 12.6. In the event of the Executive's voluntary termination, the
Company will promptly pay the Executive (a) the unpaid Base Salary to which the
Executive
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is entitled, pursuant to Section 4.1, through the date of the Executive's
termination, and (b) for any accrued but unused vacation days, to the extent
and in the amounts, if any, provided under the usual policies and
arrangements, as modified by Section 4.3, which cover the Executive. This
Section 5.4(ii) will not limit the entitlement of the Executive to any other
benefits then available to the Executive under any benefit plan or policy
that is maintained by the Company or its affiliates for the Executive's
benefit or in which the Executive participated.
5.5 TERMINATION PAYMENTS AND BENEFITS.
(i) FORM AND AMOUNT. Upon the Executive's involuntary
termination other than by reason of death, Disability or for Cause as provided
in Section 5.4(i), the Company will promptly pay or provide to the Executive:
(a) the unpaid Base Salary to which the Executive is
entitled, pursuant to Section 4.1, through the date of the Executive's
termination,
(b) for any accrued but unused vacation days, to the extent
and in the amounts, if any, provided under the usual policies and
arrangements, as modified by Section 4.3, which cover the Executive,
(c) a lump sum payment within five (5) business days after
termination in an amount equal to three times the sum of (A) the
annual rate of Base Salary (prior to any deferrals or reductions under
qualified or non-qualified plans) being paid to the Executive
immediately prior to termination (or immediately prior to any
reduction therein occurring prior to termination, if greater), plus
(B) the aggregate annual bonus, incentive or other payments of cash
compensation (determined without regard to any deferral election) to
which the Executive would have been entitled in accordance with
Section 4.1(ii) under the bonus, incentive, profit-sharing,
performance, discretionary pay or similar agreement, policy, plan,
program or arrangement of the Company or its affiliates in which the
Executive was participating for the year in which the termination
occurs (or for the year in which any prior reduction therein occurs,
if greater) based on the assumption that target performance goals
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for such year would be met and such payments would be made, and
(d) For a period of 36 months following the termination
(the "Continuation Period"), the Company will arrange to provide the
Executive with health (including medical/hospital, dental and vision)
and life benefits substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to termination
(or, if greater, immediately prior to the reduction, termination, or
denial described in Section 5.4(i)(c)). Benefits otherwise receivable
by the Executive pursuant to this Section 5.5(i)(d) will be reduced to
the extent comparable benefits are actually received by or in respect
of the Executive from another employer during the Continuation Period
following the Executive's termination, and any such benefits actually
received shall be reported by the Executive or other recipient to the
Company.
(ii) MAINTENANCE OF BENEFITS. During the Continuation Period
set forth in Section 5.5(i)(d), the Company will use its best efforts to
maintain in full force and effect for the continued benefit of the Executive all
benefits referenced therein or will arrange to make available to the Executive
benefits substantially similar to the referenced benefits. Such benefits will
be provided to the Executive on the same terms and conditions (including
employee contributions toward the premium payments) under which the Executive
was entitled to participate immediately prior to the Executive's termination
(or, if more favorable to the Executive, immediately prior to the reduction,
termination or denial described in Section 5.4(i)(c)). To the extent, however,
the coverage or benefits provided under Section 5.5(i)(d) results in the
Executive or any dependent or beneficiary thereof incurring additional federal,
state or local taxes that would otherwise not have been incurred in connection
with the provision of such coverage or benefits had the Executive's employment
not been terminated, the Company shall promptly pay the Executive, dependent or
beneficiary, as the case may be, on an after-tax basis, an additional payment in
an amount equal to all taxes, including interest and penalties thereon, imposed
as the result of such coverage or benefits.
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(iii) RESIGNATION. If at the Executive's termination of
employment the Executive is a member of the Board or a board of any affiliate of
the Company, no benefit will be paid or made available under Section 5.5(i)(c)
or Section 5.5(i)(d) unless the Executive first executes and delivers to the
Company a resignation from membership on the Board and from membership on the
boards of all affiliates of the Company, as the case may be, such resignation to
be effective on receipt of the payment to which the Executive is entitled under
Section 5.5(i)(c).
6. CHANGE IN CONTROL PROVISIONS.
6.1 IMPACT OF CHANGE IN CONTROL. In the event of a "Change in
Control" of the Company, as defined in Section 6.2, (i) if the Executive's
employment is involuntarily terminated during the Employment Term without Cause
after the Change in Control, (a) the covenants of Sections 9.1, 9.3 and 10 will
be inapplicable to the Executive, and (b) the covenant of Section 9.2 will
expire on the third anniversary of the date of termination of the Executive's
employment, and (ii) the definition of Good Reason, as set forth in Section
5.4(i) above, will be expanded to include the following subject to the last
sentence of Section 5.4(i):
(a) A significant adverse change in the nature or scope of
authorities, powers, functions, responsibilities or duties attached to the
positions held by the Executive from those authorities, powers, functions,
responsibilities or duties which the Executive held immediately prior to
the Change in Control;
(b) A determination by the Executive (which determination will be
conclusive and binding upon the parties hereto provided it has been made in
good faith and in all events the Executive's determination will be presumed
to have been made in good faith unless otherwise shown by the Company by
clear and convincing evidence) that a change in circumstances has occurred
following the Change in Control, including, without limitation, a change in
the scope of the business or other activities for which the Executive was
responsible immediately prior to the Change in Control, which has rendered
the Executive substantially unable to carry out, has substantially hindered
the Executive's performance of, or has caused the Executive to suffer a
substantial reduction in, any of the authorities,
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powers, functions, responsibilities or duties attached to any of the
Executive's positions immediately prior to such Change in Control, which
situation is not remedied within 10 calendar days after written notice to
the Company from the Executive of such determination; or
(c) The relocation of the Company's principal executive offices
if the Executive's principal location of work is then in such offices, or
requirement that the Executive have the Executive's principal location of
work changed, to any location that is in excess of 50 miles from the
location thereof immediately preceding the Change in Control or the
requirement that the Executive travel away from the Executive's office in
the course of discharging the Executive's responsibilities or duties
hereunder at least 20% more (in terms of aggregate days in any calendar
year or in any calendar quarter when annualized for purposes of comparison
to any prior year) than was required of Executive in any of the three full
years immediately prior to such Change in Control without, in either case,
the Executive's prior written consent.
6.2 DEFINITION OF CHANGE IN CONTROL. For purposes of this Agreement,
a "Change in Control" will be deemed to occur if at any time during the
Employment Term any of the following events occur:
(i) The Company is merged, consolidated or reorganized into
or with another corporation or other legal person, and as
a result of such merger, consolidation or reorganization
less than 65% of the combined voting power of the
then-outstanding securities or interests entitled to vote
generally in the election of directors or other
controlling persons (the "Voting Stock") of such
corporation or person immediately after such transaction
are held in the aggregate by the holders of Voting Stock
of the Company immediately prior to such transaction;
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to another corporation or
other legal person, and as a result of such sale or
transfer less than 65% of the combined voting power of
the
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then-outstanding Voting Stock of such corporation or
person immediately after such sale or transfer is held in
the aggregate (directly or through ownership of Voting
Stock of the Company or Subsidiary (as defined herein))
by the holders of the Voting Stock of the Company
immediately prior to such sale or transfer;
(iii) There is a report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report), each as
promulgated pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), disclosing that
any person (as the term "person" is used in Section
13(d)(3) or Section 14(d)(2) of the Exchange Act) has
become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule
or regulation promulgated under the Exchange Act) of
securities representing 20% or more of the combined
voting power of the then-outstanding Voting Stock of the
Company;
(iv) Any of (A) the Company enters into an agreement, the
consummation of which would result in the occurrence of a
Change in Control determined without regard to this
Section 6.2(iv); (B) the Company or any person (as the
term "person" is used in Section 13(d)(3) or Section
14(d)(2) of the Exchange Act) announces an intention to
take or to consider taking actions which, if consummated,
would be a Change in Control determined without regard to
this Section 6.2(iv); or (C) the Board adopts a
resolution to the effect that a transaction, event or
occurrence has occurred which constitutes a Change in
Control for purposes of this Section 6.2(iv);
(v) If, during any period of two consecutive years,
individuals who at the beginning of any such period
constitute the Directors of the Company cease for any
reason to constitute at least a majority thereof;
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PROVIDED, HOWEVER, that for purposes of this Section
6.2(v) each Director who is first elected, or first
nominated for election by the Company's stockholders, by
a vote of at least two-thirds of the Directors of the
Company (or a committee thereof) then still in office who
were Directors of the Company at the beginning of any
such period will be deemed to have been a Director of the
Company at the beginning of such period; or
(vi) The approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
Notwithstanding the foregoing provisions of Section 6.2(iii) or 6.2(iv) above,
unless otherwise determined in a specific case by majority vote of the Board, a
"Change in Control" shall not be deemed to have occurred for purposes of Section
6.2(iii) or 6.2(iv) solely because (A) the Company, (B) an entity in which the
Company directly or indirectly beneficially owns 50% or more of the outstanding
Voting Stock (a "Subsidiary"), or (C) any Company-sponsored employee stock
ownership plan or any other employee benefit plan of the Company or any
Subsidiary either files or becomes obligated to file a report or a proxy
statement under or in response to Schedule 13D or Schedule 14D-1(or any
successor schedule, form or report or item therein) under the Exchange Act
disclosing beneficial ownership by it of shares of Voting Stock, whether in
excess of 20% or otherwise, or because a Change in Control (determined without
regard to this sentence) of the Company has occurred or will occur in the future
by reason of such beneficial ownership. In addition, and notwithstanding
anything to the contrary contained in this Agreement or the foregoing provisions
of this Section 6.2, a "Change in Control" for purposes of this Section 6.2 and
this Agreement shall not be deemed to have resulted from, and shall not be
deemed to have occurred by reason of, entering into the Merger Agreement or the
public announcement thereof or the consummation of the Merger or the other
transactions contemplated by the Merger Agreement.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY:
(i) Anything in this Agreement to the contrary notwithstanding, if it
is determined (as hereafter provided) that any payment or distribution by the
Company, any person whose actions result in a Change in Control or any affiliate
of the
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Company or such person, to or for the benefit of the Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise pursuant to or by reason of any other agreement, policy, plan,
program or arrangement, including without limitation any stock option, stock
appreciation right or similar right, or the lapse or termination of any
restriction on or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties with
respect to such tax (such tax or taxes, together with any such interest and
penalties, are hereafter collectively referred to as the "Excise Tax"), then the
Executive will be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment") in an amount such that, after payment by
the Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. No Gross-Up Payment will be made with
respect to the Excise Tax, if any, attributable to (a) any incentive stock
option, as defined by Section 422 of the Code ("ISO") granted prior to the
execution of this Agreement (unless a comparable Gross-Up Payment has
theretofore been made available with respect to such option), or (b) any stock
appreciation or similar right, whether or not limited, granted in tandem with
any ISO described in clause (a).
(ii) Subject to the provisions of Section 7(vi) hereof, all
determinations required to be made under this Section 7, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, will be made by a nationally
recognized firm of certified public accountants (the "Accounting Firm") selected
by the Executive in his sole discretion. The Executive will direct the
Accounting Firm to submit its determination and detailed supporting calculations
to both the Company and the Executive within 15 calendar days after the
Executive's termination, if applicable, and any other such time or times as may
be requested by the Company or the Executive. If the Accounting Firm determines
that any Excise Tax is payable by the Executive, the Company will pay the
required Gross-Up Payment
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to the Executive within five business days after receipt of such determination
and calculations with respect to any Payment to the Executive. If the
Accounting Firm determines that no Excise Tax is payable by the Executive, it
will, at the same time as it makes such determination, furnish the Company and
the Executive an opinion that the Executive has substantial authority not to
report any Excise Tax on the Executive's federal, state, local income or other
tax return. Any determination by the Accounting Firm as to the amount of the
Gross-Up Payment will be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code (or any
successor provision thereto) and the possibility of similar uncertainty
regarding applicable state or local tax law at the time of any determination by
the Accounting Firm hereunder, it is possible that Gross-Up Payments that will
not have been made by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts or fails to pursue its remedies pursuant to
Section 7(vi) hereof and the Executive thereafter is required to make a payment
of any Excise Tax, the Executive will direct the Accounting Firm to determine
the amount of the Underpayment that has occurred and to submit its determination
and detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment will be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(iii) The Company and the Executive will each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 7(ii) hereof.
(iv) The federal, state and local income or other tax returns
filed by the Executive will be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive will make proper payment of the amount of any
Excise Tax, and at the request of the Company, provide to the Company true and
correct copies (with any amendments) of the Executive's federal income tax
return as filed with the Internal Revenue Service and corresponding state and
local tax returns, if relevant, as filed with the applicable taxing authority,
and such other documents reasonably requested by the Company, evidencing such
payment. If prior to the filing of the Executive's federal income tax return,
or corresponding state or local tax return, if
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relevant, the Accounting Firm determines that the amount of the Gross-Up Payment
should be reduced, the Executive will within five business days pay to the
Company the amount of such reduction.
(v) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Sections 7(ii) and (iv) hereof will be borne by the Company. If such fees and
expenses are initially paid by the Executive, the Company will reimburse the
Executive the full amount of such fees and expenses within five business days
after receipt from the Executive of a statement therefor and reasonable evidence
of his payment thereof.
(vi) The Executive will notify the Company in writing of any
claim by the Internal Revenue Service or other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment.
Such notification will be given as promptly as practicable but no later than 10
business days after the Executive actually receives notice of such claim and the
Executive will further apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid (in each case, to the extent
known by the Executive). The Executive will not pay such claim prior to the
earlier of (a) the expiration of the 30-calendar-day period following the date
on which the Executive gives such notice to the Company and (b) the date that
any payment of amount with respect to such claim is due. If the Company
notifies the Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive will:
(a) provide the Company with any written records or documents in
the Executive's possession relating to such claim reasonably requested
by the Company;
(b) take such action in connection with contesting such claim as
the Company will reasonably request in writing from time to time,
including without limitation accepting legal representation with
respect to such claim by an attorney competent in respect of the
subject matter and reasonably selected by the Company;
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(c) cooperate with the Company in good faith in order effectively
to contest such claim; and
(d) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company will bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and will indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of
this Section 7(vi), the Company will control all proceedings taken in connection
with the contest of any claim contemplated by this Section 7(vi) and, at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim (provided, however, that the Executive may participate therein at the
Executive's own cost and expense) and may, at its option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company will determine;
provided, however, that if the Company directs the Executive to pay the tax
claimed and sue for a refund, the Company will advance the amount of such
payment to the Executive on an interest-free basis and will indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income or
other tax, including interest or penalties with respect thereto, imposed with
respect to such advance; and provided further, however, that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which the contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
any such contested claim will be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive will be entitled
to settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(vii) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(vi) hereof, the Executive receives
any refund with respect to such claim, the
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Executive will (subject to the Company's complying with the requirements of
Section 7(vi) hereof) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after any taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 7(vi) hereof, a determination is made that the
Executive will not be entitled to any refund with respect to such claim and the
Company does not notify the Executive in writing of its intent to contest such
denial or refund prior to the expiration of 30 calendar days after such
determination, then such advance will be forgiven and will not be required to be
repaid and the amount of such advance will offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid by the Company to the Executive
pursuant to this Section 7.
8. MITIGATION AND OFFSET. The payment of severance compensation by the
Company to the Executive in accordance with the terms of the Agreement is hereby
acknowledged by the Company to be reasonable, and the Executive is under no
obligation to mitigate damages or the amount of any payment provided for
hereunder by seeking other employment or otherwise; nor will any profits,
income, earnings or other benefits from any source whatsoever create any
mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise, except as expressly provided in the last
sentence of Section 5.5(i)(d).
9. COMPETITION; CONFIDENTIALITY; NONSOLICITATION
9.1 (i) Subject to Section 6.1(i), the Executive hereby covenants and
agrees that during the Employment Term and for one year following the Employment
Term he will not, without the prior written consent of the Company, engage in
Competition (as defined below) with the Company. For purposes of this
Agreement, if the Executive takes any of the following actions he will be
engaged in "Competition": engaging in or carrying on, directly or indirectly,
any enterprise, whether as an advisor, principal, agent, partner, officer,
director, employee, stockholder, associate or consultant to any person,
partnership, corporation or any other business entity, that is principally
engaged in the business of the generation, purchase, transmission, distribution
or sale of electricity, the provision of natural gas or the supplying of water
services, in each case to customer segments being served or pursued in its
business plans by the Company or its Subsidiaries, in States in which the
Company or its Subsidiaries has significant operations; provided,
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however, that "Competition" will not include (a) the mere ownership of
securities in any enterprise and exercise of rights appurtenant thereto or (b)
participation in management of any enterprise or business operation thereof
other than in connection with the competitive operation of such enterprise. For
purposes of applying the preceding sentence, operations of the Company or its
Subsidiaries in the State of California will be deemed not to be significant if
they are not materially greater than the operations in the aggregate of Nevada
Power and the Company and their respective Subsidiaries in the State of
California as of the date of this Agreement.
(ii) Subject to Section 6.1(i), the Executive hereby covenants
and agrees that during the Employment Term and for three years following the
Employment Term he will not assist a third party in preparing or making an
unsolicited bid for the Company, engaging in a proxy contest with the Company,
or engaging in any other similar activity.
9.2 During the Employment Term, the Company agrees that it will
disclose to Executive its confidential or proprietary information (as defined in
this Section 9.2) to the extent necessary for Executive to carry out the
Executive's obligations under this Agreement. Subject to Section 6.1(i), the
Executive hereby covenants and agrees that he will not, without the prior
written consent of the Company, during the Employment Term or thereafter
disclose to any person not employed by the Company or a Subsidiary, or use in
connection with engaging in Competition with the Company or a Subsidiary, any
confidential or proprietary information of the Company or its Subsidiaries. For
purposes of this Agreement, the term "confidential or proprietary information"
will include all information of any nature and in any form that is owned by the
Company or a Subsidiary and that is not publicly available or generally known to
persons engaged in businesses similar or related to those of the Company or a
Subsidiary. Confidential information will include, without limitation, the
Company's or a Subsidiary's financial matters, customers, employees, industry
contracts, and all other secrets and all other information of a confidential or
proprietary nature. The foregoing obligations imposed by this Section 9.2 will
cease if such confidential or proprietary information will have become, through
no fault of the Executive, generally known to the public or the Executive is
required by law to make disclosure (after giving the Company notice and an
opportunity to contest such requirement).
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9.3 Subject to Section 6.1(i), the Executive hereby covenants and
agrees that during the Employment Term and for one year thereafter the Executive
will not attempt to influence, persuade or induce, or assist any other person in
so persuading or inducing, any employee of the Company or a Subsidiary to give
up, or to not commence, employment or a business relationship with the Company
or a Subsidiary.
10. POST-TERMINATION ASSISTANCE. Subject to Section 6.1(i), the Executive
agrees that after the Executive's employment with the Company has terminated the
Executive will provide, upon reasonable notice, such information and assistance
to the Company as may reasonably be requested by the Company in connection with
any litigation in which it or any of its affiliates is or may become a party;
provided, however, that the Company agrees to reimburse the Executive for any
related out-of-pocket expenses, including travel expenses.
11. SURVIVAL. The expiration or termination of the Employment Term will
not impair the rights or obligations of any party hereto that accrue hereunder
prior to such expiration or termination, except to the extent specifically
stated herein. In addition to the foregoing, the Executive's covenants
contained in Sections 9.1, 9.2, 9.3 and 10 and the Company's obligations under
Sections 5, 7 and 12.1 will survive the expiration or termination of this
Agreement or the termination of the Executive's employment for any reason
whatsoever.
12. MISCELLANEOUS PROVISIONS.
12.1 LEGAL FEES AND EXPENSES. It is the intent of the Company that the
Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive that
the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Executive the benefits provided or intended to be provided to
the Executive hereunder, the Company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
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Company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
shall exist between the Executive and such counsel. Without respect to whether
the Executive prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all attorneys' and related fees and expenses incurred by the Executive in
connection with any of the foregoing.
12.2 SUCCESSORS AND BINDING AGREEMENT. (i) The Company will require
any successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization, operation of law or otherwise) to all or substantially all of
the business or assets of the Company, by agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to the
Company, including without limitation any persons acquiring directly or
indirectly all or substantially all of the business or assets of the Company
whether by purchase, merger, consolidation, reorganization, operation of law or
otherwise (and such successor shall thereafter be deemed the "Company" for the
purposes of this Agreement), but will not otherwise be assignable, transferable
or delegable by the Company.
(ii) This Agreement will inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
(iii) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in Sections 12.2(i) and 12.2(ii). Without limiting the generality
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or effect of the foregoing, the Executive's right to receive payments hereunder
will not be assignable, transferable or delegable, whether by pledge, creation
of a security interest, or otherwise, other than by a transfer by Executive's
will or by the laws of descent and distribution and, in the event of any
attempted assignment or transfer contrary to this Section 12.2(iii), the Company
shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated.
12.3 GOVERNING LAW. This Agreement will be governed, construed,
interpreted and enforced in accordance with the substantive laws of the State of
Nevada, without regard to conflicts of law principles.
12.4 WITHHOLDING OF TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government regulation or
ruling.
12.5 SEVERABILITY. Any provision of this Agreement that is deemed
invalid, illegal or unenforceable in any jurisdiction will, as to that
jurisdiction be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope is
considered excessive, such covenant will be modified so that the scope of the
covenant is reduced only to the minimum extent necessary to render the modified
covenant valid, legal and enforceable.
12.6 NOTICES. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof confirmed), or five business days after
having been mailed by United States registered or certified mail, return receipt
requested, postage prepaid, or three business days after having been sent by a
nationally recognized overnight courier service such as Federal Express, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company) at its principal executive offices and to the Executive at his
principal residence, or to such other address as any party may have furnished to
the other in writing
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and in accordance herewith, except that notices of changes of address will be
effective only upon receipt.
(i) TO THE COMPANY. If to the Company, addressed to the
attention of the Secretary at 6100 Neil Road, Reno, Nevada 89511.
(ii) TO THE EXECUTIVE. If to the Executive, to him at 1812 Bay
Hill Drive, Las Vegas, Nevada 89117.
12.7 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which will be deemed to be an original, but all of which
together will constitute one and the same Agreement.
12.8 EFFECTIVENESS; PRIOR AGREEMENT; ENTIRE AGREEMENT. This Agreement
shall become effective at the Effective Time and shall have no force or effect
prior thereto. At the Effective Time, the terms of this Agreement are intended
by the parties to be the final expression of their agreement with respect to the
Executive's employment by the Company, may not be contradicted by evidence of
any prior or contemporaneous agreement, and shall supersede in all respects any
prior or other agreement or understanding between the Company, any Subsidiary or
Nevada Power and the Executive, including, but not limited to, the Employment
Agreement dated as of February 2, 1998 (the "Prior Agreement") between Nevada
Power and the Executive, which Prior Agreement will terminate and be without
further effect immediately prior to the Effective Time (and upon the
effectiveness of this Agreement) without further action of Nevada Power,
Surviving Company or the Executive or liability to Nevada Power or Surviving
Company or the Executive thereunder. The parties further intend that this
Agreement will constitute the complete and exclusive statement of its terms and
that no extrinsic evidence whatsoever may be introduced in any judicial,
administrative or other legal proceeding to vary the terms of this Agreement.
In the event that (i) the Merger Agreement is terminated for any reason prior to
the Effective Time or (ii) the Executive's employment with Nevada Power is
terminated prior to the Effective Time, this Agreement shall be null and void,
and the Prior Agreement will continue in effect as though this Agreement had not
been entered into.
12.9 AMENDMENTS; WAIVERS. This Agreement may not be modified,
amended, or terminated except by an instrument in writing, signed by the
Executive and the Company. Failure on
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the part of either party to complain of any action or omission, breach or
default on the part of the other party, no matter how long the same may
continue, will never be deemed to be a waiver of any rights or remedies
hereunder, at law or in equity. The Executive or the Company may waive
compliance by the other party with any provision of this Agreement that such
other party was or is obligated to comply with or perform only through an
executed writing; provided, however, that such waiver will not operate as a
waiver of, or estoppel with respect to, any other or subsequent failure.
12.10 NO INCONSISTENT ACTIONS. The parties will not voluntarily
undertake or fail to undertake any action or course of action that is
inconsistent with the provisions or essential intent of this Agreement.
Furthermore, it is the intent of the parties hereto to act in a fair and
reasonable manner with respect to the interpretation and application of the
provisions of this Agreement.
12.11 HEADINGS AND SECTION REFERENCES. The headings used in this
Agreement are intended for convenience or reference only and will not in any
manner amplify, limit, modify or otherwise be used in the construction or
interpretation of any provision of this Agreement. All section references are
to sections of this Agreement, unless otherwise noted.
12.12 INTEREST. Without limiting the rights of the Executive at law
or in equity, if the Company fails to make any payment or provide any benefit
required to be made or provided hereunder on a timely basis, the Company will
pay interest on the amount or value thereof at an annualized rate of interest
equal to the so-called composite "prime rate" as quoted from time to time during
the relevant period in the Northeast Edition of THE WALL STREET JOURNAL. Such
interest will be payable as it accrues on demand. Any change in such prime rate
will be effective on and as of the date of such change.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written, but effective as provided in Section 1.2.
/s/ Michael R. Niggli
-------------------------------
Michael R. Niggli
Sierra Pacific Resources,
a Nevada corporation
By: /s/ Malyn K. Malquist
-------------------------------
Name: Malyn K. Malquist
-------------------------------
Title: PRESIDENT, CHAIRMAN, CEO
------------------------
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EXHIBIT 7.15.2
EMPLOYMENT CONTRACT
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), dated as of April 29,
1998, but effective as provided herein, is made and entered into by and between
Sierra Pacific Resources, a Nevada corporation (the "Company"), and Malyn K.
Malquist (the "Executive").
WHEREAS, the Executive has been serving as the Chairman of the Board,
President and Chief Executive Officer of the Company;
WHEREAS, the Company and Nevada Power Company, a Nevada corporation
("Nevada Power"), have executed a merger agreement (the "Merger Agreement")
which contemplates the merger (the "Merger") of Nevada Power with and into a
subsidiary ("Desert Sub") of the Company, with Desert Sub (to be renamed Nevada
Power Company) as the survivor (the "Surviving Company") and certain other
transactions, all of which will become effective at the Effective Time (as
defined in the Merger Agreement);
WHEREAS, in order to induce Executive to serve, on and after the
Effective Time, as the President and Chief Operating Officer of the Company and
as President and Chief Executive Officer of each of Sierra Pacific Power Company
and Surviving Company (collectively, the "Utility Subsidiaries"), the Company
desires to provide Executive with compensation and other benefits on the terms
and conditions set forth in this Agreement;
WHEREAS, the Company considers it in the best interests of its
stockholders to foster the continuous employment of certain key management
personnel;
WHEREAS, the Company recognizes that, as is the case for most publicly
held companies, the possibility of a Change in Control (as defined herein)
exists;
<PAGE>
WHEREAS, the Company wishes to assure itself of continuation of
management following the Effective Time, including in the event of a Change in
Control; and
WHEREAS, the Company wishes to employ the Executive and the Executive
is willing to render services, both on the terms and subject to the conditions
set forth in this Agreement;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants herein contained, it is agreed as follows:
1. EMPLOYMENT.
1.1 The Company hereby agrees to employ the Executive, and the
Executive hereby agrees to undertake employment with the Company, upon the terms
and conditions herein set forth.
1.2 Employment will be for a term commencing on the Effective Time
(the "Effective Date") and, subject to earlier expiration upon the Executive's
termination under Section 5, expiring on the third anniversary of the Effective
Time (the "Employment Term"). The Employment Term may be extended by mutual
written agreement of the parties. In the event a Change in Control (as defined
in Section 6.2) occurs less than three years before the end of the Employment
Term, the Employment Term will be extended for a period ending on the third
anniversary of the occurrence of the Change in Control, except that in the event
the occurrence of a Change in Control as described in Section 6.2(iv) occurs
less than three years before the end of the Employment Term, the Employment Term
will be extended for a period ending on the later of (i) the third anniversary
of the occurrence of such Change in Control or (ii) the earlier of (a) the day
after any transaction, occurrence or event described in any agreement,
announcement or resolution referred to in Section 6.2(iv) (a "Transaction") is
consummated or (b) the date it is determined by resolution of the Board of
Directors of the Company (the "Board") adopted in good faith that such
Transaction will not be consummated. (The Employment Term, as so extended under
this Section 1.2, will thereafter constitute the "Employment Term" hereunder and
is subject to further extension as provided in this Section 1.2.)
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2. POSITIONS AND DUTIES.
2.1 POSITIONS AND DUTIES. During the Employment Term, the Executive
will serve in the position of President and Chief Operating Officer of the
Company and as President and Chief Executive Officer of each of the Utility
Subsidiaries and will have such powers, duties, functions, responsibilities and
authority as are (i) consistent with the Executive's positions; or (ii) assigned
to his office in the Company's and Utility Subsidiaries' bylaws; or (iii)
reasonably assigned to him by the Chief Executive Officer of the Company. The
Executive will report directly to the Chief Executive Officer of the Company.
In addition the Company will use its best efforts to cause the Executive to be
elected as a member of the Board throughout the Employment Term and will use its
best efforts to cause him to be included in the management slate for election as
a director at every stockholders' meeting at which his term as a director would
otherwise expire. During the Employment Term, the Company will not appoint a
Vice Chairman of the Company.
2.2 COMMITMENT. During the Employment Term, the Executive will be
the Company's full-time employee and, except as may otherwise be approved in
advance in writing by the Chief Executive Officer of the Company, and except
during vacation periods and reasonable periods of absence due to sickness,
personal injury or other disability, the Executive will devote substantially all
of his business time and attention to the performance of his duties hereunder.
Notwithstanding the foregoing, the Executive may, (i) subject to the approval of
the Board, serve as a director of a company which is not engaged in
"Competition" (as defined in Section 9.1) with the Company or any Subsidiary (as
defined in Section 6.2), (ii) serve as an officer, director or otherwise
participate in purely educational, welfare, social, religious and civic
organizations, and (iii) manage personal and family investments.
3. PLACE OF PERFORMANCE. In connection with his employment during the
Employment Term, unless otherwise agreed by the Executive, the Executive will
have offices at each of the Company's and Surviving Company's principal
executive offices. The Executive will undertake normal business travel on
behalf of the Company.
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4. COMPENSATION AND RELATED MATTERS.
4.1 COMPENSATION.
(i) ANNUAL BASE SALARY. During the Employment Term, the Company
will pay to the Executive an annual base salary ("Base Salary") in such amount
as shall be commensurate with his position and level of responsibility as
determined by the Board (or the Compensation Committee thereof) in its sole
discretion from time to time; provided, however, that in no event shall such
Base Salary be less than the Executive's annual base salary at the Company as in
effect immediately prior to the Effective Time. Base salary shall be payable at
the times and in the manner consistent with the Company's general policies
regarding compensation of executive employees. Base Salary may not be
decreased. The Board may from time to time authorize such additional
compensation to the Executive, in cash or in property, as the Board may
determine in its sole discretion to be appropriate.
(ii) ANNUAL INCENTIVE COMPENSATION. If the Board (or the
Compensation Committee thereof) authorizes any annual cash incentive
compensation or approves any other annual management incentive program or
arrangement, the Executive will be eligible to participate in such plan, program
or arrangement under the general terms and conditions applicable to executive
and management employees. The Executive's target payout under such annual
incentive compensation plans, programs and arrangements will be, subject to
achievement of applicable performance measures, on an annual level of not less
than a percentage of Base Salary equal to the target percentage of annual base
salary in effect for the Executive under the Company's annual incentive
compensation plan immediately prior to the Effective Time; provided, however,
that such percentage shall in no event be less than the target payout percentage
applicable for the year to the Chairman of the Board and Chief Executive Officer
of the Company. Subject to the foregoing, nothing in this Section 4.1(ii) will
guarantee to the Executive any specific amount of incentive compensation, or
prevent the Board (or the Compensation Committee thereof) from establishing
performance goals and compensation targets applicable only to the Executive.
(iii) LONG-TERM INCENTIVE COMPENSATION PLANS AND PROGRAMS. If the
Board (or the Compensation Committee thereof) authorizes any long-term cash
incentive plan or program, the
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Executive will be eligible to participate in such plan or program under the
general terms and conditions applicable to executive and management
employees. The Executive's participation in any such plan or program will
be, subject to achievement of applicable performance measures, at annual
target level grant of not less than a percentage of Base Salary equal to the
most recent percentage of annual base salary granted to the Executive prior
to the Effective Time as a target level grant under the Company's cash
long-term incentive plan; provided, however, that such percentage shall in no
event be less than the target level grant percentage applicable for the year
to the Chairman of the Board and Chief Executive Officer of the Company.
Subject to the foregoing, nothing in this Section 4.1(iii) will guarantee the
Executive any specific amount of long-term incentive compensation, or prevent
the Board (or the Compensation Committee thereof) from establishing
performance goals and compensation targets applicable only to the Executive.
4.2 EMPLOYEE AND EXECUTIVE BENEFITS. In addition to the compensation
described in Section 4.1 and subject to the following provisions of this Section
4, the Company will make or cause to be made available to the Executive and his
eligible dependents, subject to the terms and conditions of the applicable
plans, including without limitation the eligibility rules, participation in all
employee benefit plans, including all employee retirement income and welfare
benefit policies, plans, programs or arrangements, in which senior executives of
the Company participate from time to time, including any stock option, stock
purchase, stock appreciation, savings, pension, supplemental executive
retirement or other retirement income or welfare benefit, disability, salary
continuation, and any other deferred compensation, incentive compensation, group
and/or executive life, health, medical/hospital or other insurance (whether
funded by actual insurance or self-insured by the Company or an affiliate),
expense reimbursement or other employee benefit policies, plans, programs or
arrangements.
4.3 VACATION AND FRINGE BENEFITS. During the Employment Term, the
Executive shall be entitled to vacation in such amounts as determined under and
to be taken in accordance with the Company's normal vacation policies applicable
to senior executives, and the Executive shall be entitled to the perquisites and
other fringe benefits made available to senior executives of the Company,
commensurate with his position and level of responsibility with the Company.
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4.4 EXPENSES. The Company will promptly reimburse the Executive for
all travel and other business expenses the Executive incurs in order to perform
his duties to the Company under this Agreement in a manner commensurate with the
Executive's position and level of responsibility with the Company, and in
accordance with the Company's policy regarding substantiation of expenses.
4.5 RELOCATION EXPENSES. If the Company requests that the Executive
relocate after the Effective Date to the general area of the Nevada Power's
current headquarters in Las Vegas, Nevada, the Company will pay the Executive
and, where applicable, upon substantiation of expenses (i) at the time of
relocation a relocation allowance equal to 1/24th of the Executive's Base Salary
at the time of relocation, (ii) an allowance for up to two months' rent for
temporary housing following relocation at a rate of not more than $2,000 per
month, (iii) any additional expenses incurred by the Executive associated with
up to two house hunting trips to the Las Vegas, Nevada area for the Executive
and his wife, (iv) relocation expenses associated with moving the Executive's
family and household goods from Reno, Nevada to the Las Vegas, Nevada area, and
(v) the normal seller's broker's commission associated with the sale of the
Executive's existing residence in Reno, Nevada. In lieu of the payment provided
for in clause (v), the Executive may elect to have the Company purchase the
Executive's existing home in Reno, Nevada at a price equal to the average of the
fair market values as reported in two appraisals submitted by appraisers jointly
agreed to by the Executive and the Company.
4.6 SUPPLEMENTAL RETIREMENT BENEFITS. The Executive will be eligible
for a benefit under a supplemental retirement plan established by the Company
for the Executive. The benefit, if any, to which the Executive is entitled
under such supplemental retirement plan will be payable at the same time and in
the same form as the benefit to which the Executive would be entitled under the
Company's Retirement Plan (the "Qualified Plan") if he were a participant
therein and will be equal to:
(a) the benefit to which the Executive would be entitled under the
Qualified Plan (after application of the limitations included therein that
are imposed by the Code, such as Code Sections 401(a)(17) and 415)
determined as if the Executive (I) were a participant in the Qualified
Plan, (II) had an additional twenty (20) years of benefit accrual
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service under the Qualified Plan, and (III) had an additional twenty (20)
years of vesting service under the Qualified Plan, LESS
(b) the sum of (I) the actual amount, if any, payable to or on behalf
of the Executive under the Qualified Plan and (II) the actuarial equivalent
amounts, if any, of the vested retirement benefits to which the Executive
is entitled under any qualified or non-qualified defined benefit plan in
which the Executive participated prior to his employment with the Company
and its affiliates (such amounts under clauses (a) and (b) to be determined
without regard to any assignment of benefits under a qualified domestic
relations order, and the actuarial equivalents under clause (b)(II) to be
determined using the applicable actuarial assumptions as specified in the
Qualified Plan).
5. TERMINATION. Notwithstanding the Employment Term specified in Section
1.2, the termination of the Executive's employment hereunder will be governed by
the following provisions:
5.1 DEATH. In the event of the termination of the Executive's
employment during the Employment Term by reason of the Executive's death, the
Company will pay to the Executive's beneficiaries or estate, as appropriate,
promptly after the Executive's death, (i) the unpaid Base Salary to which the
Executive is entitled, pursuant to Section 4.1, through the date of the
Executive's death, and (ii) for any accrued but unused vacation days, to the
extent and in the amounts, if any, provided under the usual policies and
arrangements which cover the Executive. This Section 5.1 will not limit the
entitlement of the Executive's estate or beneficiaries to any death or other
benefits then available to the Executive under any life insurance, stock
ownership, stock options, or other benefit plan or policy that is maintained by
the Company or its affiliates for the Executive's benefit or in which the
Executive participated.
5.2 DISABILITY.
(i) If the Executive has incurred a Disability (as defined
below) during the Employment Term, the Company may give the Executive written
notice of its intention to terminate the Executive's employment. In such event,
the Executive's employment with the Company will terminate effective on the 30th
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calendar day after receipt of such notice by the Executive, provided that within
the 30 calendar days after such receipt, the Executive will not have returned to
full-time performance of his duties. The Executive will continue to receive his
Base Salary (less any amounts payable to the Executive for such period under any
short- or long-term disability plan maintained by the Company or an affiliate)
and benefits until the date of termination. In the event of the Executive's
Disability, the Company will pay the Executive, promptly after the Executive's
termination, (a) the unpaid Base Salary to which he is entitled, pursuant to
Section 4.1, through the date of the Executive's termination (less any amounts
payable to the Executive for such period under any short- or long-term
disability plan maintained by the Company or an affiliate), and (b) for any
accrued but unused vacation days, to the extent and in the amounts, if any,
provided under the usual policies and arrangements which cover the Executive.
This Section 5.2 will not limit the entitlement of the Executive or the
Executive's estate or beneficiaries to any disability or other benefits then
available to the Executive under any disability insurance or other benefit plan
or policy that is maintained by the Company or its affiliates for the
Executive's benefit or in which the Executive participated.
(ii) For purposes of this Agreement, "Disability" will mean the
Executive's incapacity due to physical or mental illness or injury substantially
to perform his duties on a full-time basis for six consecutive months and within
30 calendar days after a notice of termination is thereafter given by the
Company the Executive will not have returned to the full-time performance of the
Executive's duties; provided, however, if the Executive disagrees with a
determination to terminate him because of Disability, the question of the
Executive's Disability will be subject to the certification of a qualified
medical doctor agreed to by the Company and the Executive or, in the event of
the Executive's incapacity to designate a doctor, the Executive's legal
representative. In the absence of agreement between the Company and the
Executive, each party will nominate a qualified medical doctor and the two
doctors will select a third doctor, who will make the determination as to
Disability. In order to facilitate such determination, the Executive will, as
reasonably requested by the Company, (a) make himself available for medical
examinations by a doctor in accordance with this Section 5.2(ii), and (b) grant
the Company and any such doctor access to all relevant medical information
concerning him, arrange to furnish copies of medical records to such doctor and
use his best efforts
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to cause his own doctor to be available to discuss his health with such doctor.
5.3 CAUSE.
(i) The Company may terminate the Executive's employment
hereunder for Cause (as defined below) during the Employment Term by written
notice as provided in Section 12.6. In the event of the Executive's termination
for Cause, the Company will promptly pay to the Executive (or his
representative) the unpaid Base Salary to which he is entitled, pursuant to
Section 4.1, through the date the Executive is terminated and the Executive will
be entitled to no other compensation or benefits, except as otherwise due to him
under applicable law or pursuant to any benefit plan or policy that is
maintained by the Company or its affiliates in which the Executive participated.
(ii) For purposes of this Agreement, "Cause" means that, prior to
the end of the Employment Term, (a) the Executive shall have committed or
engaged in:
(1) an intentional act of fraud, embezzlement or theft in
connection with the Executive's duties or in the course of the
Executive's employment with the Company;
(2) an intentional breach of any of the express covenants
set forth in Section 9.1, 9.2 or 9.3;
(3) intentional wrongful damage to property of the Company
or any Subsidiary; or
(4) gross negligence or gross misconduct against the
Company or another employee, or in carrying out the Executive's duties
and responsibilities;
and any such act shall have been materially harmful to the Company, (b) the
Executive shall have engaged in intentional and repeated failure substantially
to carry out the Executive's duties and responsibilities (other than any such
failure resulting from the Executive's incapacity due to physical or mental
illness or injury that qualifies as a Disability or would qualify as a
Disability if such incapacity continued for the required length of time), which
failure is not or cannot be cured
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within five business days after the Company has given written notice to the
Executive specifying in detail the particulars of the acts of omissions
deemed to constitute such failure, or (c) the Executive shall have been
convicted of a felony. For purposes of this Agreement, no act or failure to
act on the part of the Executive shall be deemed "intentional" if it was due
primarily to an error in judgment or negligence, but shall be deemed
"intentional" only if done or omitted to be done by the Executive not in good
faith and without reasonable belief that the Executive's action or omission
was in the best interest of the Company. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for "Cause" hereunder
unless and until there shall have been delivered to the Executive a written
notice from the Company stating that it has determined that the Executive had
committed an act constituting "Cause" as herein defined and specifying the
particulars thereof in detail. Nothing herein will limit the right of the
Executive or the Executive's beneficiaries to contest the validity or
propriety of any such determination.
5.4 TERMINATION.
(i) INVOLUNTARY TERMINATION. The Executive's employment
hereunder may be terminated during the Employment Term by the Company for any
reason other than death, Disability or for Cause by written notice as provided
in Section 12.6. In the event of such an involuntary termination, the Executive
will be entitled to the payments and benefits provided in Section 5.5. This
Section 5.4(i) and Section 5.5, however, will not limit the entitlement of the
Executive to any other benefits then available to the Executive under any
benefit plan or policy that is maintained by the Company or its affiliates for
the Executive's benefit or in which the Executive participated. The Executive
will be treated for purposes of this Agreement as having been involuntarily
terminated by the Company for reasons other than death, Disability or for Cause
if the Executive terminates his employment with the Company for any of the
following reasons (each, a "Good Reason") prior to the date of the Executive's
death, Disability or on which the Executive has committed or engaged in an act
constituting Cause: (a) the Company has materially breached any provision of
this Agreement and within 10 calendar days after notice thereof from the
Executive, the Company fails to cure such breach; (b) a successor or assign
(whether direct or indirect, by purchase, merger, consolidation, operation of
law or otherwise) to all or substantially all of the
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business and/or assets of the Company fails to assume all duties, obligations
and liabilities of the Company under the Agreement pursuant to Section
12.2(i); (c) a reduction in the scope or value of the aggregate benefits and
incentive compensation described in Sections 4.1(iii), 4.2, 4.3, 4.5 and 4.6
provided to the Executive or the termination or denial of the Executive's
rights to such benefits or incentive compensation, any of which is not
remedied by the Company within 10 calendar days after receipt by the Company
of written notice from the Executive of such reduction or termination; (d)
the Executive is not elected to or is removed from the Board; (e) the failure
to appoint Executive to the positions of President and Chief Operating
Officer of the Company, or the Executive is removed from such position; (f)
the failure to appoint Executive to the positions of President and Chief
Executive Officer of the Utility Subsidiaries, or the Executive is removed
from any such position; (g) a reduction in the Executive's Base Salary or the
opportunity to earn annual incentive compensation under Section 4.1(ii) on a
basis at least as favorable to the Executive (in terms of each of the amount
of benefits, levels of coverage and performance measures and levels of
required performance) as the benefits payable thereunder prior to the
reduction, or the failure to pay the Executive Base Salary or incentive
compensation earned when due; (h) the failure to appoint the Executive to the
position or positions of Chairman of the Board and Chief Executive Officer of
the Company or Chairman of the Board of a Utility Subsidiary, as applicable,
effective immediately following the date as of which Mr. M. R. Niggli ceases
to serve in any such position or positions, or removal of the Executive from
any such position or positions after such appointment; or (i) the Executive
is required without his prior written consent to relocate from Reno, Nevada
prior to the second anniversary of the Effective Date. Notwithstanding the
provisions of clauses (e), (f) or (h) of the preceding sentence or Section
6.1(a) or (b), any change in the Executive's title or titles required by law,
rule, order or regulation of any agency with competent jurisdiction shall not
be deemed Good Reason for purposes of this Agreement.
(ii) VOLUNTARY TERMINATION. The Executive may voluntarily
terminate the Agreement at any time by notice to the Company as provided in
Section 12.6. In the event of the Executive's voluntary termination, the
Company will promptly pay the Executive (a) the unpaid Base Salary to which the
Executive is entitled, pursuant to Section 4.1, through the date of the
Executive's termination, and (b) for any accrued but unused
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vacation days, to the extent and in the amounts, if any, provided under the
usual policies and arrangements which cover the Executive. This Section
5.4(ii) will not limit the entitlement of the Executive to any other benefits
then available to the Executive under any benefit plan or policy that is
maintained by the Company or its affiliates for the Executive's benefit or in
which the Executive participated.
5.5 TERMINATION PAYMENTS AND BENEFITS.
(i) FORM AND AMOUNT. Upon the Executive's involuntary
termination other than by reason of death, Disability or for Cause as provided
in Section 5.4(i), the Company will promptly pay or provide to the Executive:
(a) the unpaid Base Salary to which the Executive is
entitled, pursuant to Section 4.1, through the date of the Executive's
termination,
(b) for any accrued but unused vacation days, to the extent
and in the amounts, if any, provided under the usual policies and
arrangements which cover the Executive,
(c) a lump sum payment within five (5) business days after
termination in an amount equal to three times the sum of (A) the
annual rate of Base Salary (prior to any deferrals or reductions under
qualified or non-qualified plans) being paid to the Executive
immediately prior to termination (or immediately prior to any
reduction therein occurring prior to termination, if greater), plus
(B) the aggregate annual bonus, incentive or other payments of cash
compensation (determined without regard to any deferral election) to
which the Executive would have been entitled in accordance with
Section 4.1(ii) under the bonus, incentive, profit-sharing,
performance, discretionary pay or similar agreement, policy, plan,
program or arrangement of the Company or its affiliates in which the
Executive was participating for the year in which the termination
occurs (or for the year in which any prior reduction therein occurs,
if greater) based on the assumption that target performance goals for
such year would be met and such payments would be made, and
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(d) For a period of 36 months following the termination
(the "Continuation Period"), the Company will arrange to provide the
Executive with health (including medical/hospital, dental and vision)
and life benefits substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to termination
(or, if greater, immediately prior to the reduction, termination, or
denial described in Section 5.4(i)(c)). Benefits otherwise receivable
by the Executive pursuant to this Section 5.5(i)(d) will be reduced to
the extent comparable benefits are actually received by or in respect
of the Executive from another employer during the Continuation Period
following the Executive's termination, and any such benefits actually
received shall be reported by the Executive or other recipient to the
Company.
(ii) MAINTENANCE OF BENEFITS. During the Continuation Period set
forth in Section 5.5(i)(d), the Company will use its best efforts to maintain in
full force and effect for the continued benefit of the Executive all benefits
referenced therein or will arrange to make available to the Executive benefits
substantially similar to the referenced benefits. Such benefits will be
provided to the Executive on the same terms and conditions (including employee
contributions toward the premium payments) under which the Executive was
entitled to participate immediately prior to the Executive's termination (or, if
more favorable to the Executive, immediately prior to the reduction, termination
or denial describe in Section 5.4(i)(c)). To the extent, however, the coverage
or benefits provided under Section 5.5(i)(d) results in the Executive or any
dependent or beneficiary thereof incurring additional federal, state or local
taxes that would otherwise not have been incurred in connection with the
provision of such coverage or benefits had the Executive's employment not been
terminated, the Company shall promptly pay the Executive, dependent or
beneficiary, as the case may be, on an after-tax basis, an additional payment in
an amount equal to all taxes, including interest and penalties thereon, imposed
as the result of such coverage or benefits.
(iii) RESIGNATION. If at the Executive's termination of
employment the Executive is a member of the Board or a board of any affiliate of
the Company, no benefit will be paid or made available under Section 5.5(i)(c)
or Section
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5.5(i)(d) unless the Executive first executes and delivers to the Company a
resignation from membership on the Board and from membership on the boards of
all affiliates of the Company, as the case may be, such resignation to be
effective on receipt of the payment to which the Executive is entitled under
Section 5.5(i)(c).
6. CHANGE IN CONTROL PROVISIONS.
6.1 IMPACT OF CHANGE IN CONTROL. In the event of a "Change in
Control" of the Company, as defined in Section 6.2, (i) if the Executive's
employment is involuntarily terminated during the Employment Term without Cause
after the Change in Control, (a) the covenants of Sections 9.1, 9.3 and 10 will
be inapplicable to the Executive, and (b) the covenant of Section 9.2 will
expire on the third anniversary of the date of termination of the Executive's
employment, and (ii) the definition of Good Reason, as set forth in Section
5.4(i) above, will be expanded to include the following subject to the last
sentence of Section 5.4(i):
(a) A significant adverse change in the nature or scope of
authorities, powers, functions, responsibilities or duties attached to the
positions held by the Executive from those authorities, powers, functions,
responsibilities or duties which the Executive held immediately prior to
the Change in Control;
(b) A determination by the Executive (which determination will be
conclusive and binding upon the parties hereto provided it has been made in
good faith and in all events the Executive's determination will be presumed
to have been made in good faith unless otherwise shown by the Company by
clear and convincing evidence) that a change in circumstances has occurred
following the Change in Control, including, without limitation, a change in
the scope of the business or other activities for which the Executive was
responsible immediately prior to the Change in Control, which has rendered
the Executive substantially unable to carry out, has substantially hindered
the Executive's performance of, or has caused the Executive to suffer a
substantial reduction in, any of the authorities, powers, functions,
responsibilities or duties attached to any of the Executive's positions
immediately prior to such Change in Control, which situation is not
remedied within 10
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calendar days after written notice to the Company from the Executive of such
determination; or
(c) The relocation of the Company's principal executive offices
if the Executive's principal location of work is then in such offices, or
requirement that the Executive have the Executive's principal location of
work changed, to any location that is in excess of 50 miles from the
location thereof immediately preceding the Change in Control or the
requirement that the Executive travel away from the Executive's office in
the course of discharging the Executive's responsibilities or duties
hereunder at least 20% more (in terms of aggregate days in any calendar
year or in any calendar quarter when annualized for purposes of comparison
to any prior year) than was required of Executive in any of the three full
years immediately prior to such Change in Control without, in either case,
the Executive's prior written consent.
6.2 DEFINITION OF CHANGE IN CONTROL. For purposes of this Agreement,
a "Change in Control" will be deemed to occur if at any time during the
Employment Term any of the following events occur:
(i) The Company is merged, consolidated or reorganized into
or with another corporation or other legal person, and as
a result of such merger, consolidation or reorganization
less than 65% of the combined voting power of the
then-outstanding securities or interests entitled to vote
generally in the election of directors or other
controlling persons (the "Voting Stock") of such
corporation or person immediately after such transaction
are held in the aggregate by the holders of Voting Stock
of the Company immediately prior to such transaction;
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to another corporation or
other legal person, and as a result of such sale or transfer
less than 65% of the combined voting power of the
then-outstanding Voting Stock of such corporation or person
immediately after such
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sale or transfer is held in the aggregate (directly or
through ownership of Voting Stock of the Company or
Subsidiary (as defined herein)) by the holders of the Voting
Stock of the Company immediately prior to such sale or
transfer;
(iii) There is a report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report), each as
promulgated pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), disclosing that any person
(as the term "person" is used in Section 13(d)(3) or Section
14(d)(2) of the Exchange Act) has become the beneficial
owner (as the term "beneficial owner" is defined under Rule
13d-3 or any successor rule or regulation promulgated under
the Exchange Act) of securities representing 20% or more of
the combined voting power of the then-outstanding Voting
Stock of the Company;
(iv) Any of (A) the Company enters into an agreement, the
consummation of which would result in the occurrence of a
Change in Control determined without regard to this Section
6.2(iv); (B) the Company or any person (as the term "person"
is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) announces an intention to take or to consider
taking actions which, if consummated, would be a Change in
Control determined without regard to this Section 6.2(iv);
or (C) the Board adopts a resolution to the effect that a
transaction, event or occurrence has occurred which
constitutes a Change in Control for purposes of this Section
6.2(iv);
(v) If, during any period of two consecutive years, individuals
who at the beginning of any such period constitute the
Directors of the Company cease for any reason to constitute
at least a majority thereof; PROVIDED, HOWEVER, that for
purposes of this
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Section 6.2(v) each Director who is first elected, or first
nominated for election by the Company's stockholders, by a
vote of at least two-thirds of the Directors of the Company
(or a committee thereof) then still in office who were
Directors of the Company at the beginning of any such period
will be deemed to have been a Director of the Company at the
beginning of such period; or
(vi) The approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
Notwithstanding the foregoing provisions of Section 6.2(iii) or 6.2(iv) above,
unless otherwise determined in a specific case by majority vote of the Board, a
"Change in Control" shall not be deemed to have occurred for purposes of Section
6.2(iii) or 6.2(iv) solely because (A) the Company, (B) an entity in which the
Company directly or indirectly beneficially owns 50% or more of the outstanding
Voting Stock (a "Subsidiary"), or (C) any Company-sponsored employee stock
ownership plan or any other employee benefit plan of the Company or any
Subsidiary either files or becomes obligated to file a report or a proxy
statement under or in response to Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report or item therein) under the Exchange Act
disclosing beneficial ownership by it of shares of Voting Stock, whether in
excess of 20% or otherwise, or because a Change in Control (determined without
regard to this sentence) of the Company has occurred or will occur in the future
by reason of such beneficial ownership. In addition, and notwithstanding
anything to the contrary contained in this Agreement or the foregoing provisions
of this Section 6.2, a "Change in Control" for purposes of this Section 6.2 and
this Agreement shall not be deemed to have resulted from, and shall not be
deemed to have occurred by reason of, entering into the Merger Agreement or the
public announcement thereof or the consummation of the Merger or the other
transactions contemplated by the Merger Agreement.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY:
(i) Anything in this Agreement to the contrary notwithstanding, if it
is determined (as hereafter provided) that any payment or distribution by the
Company, any person whose actions result in a Change in Control or any affiliate
of the
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Company or such person, to or for the benefit of the Executive, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise pursuant to or by reason of any other agreement, policy,
plan, program or arrangement, including without limitation any stock option,
stock appreciation right or similar right, or the lapse or termination of any
restriction on or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties with
respect to such tax (such tax or taxes, together with any such interest and
penalties, are hereafter collectively referred to as the "Excise Tax"), then the
Executive will be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment") in an amount such that, after payment by
the Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. No Gross-Up Payment will be made with
respect to the Excise Tax, if any, attributable to (a) any incentive stock
option, as defined by Section 422 of the Code ("ISO") granted prior to the
execution of this Agreement (unless a comparable Gross-Up Payment has
theretofore been made available with respect to such option), or (b) any stock
appreciation or similar right, whether or not limited, granted in tandem with
any ISO described in clause (a).
(ii) Subject to the provisions of Section 7(vi) hereof, all
determinations required to be made under this Section 7, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, will be made by a nationally
recognized firm of certified public accountants (the "Accounting Firm") selected
by the Executive in his sole discretion. The Executive will direct the
Accounting Firm to submit its determination and detailed supporting calculations
to both the Company and the Executive within 15 calendar days after the
Executive's termination, if applicable, and any other such time or times as may
be requested by the Company or the Executive. If the Accounting Firm determines
that any Excise Tax is payable by
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the Executive, the Company will pay the required Gross-Up Payment to the
Executive within five business days after receipt of such determination and
calculations with respect to any Payment to the Executive. If the Accounting
Firm determines that no Excise Tax is payable by the Executive, it will, at
the same time as it makes such determination, furnish the Company and the
Executive an opinion that the Executive has substantial authority not to
report any Excise Tax on the Executive's federal, state, local income or
other tax return. Any determination by the Accounting Firm as to the amount
of the Gross-Up Payment will be binding upon the Company and the Executive.
As a result of the uncertainty in the application of Section 4999 of the Code
(or any successor provision thereto) and the possibility of similar
uncertainty regarding applicable state or local tax law at the time of any
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments that will not have been made by the Company should have been made
(an "Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts or fails to pursue its
remedies pursuant to Section 7(vi) hereof and the Executive thereafter is
required to make a payment of any Excise Tax, the Executive will direct the
Accounting Firm to determine the amount of the Underpayment that has occurred
and to submit its determination and detailed supporting calculations to both
the Company and the Executive as promptly as possible. Any such Underpayment
will be promptly paid by the Company to, or for the benefit of, the Executive
within five business days after receipt of such determination and
calculations.
(iii) The Company and the Executive will each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 7(ii) hereof.
(iv) The federal, state and local income or other tax returns
filed by the Executive will be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive will make proper payment of the amount of any
Excise Tax, and at the request of the Company, provide to the Company true and
correct copies (with any amendments) of the Executive's
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federal income tax return as filed with the Internal Revenue Service and
corresponding state and local tax returns, if relevant, as filed with the
applicable taxing authority, and such other documents reasonably requested by
the Company, evidencing such payment. If prior to the filing of the
Executive's federal income tax return, or corresponding state or local tax
return, if relevant, the Accounting Firm determines that the amount of the
Gross-Up Payment should be reduced, the Executive will within five business
days pay to the Company the amount of such reduction.
(v) The fees and expenses of the Accounting Firm for its services
in connection with the determinations and calculations contemplated by
Sections 7(ii) and (iv) hereof will be borne by the Company. If such fees and
expenses are initially paid by the Executive, the Company will reimburse the
Executive the full amount of such fees and expenses within five business days
after receipt from the Executive of a statement therefor and reasonable evidence
of his payment thereof.
(vi) The Executive will notify the Company in writing of any
claim by the Internal Revenue Service or other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment.
Such notification will be given as promptly as practicable but no later than
10 business days after the Executive actually receives notice of such claim
and the Executive will further apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid (in each case,
to the extent known by the Executive). The Executive will not pay such claim
prior to the earlier of (a) the expiration of the 30-calendar-day period
following the date on which the Executive gives such notice to the Company
and (b) the date that any payment of amount with respect to such claim is
due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the
Executive will:
(a) provide the Company with any written records or documents in
the Executive's possession relating to such claim reasonably requested
by the Company;
(b) take such action in connection with contesting such claim as
the Company will reasonably request in writing from time to time,
including without limitation accepting legal representation with
respect to such
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claim by an attorney competent in respect of the subject matter and
reasonably selected by the Company;
(c) cooperate with the Company in good faith in order effectively
to contest such claim; and
(d) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company will bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and will indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of
this Section 7(vi), the Company will control all proceedings taken in connection
with the contest of any claim contemplated by this Section 7(vi) and, at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim (provided, however, that the Executive may participate therein at the
Executive's own cost and expense) and may, at its option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company will determine;
provided, however, that if the Company directs the Executive to pay the tax
claimed and sue for a refund, the Company will advance the amount of such
payment to the Executive on an interest-free basis and will indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income or
other tax, including interest or penalties with respect thereto, imposed with
respect to such advance; and provided further, however, that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which the contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
any such contested claim will be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive will be entitled
to settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
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(vii) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(vi) hereof, the Executive
receives any refund with respect to such claim, the Executive will (subject
to the Company's complying with the requirements of Section 7(vi) hereof)
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after any taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 7(vi) hereof, a determination is made that the Executive
will not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such denial
or refund prior to the expiration of 30 calendar days after such
determination, then such advance will be forgiven and will not be required to
be repaid and the amount of such advance will offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid by the Company to the
Executive pursuant to this Section 7.
8. MITIGATION AND OFFSET. The payment of severance compensation by the
Company to the Executive in accordance with the terms of the Agreement is hereby
acknowledged by the Company to be reasonable, and the Executive is under no
obligation to mitigate damages or the amount of any payment provided for
hereunder by seeking other employment or otherwise; nor will any profits,
income, earnings or other benefits from any source whatsoever create any
mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise, except as expressly provided in the last
sentence of Section 5.5(i)(d).
9. COMPETITION; CONFIDENTIALITY; NONSOLICITATION
9.1 (i) Subject to Section 6.1(i), the Executive hereby covenants and
agrees that during the Employment Term and for one year following the Employment
Term he will not, without the prior written consent of the Company, engage in
Competition (as defined below) with the Company. For purposes of this
Agreement, if the Executive takes any of the following actions he will be
engaged in "Competition": engaging in or carrying on, directly or indirectly,
any enterprise, whether as an advisor, principal, agent, partner, officer,
director, employee, stockholder, associate or consultant to any person,
partnership, corporation or any other business entity, that is principally
engaged in the business of the generation, purchase, transmission, distribution
or sale of electricity, the provision
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of natural gas or the supplying of water services, in each case to customer
segments being served or pursued in its business plans by the Company or its
Subsidiaries, in States in which the Company or its Subsidiaries has
significant operations; provided, however, that "Competition" will not
include (a) the mere ownership of securities in any enterprise and exercise
of rights appurtenant thereto or (b) participation in management of any
enterprise or business operation thereof other than in connection with the
competitive operation of such enterprise. For purposes of applying the
preceding sentence, operations of the Company or its Subsidiaries in the
State of California will be deemed not to be significant if they are not
materially greater than the operations in the aggregate of Nevada Power and
the Company and their respective Subsidiaries in the State of California as
of the date of this Agreement.
(ii) Subject to Section 6.1(i), the Executive hereby covenants
and agrees that during the Employment Term and for three years following the
Employment Term he will not assist a third party in preparing or making an
unsolicited bid for the Company, engaging in a proxy contest with the Company,
or engaging in any other similar activity.
9.2 During the Employment Term, the Company agrees that it will
disclose to Executive its confidential or proprietary information (as defined in
this Section 9.2) to the extent necessary for Executive to carry out the
Executive's obligations under this Agreement. Subject to Section 6.1(i), the
Executive hereby covenants and agrees that he will not, without the prior
written consent of the Company, during the Employment Term or thereafter
disclose to any person not employed by the Company or a Subsidiary, or use in
connection with engaging in Competition with the Company or a Subsidiary, any
confidential or proprietary information of the Company or its Subsidiaries. For
purposes of this Agreement, the term "confidential or proprietary information"
will include all information of any nature and in any form that is owned by the
Company or a Subsidiary and that is not publicly available or generally known to
persons engaged in businesses similar or related to those of the Company or a
Subsidiary. Confidential information will include, without limitation, the
Company's or a Subsidiary's financial matters, customers, employees, industry
contracts, and all other secrets and all other information of a confidential or
proprietary nature. The foregoing obligations imposed by this Section 9.2 will
cease if such confidential or proprietary information will
23
<PAGE>
have become, through no fault of the Executive, generally known to the public
or the Executive is required by law to make disclosure (after giving the Company
notice and an opportunity to contest such requirement).
9.3 Subject to Section 6.1(i), the Executive hereby covenants and
agrees that during the Employment Term and for one year thereafter the Executive
will not attempt to influence, persuade or induce, or assist any other person in
so persuading or inducing, any employee of the Company or a Subsidiary to give
up, or to not commence, employment or a business relationship with the Company
or a Subsidiary.
10. POST-TERMINATION ASSISTANCE. Subject to Section 6.1(i), the Executive
agrees that after the Executive's employment with the Company has terminated the
Executive will provide, upon reasonable notice, such information and assistance
to the Company as may reasonably be requested by the Company in connection with
any litigation in which it or any of its affiliates is or may become a party;
provided, however, that the Company agrees to reimburse the Executive for any
related out-of-pocket expenses, including travel expenses.
11. SURVIVAL. The expiration or termination of the Employment Term will
not impair the rights or obligations of any party hereto that accrue hereunder
prior to such expiration or termination, except to the extent specifically
stated herein. In addition to the foregoing, the Executive's covenants
contained in Sections 9.1, 9.2, 9.3 and 10 and the Company's obligations under
Sections 5, 7 and 12.1 will survive the expiration or termination of this
Agreement or the termination of the Executive's employment for any reason
whatsoever.
12. MISCELLANEOUS PROVISIONS.
12.1 LEGAL FEES AND EXPENSES. It is the intent of the Company that the
Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive that
the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take
24
<PAGE>
any action to declare this Agreement void or unenforceable, or institutes any
litigation or other action or proceeding designed to deny, or to recover
from, the Executive the benefits provided or intended to be provided to the
Executive hereunder, the Company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
Company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any director, officer,
stockholder or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between
the Company and such counsel, the Company irrevocably consents to the
Executive's entering into an attorney-client relationship with such counsel,
and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and
expenses incurred by the Executive in connection with any of the foregoing.
12.2 SUCCESSORS AND BINDING AGREEMENT. (i) The Company will require
any successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization, operation of law or otherwise) to all or substantially all of
the business or assets of the Company, by agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to the
Company, including without limitation any persons acquiring directly or
indirectly all or substantially all of the business or assets of the Company
whether by purchase, merger, consolidation, reorganization, operation of law or
otherwise (and such successor shall thereafter be deemed the "Company" for the
purposes of this Agreement), but will not otherwise be assignable, transferable
or delegable by the Company.
(ii) This Agreement will inure to the benefit of and be enforceable by
the Executive's personal or legal representatives,
25
<PAGE>
executors, administrators, successors, heirs, distributees and legatees.
(iii) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in Sections 12.2(i) and 12.2(ii). Without limiting the generality or
effect of the foregoing, the Executive's right to receive payments hereunder
will not be assignable, transferable or delegable, whether by pledge, creation
of a security interest, or otherwise, other than by a transfer by Executive's
will or by the laws of descent and distribution and, in the event of any
attempted assignment or transfer contrary to this Section 12.2(iii), the Company
shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated.
12.3 GOVERNING LAW. This Agreement will be governed, construed,
interpreted and enforced in accordance with the substantive laws of the State of
Nevada, without regard to conflicts of law principles.
12.4 WITHHOLDING OF TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government regulation or
ruling.
12.5 SEVERABILITY. Any provision of this Agreement that is deemed
invalid, illegal or unenforceable in any jurisdiction will, as to that
jurisdiction be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope is
considered excessive, such covenant will be modified so that the scope of the
covenant is reduced only to the minimum extent necessary to render the modified
covenant valid, legal and enforceable.
12.6 NOTICES. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
26
<PAGE>
transmission (with receipt thereof confirmed), or five business days after
having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as Federal
Express, UPS, or Purolator, addressed to the Company (to the attention of the
Secretary of the Company) at its principal executive offices and to the
Executive at his principal residence, or to such other address as any party
may have furnished to the other in writing and in accordance herewith, except
that notices of changes of address will be effective only upon receipt.
(i) TO THE COMPANY. If to the Company, addressed to the
attention of the Secretary at 6100 Neil Road, Reno, Nevada 89511.
(ii) TO THE EXECUTIVE. If to the Executive, to him at 3321 Cory
Drive, Reno, Nevada 89509.
12.7 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which will be deemed to be an original, but all of which
together will constitute one and the same Agreement.
12.8 EFFECTIVENESS; ENTIRE AGREEMENT. This Agreement shall become
effective at the Effective Time and shall have no force or effect prior thereto.
At the Effective Time, the terms of this Agreement are intended by the parties
to be the final expression of their agreement with respect to the Executive's
employment by the Company, may not be contradicted by evidence of any prior or
contemporaneous agreement, and shall supersede in all respects any prior or
other agreement or understanding between the Company and the Executive,
including, but not limited to, the Change in Control Agreement dated February
18, 1997, as amended (the "Change in Control Agreement") between the parties,
which Change in Control Agreement will terminate and be without further effect
immediately prior to the Effective Time (and upon the effectiveness of this
Agreement) without further action of the parties or liability to the Company or
the Executive thereunder. The parties further intend that this Agreement will
constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial, administrative
or other legal proceeding to vary the terms of this Agreement. In the event
that (i) the Merger Agreement is terminated for any reason prior to the
Effective
27
<PAGE>
Time or (ii) the Executive's employment with the Company is terminated prior
to the Effective Time, this Agreement shall be null and void, and the Change
in Control Agreement will continue in effect as though this Agreement had not
been entered into.
12.9 AMENDMENTS; WAIVERS. This Agreement may not be modified,
amended, or terminated except by an instrument in writing, signed by the
Executive and the Company. Failure on the part of either party to complain of
any action or omission, breach or default on the part of the other party, no
matter how long the same may continue, will never be deemed to be a waiver of
any rights or remedies hereunder, at law or in equity. The Executive or the
Company may waive compliance by the other party with any provision of this
Agreement that such other party was or is obligated to comply with or perform
only through an executed writing; provided, however, that such waiver will not
operate as a waiver of, or estoppel with respect to, any other or subsequent
failure.
12.10 NO INCONSISTENT ACTIONS. The parties will not voluntarily
undertake or fail to undertake any action or course of action that is
inconsistent with the provisions or essential intent of this Agreement.
Furthermore, it is the intent of the parties hereto to act in a fair and
reasonable manner with respect to the interpretation and application of the
provisions of this Agreement.
12.11 HEADINGS AND SECTION REFERENCES. The headings used in this
Agreement are intended for convenience or reference only and will not in any
manner amplify, limit, modify or otherwise be used in the construction or
interpretation of any provision of this Agreement. All section references are
to sections of this Agreement, unless otherwise noted.
12.12 INTEREST. Without limiting the rights of the Executive at law
or in equity, if the Company fails to make any payment or provide any benefit
required to be made or provided hereunder on a timely basis, the Company will
pay interest on the amount or value thereof at an annualized rate of interest
equal to the so-called composite "prime rate" as quoted from time to time during
the relevant period in the Northeast Edition of THE WALL STREET JOURNAL. Such
interest will be payable as it accrues on demand. Any change in such prime rate
will be effective on and as of the date of such change.
28
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written, but effective as provided in Section 1.2.
/s/ Malyn K. Malquist
---------------------------------------
Malyn K. Malquist
Sierra Pacific Resources,
a Nevada corporation
By: /s/ Malyn K. Malquist
----------------------------------
Name: Malyn K. Malquist
--------------------------------
Title: President, Chairman, CEO
--------------------------------
29
<PAGE>
EXHIBIT (3)-1
FORM OF CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF RESTATED ARTICLES OF INCORPORATION
FOR
SIERRA PACIFIC RESOURCES
Sierra Pacific Resources, a Nevada corporation, hereby certifies:
(1) By resolution of the stockholders of Sierra Pacific Resources
(Exhibit "B" attached to the Certificate of Restated Articles of Incorporation)
that the following amendment has been made to the Restate Articles of
Incorporation of Sierra Pacific Resources:
ARTICLE V
CAPITAL STOCK AND AMENDMENTS TO
ARTICLES OF INCORPORATION
AUTHORIZED CAPITAL STOCK
SECTION 1:
The amount of the total authorized capital stock of the Corporation is
two hundred and fifty million (250,000,000) shares of common stock of $1.00
par value. Said shares may be issued by the Corporation from time to time
for such consideration as may be fixed from time to time by the Board of
Directors.
IN WITNESS WHEREOF, Sierra Pacific Resources has caused this
Certificate of Amendment to be signed by the Senior Vice President, General
Counsel and Corporate Secretary of its corporation.
SIERRA PACIFIC RESOURCES
BY:
--------------------------------------
William E. Peterson
Senior Vice President, General Counsel
and Corporate Secretary
<PAGE>
EXHIBIT (5)-1
SIERRA PACIFIC RESOURCES
6100 NEIL ROAD
RENO, NEVADA 89511
(702) 834-3600
September 4, 1998
Ladies and Gentlemen:
I am Senior Vice President, General Counsel and Corporate Secretary of
Sierra Pacific Resources, a Nevada corporation ("Sierra Pacific"), and have
acted as such in connection with the preparation of a Registration Statement on
Form S-4 (the "Registration Statement") to be filed on the date hereof by Sierra
Pacific with the Securities and Exchange Commission (the "Commission") pursuant
to the Securities Act of 1933, as amended (the "Securities Act"). The
Registration Statement relates to the proposed issuance by Sierra Pacific of
78,723,837 shares (the "Shares") of its common stock, par value $1.00 per share,
together with the associated stock purchase rights (the "Sierra Pacific Common
Stock"), pursuant to the Agreement and Plan of Merger, dated as of April 29,
1998 (the "Merger Agreement"), by and among Nevada Power Company, a Nevada
corporation ("Nevada Power"), Sierra Pacific, DESERT Merger Sub, Inc., a Nevada
corporation and a wholly-owned subsidiary of Sierra Pacific ("DESERT Merger
Sub"), and LAKE Merger Sub, Inc., a Nevada corporation and a wholly-owned
subsidiary of Sierra Pacific ("LAKE Merger Sub"). The Merger Agreement provides
for the merger of LAKE Merger Sub with and into Sierra Pacific (the "First
Merger"), with Sierra Pacific continuing as the surviving corporation, and for
the merger, immediately thereafter, of Nevada Power with and into DESERT Merger
Sub (the "Second Merger" and, together with the First Merger, the "Mergers"),
with DESERT Merger Sub continuing as a wholly-owned subsidiary of Sierra
Pacific. The Registration Statement includes a joint proxy statement/prospectus
(the "Joint Proxy Statement/Prospectus") to be furnished to the stockholders of
Nevada Power in connection with their approval of the Merger Agreement and to
the stockholders of Sierra Pacific in connection with their approvals of the
Merger Agreement, the issuance of Shares pursuant to the Merger Agreement (the
"Share Issuance") and the amendment of Sierra Pacific's Amended and Restated
Articles of Incorporation (the "Sierra Pacific Charter") to increase the maximum
number of authorized shares of Sierra Pacific Common Stock from 90,000,000 to
250,000,000 shares (the "Shares Amendment").
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act.
In connection with rendering this opinion, I have examined and am
familiar with originals or copies, certified or otherwise identified to my
satisfaction, of such documents as I have deemed necessary or appropriate as a
basis for the opinion set forth herein, including: (i) the Registration
Statement (including the Joint Proxy Statement/Prospectus); (ii) the Sierra
Pacific Charter, as currently in effect; (iii) the By-laws of Sierra Pacific, as
currently in effect; (iv) the
<PAGE>
Sierra Pacific
September 4, 1998
Page 2
Rights Agreement, dated as of October 13, 1989, as amended, between Sierra
Pacific and First Chicago Trust Company of New York, as successor Rights
Agent; (v) the Merger Agreement; (vi) resolutions of the Board of Directors
of Sierra Pacific relating to the transactions contemplated by the Merger
Agreement; (vii) a specimen certificate evidencing the Sierra Pacific Common
Stock; and (viii) such other certificates, instruments and documents as I
considered necessary or appropriate for the purposes of this opinion.
In my examination, I have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to me as originals, the conformity to original documents of all
documents submitted to me as certified, conformed or photostatic copies and the
authenticity of the originals of such copies. In making my examination of
documents executed by parties other than Sierra Pacific, I have assumed that
such parties had the power, corporate or other, to enter into and perform all
obligations thereunder and also have assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and the validity and binding effect thereof. As to any facts
material to the opinion expressed herein which I have not independently
established or verified, I have relied upon statements and representations of
officers and other representatives of Sierra Pacific and others.
For purposes of this opinion, I have assumed that prior to the Share
Issuance (i) the Registration Statement, as finally amended (including all
necessary post-effective amendments), will become effective; (ii) the Merger
Agreement and the Shares Amendment will be approved by the affirmative vote of
the holders of a majority of the outstanding shares of Sierra Pacific Common
Stock; (iii) the Merger Agreement will be approved by the affirmative vote of
the holders of a majority of the outstanding shares of common stock, par value
$1.00 per share, of Nevada Power; (iv) the Share Issuance will be approved by
the affirmative vote of the holders of a majority of the votes cast on the Share
Issuance; PROVIDED, HOWEVER, that the total number of votes cast on the Share
Issuance represents more than 50% of the shares of Sierra Pacific Common Stock
entitled to vote thereon; (v) each of the Certificates of Merger which will give
effect to the Mergers will be duly filed with the Secretary of State of the
State of Nevada; and (vi) the certificates representing the Shares will be
manually signed by an authorized officer of the transfer agent for the Sierra
Pacific Common Stock and will be registered by the registrar for the Sierra
Pacific Common Stock and will conform to the specimen thereof examined by me.
I am admitted to the bar of the State of Nevada and do not express any
opinion as to the laws of any other jurisdiction other than the Nevada General
Corporation Law.
Based upon and subject to the foregoing, I am of the opinion that the
Shares have been duly authorized for issuance and, when issued in accordance
with the terms and conditions of the Merger Agreement, will be validly issued,
fully paid and non-assessable.
I hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement and the reference to me under the
caption "Legal Matters" in the Joint
<PAGE>
Sierra Pacific
September 4, 1998
Page 3
Proxy Statement/Prospectus forming a part of the Registration Statement. In
giving this consent, however, I do not hereby admit that I am within the
category of persons whose consent is required under Section 7 of the
Securities Act and the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ William E. Peterson
William E. Peterson
<PAGE>
EXHIBIT (8)-1
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601
(312) 782-3939
September 4, 1998
Nevada Power Company
6226 West Sahara Avenue
Las Vegas, Nevada 89102
Re: Agreement and Plan of Merger Among Nevada
Power Company, Sierra Pacific Resources,
Desert Merger Sub, Inc. and Lake Merger Sub, Inc.
-------------------------------------------------
Ladies and Gentlemen:
We have acted as special tax counsel to Nevada Power Company, a Nevada
corporation (the "COMPANY") in connection with the Agreement and Plan of
Merger, dated as of April 29, 1998 ("MERGER AGREEMENT"), among the Company,
Sierra Pacific Resources, a Nevada corporation ("SIERRA PACIFIC"), Desert Merger
Sub, Inc., a Nevada corporation and wholly owned subsidiary of Sierra Pacific
("DESERT MERGER SUB"), and Lake Merger Sub, Inc., a Nevada corporation and
wholly owned subsidiary of Sierra Pacific ("LAKE MERGER SUB"). Capitalized
terms used herein but not defined have the meanings assigned to them in the
Merger Agreement.
Pursuant to the Merger Agreement: (i) Lake Merger Sub will be merged
with and into Sierra Pacific with Sierra Pacific as the surviving corporation
(the "FIRST MERGER") and each issued and outstanding share of Sierra Pacific
Common Stock will be converted into either $37.55 in cash or 1.44 fully paid
and non-assessable shares of Sierra Pacific Common Stock, as stated in section
2.1(c) of the Merger Agreement; and (ii) the Company will be merged with and
into Desert Merger Sub with Desert Merger Sub as the surviving corporation (the
"SECOND MERGER") and each issued and outstanding share of the Company's common
stock ("NEVADA POWER COMMON STOCK") will be converted into either $26.00 in cash
or one (1) fully paid and non-assessable share of Sierra Pacific Common Stock,
as stated in section 2.2(c) of the Merger Agreement.
For purposes of this opinion, we have relied upon, and assumed the
completeness, truth, and accuracy of, the information contained in the Merger
Agreement and the Joint Proxy Statement/Prospectus filed by the Company and
Sierra Pacific relating to the First Merger and the Second Merger and have
assumed that the First Merger and the Second Merger will occur in accordance
with the terms of the Merger Agreement. In addition, we have relied upon
certain representations of the Company, Sierra Pacific, Desert Merger Sub and
Lake Merger Sub as to factual matters and have assumed, in connection
therewith, that any such representations that are qualified by reference to
the knowledge of the representor
<PAGE>
(E.G., a representation that a statement is true "to the knowledge of"
management) are true without such qualification.
Based upon and subject to the foregoing, and provided that the Merger
Agreement and tax representations referred to above set forth all of the
material facts relating to the First Merger and the Second Merger fully and
accurately as of the date hereof, and will continue to set forth such facts
fully and accurately at all times to and including the Effective Time of the
First Merger and the Effective Time of the Second Merger, we are of the
opinion that: (i) the First Merger will be a tax-free transaction under the Code
to the extent that Sierra Pacific, Lake Merger Sub, and the stockholders of
Sierra Pacific exchange their shares solely for Sierra Pacific Common Stock,
in which case no gain or loss will be recognized for federal income tax
purposes as a result of the consummation of the First Merger; and (ii) the
Second Merger will be a tax-free reorganization under the Code to the extent
that the Company, Desert Merger Sub, and the stockholders of the Company
exchange their shares solely for Sierra Pacific Common Stock, in which case
no gain or loss will be recognized for federal income tax purposes as a
result of the consummation of the Second Merger.
This opinion relates solely to the federal income tax consequences of
the First Merger and the Second Merger, and no opinion is expressed as to
consequences under any foreign, state or local tax law. Further, and
notwithstanding anything in the foregoing to the contrary, no opinion is
expressed as to the effect upon the opinion set forth above of any provision
of law that may affect any particular person differently than any other
person, by reason of such first-mentioned person's special status,
characteristics or situation, including, but not limited to, (i) employees of
the Company or Sierra Pacific, and (ii) stockholders of the Company or Sierra
Pacific who are not U.S. persons (within the meaning of Section 7701(a)(30)
of the Internal Revenue Code of 1986, as amended (the "Code")). Except as
explicitly stated herein, no other opinion is expressed or implied. This
opinion is based upon the currently applicable provisions of the Code,
regulations thereunder, current published positions of the Internal Revenue
Service, and judicial authorities published to date, all of which are subject
to change by the Congress, the Treasury Department, the Internal Revenue
Service or the courts. Any such change may be retroactive with respect to
transactions entered into prior to the date of such change. No assurance can
be provided as to the effect upon our opinion of any such change. Finally,
this opinion is not binding upon the Internal Revenue Service or the courts,
and no assurance can be given that they will accept this opinion or agree
with the views expressed herein.
We hereby consent to the filing of this opinion as Exhibit (8)-1 to the
Joint Proxy Statement/Prospectus on Form S-4, and to the reference to us
under the caption "Legal Matters" in the Joint Proxy Statement/Prospectus.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
Jones, Day, Reavis & Pogue
<PAGE>
EXHIBIT (8)-2
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
(212) 735-3000
September 4, 1998
Sierra Pacific Resources
6100 Neil Road
Reno, Nevada 89511
Re: Agreement and Plan of Merger Among Nevada
Power Company, Sierra Pacific Resources,
Desert Merger Sub, Inc. and Lake Merger Sub, Inc.
-------------------------------------------------
Ladies and Gentlemen:
We have acted as special tax counsel to Sierra Pacific Resources, a
Nevada corporation (the "Company") in connection with the Agreement and Plan of
Merger, dated as of April 29, 1998 ("Merger Agreement"), among the Company,
Nevada Power Company, a Nevada corporation ("Nevada Power"), Desert Merger Sub,
Inc., a Nevada corporation and a wholly owned subsidiary of the Company ("Desert
Merger Sub"), and Lake Merger Sub, Inc., a Nevada corporation and a wholly owned
subsidiary of the Company ("Lake Merger Sub"). Capitalized terms used herein
but not defined have the meaning assigned to them in the Merger Agreement.
Pursuant to the Merger Agreement: (i) Lake Merger Sub will be
merged with and into the Company with the Company as the surviving
corporation (the "First Merger") and each issued and outstanding share of
Sierra Pacific Common Stock will be converted into either $37.55 in cash or
1.44 fully paid and non-assessable shares of Sierra Pacific Common Stock, as
stated in section 2.1(c) of the Merger Agreement; and (ii) Nevada Power will
be merged with and into Desert Merger Sub with Desert Merger Sub as the
surviving corporation (the "Second Merger") and each issued and outstanding
share of Nevada Power Common Stock ("Nevada Power Common Stock") will be
converted into either $26.00 in cash or one (1) fully paid and non-assessable
share of Sierra Pacific Common Stock, as stated in section 2.2(c) of the
Merger Agreement.
For purposes of this opinion, we have relied upon, and assumed the
completeness, truth, and accuracy of the information contained in the Merger
Agreement and in the Joint Proxy Statement/Prospectus and have assumed that
the First Merger and the Second Merger will be consummated (A) in accordance
with the terms of the Merger Agreement and that none of the terms or
conditions contained therein has been or will be waived or modified in any
respect and (B) as described in the Joint Proxy Statement/Prospectus. In
addition, we have relied upon certain customary assumptions and
representations of the Company, Nevada Power, Desert Merger Sub and Lake
Merger Sub and have assumed, in connection
<PAGE>
therewith, that any such representations that are qualified by reference to
the knowledge of the representor (E.G., a representation that a statement is
true "to the knowledge of" management) are true without such qualification.
Moreover, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the authenticity of
the originals of such documents.
Based upon and subject to the foregoing, and provided that the
Merger Agreement and tax representations referenced above set forth all of
the material facts relating to the First Merger and the Second Merger fully
and accurately as of the date hereof, and will continue to set forth such
facts fully and accurately at all times to and including the Effective Time
of the First Merger and the Effective Time of the Second Merger, we are of
the opinion that: (i) the First Merger will be a tax-free transaction under
the Code and that the Company, Lake Merger Sub, and the stockholders of the
Company who exchange their shares solely for Sierra Pacific Common Stock will
recognize no gain or loss for federal income tax purposes as a result of the
consummation of the First Merger; and (ii) the Second Merger will be a
tax-free reorganization under the Code and that Nevada Power, Desert Merger
Sub and the stockholders of Nevada Power who exchange their shares solely for
Sierra Pacific Common Stock will recognize no gain or loss for federal income
tax purposes as a result of the consummation of the Second Merger.
This opinion relates solely to the federal income tax consequences of
the First Merger and the Second Merger, and no opinion is expressed as to
consequences under any foreign, state or local tax law. Further, and
notwithstanding anything in the foregoing to the contrary, no opinion is
expressed as to the effect upon the opinion set forth above of any provision of
law that may affect any particular person differently than any other person, by
reason of such first-mentioned person's special status, characteristics or
situation, including, but not limited to, (i) employees of the Company or Sierra
Pacific, and (ii) stockholders of the Company or Sierra Pacific who are not U.S.
persons (within the meaning of Section 7701(a)(30) of the Internal Revenue Code
of 1986, as amended (the "Code")). Except as explicitly stated herein, no other
opinion is expressed or implied. This opinion is based upon the currently
applicable provisions of the Code, regulations thereunder, current published
positions of the Internal Revenue Service, and judicial authorities published to
date, all of which are subject to change by the Congress, the Treasury
Department, the Internal Revenue Service or the courts. Any such change may be
retroactive with respect to transactions entered into prior to the date of such
change. No assurance can be provided as to the effect upon our opinion of any
such change. Finally, this opinion is not binding upon the Internal Revenue
Service or the courts, and no assurance can be given that they will accept this
opinion or agree with the views expressed herein.
This opinion is intended for the sole benefit of the Company, and is
not to be relied upon by any other person without our prior written consent.
<PAGE>
We hereby consent to the filing of this opinion as Exhibit (8)-2
to the Joint Proxy Statement/Prospectus on Form S-4, and to the reference to
us under the caption "Legal Matters" in the Joint Proxy Statement/Prospectus.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom LLP
Skadden, Arps, Slate, Meagher & Flom LLP
<PAGE>
EXHIBIT (23)-1
INDEPENDENT AUDITORS' CONSENT
NEVADA POWER COMPANY
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of our reports dated February 13, 1998 appearing in and incorporated
by reference in the Annual Report on Form 10-K of Nevada Power Company for the
year ended December 31, 1997 and the reference to us under the heading "Experts"
in the Joint Proxy Statement/Prospectus, which is part of this Registration
Statement.
/s/ Deloitte & Touche LLP
Las Vegas, Nevada
September 4, 1998
<PAGE>
EXHIBIT (23)-2
INDEPENDENT AUDITORS' CONSENT
SIERRA PACIFIC RESOURCES
We consent to the incorporation by reference in this Registration Statement
of Sierra Pacific Resources and subsidiaries on Form S-4 of our report dated
January 30, 1998, appearing in the Annual Report on Form 10-K of Sierra Pacific
Resources and subsidiaries for the year ended December 31, 1997 and to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
/s/ Deloitte & Touche LLP
Reno, Nevada
September 4, 1998
<PAGE>
EXHIBIT (23)-6
CONSENT TO USE OF
FAIRNESS OPINION IN S-4
REGISTRATION STATEMENT
We hereby consent to the use of our opinion letter dated September 4, 1998
to the Board of Directors of Nevada Power Company included as Annex B to the
Prospectus/Proxy Statement which forms a part of the Registration Statement on
Form S-4 relating to the proposed merger of Nevada Power Company with and into
Desert Merger Sub, a wholly-owned subsidiary of Sierra Pacific Resources and to
the references to such opinion in such Prospectus/Proxy Statement. In giving
such consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations issued by the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ PaineWebber Incorporated
PAINEWEBBER INCORPORATED
September 4, 1998
New York, New York
<PAGE>
EXHIBIT (23)-7
CONSENT OF SG BARR DEVLIN
We hereby consent to the use of our opinion in the Joint Proxy
Statement/Prospectus of Nevada Power Company and Sierra Pacific Resources
included in this Registration Statement of Sierra Pacific Resources and to all
references to our firm included in or made a part of this Registration
Statement. In giving such consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations adopted by the
Securities and Exchange Commission thereunder.
/s/ SG BARR DEVLIN
SG BARR DEVLIN
New York, New York
September 4, 1998
<PAGE>
EXHIBIT (23)-8
September 4, 1998
Board of Directors
Sierra Pacific Resources
6100 Neil Road
Reno, Nevada 89511
Members of the Board of Directors:
We hereby consent to the use of our opinion letter dated September 4, 1998
to the Board of Directors of Sierra Pacific Resources included as Appendix D to
the Joint Proxy Statement/Prospectus which forms a part of the Registration
Statement on Form S-4 relating to the proposed business combination of Nevada
Power Company and Sierra Pacific Resources and to the references to such opinion
in such Joint Proxy Statement/Prospectus under the captions "THE
MERGERS--Recommendations of the Board of Directors--Sierra Pacific," and "THE
MERGERS--Opinion of Sierra Pacific's Financial Advisors--Opinion of Merrill
Lynch." In giving such consent, we do not admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
commission thereunder, nor do we thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Bill D. Rifkin,
Managing Director
New York, New York
<PAGE>
EXHIBIT (99)-1
LOGO
Dear Nevada Power Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
Nevada Power Company, a Nevada corporation ("Nevada Power") to be held at
3:00 p.m. on October 9, 1998, at the Riviera Hotel & Casino, Conference
Center, 2901 Las Vegas Boulevard South, Las Vegas, Nevada (the "Special
Meeting"). Your Board of Directors looks forward to greeting personally
those stockholders able to attend.
At the meeting you will be asked to approve:
(1) a merger agreement (the "Merger Agreement") relating to the merger of
Nevada Power with DESERT Merger Sub, Inc. ("DESERT Merger Sub"), a Nevada
corporation and a wholly-owned subsidiary of Sierra Pacific Resources
("Sierra Pacific"), a Nevada corporation. Under the terms of the Merger
Agreement, Nevada Power will be merged with and into DESERT Merger Sub, with
DESERT Merger Sub remaining as the surviving corporation (the "Second
Merger"). As a result of the Second Merger, Sierra Pacific will become the
parent company of DESERT Merger Sub, which will change its name to Nevada
Power Company. Immediately prior to the Second Merger, Sierra Pacific will
merge with another of its wholly-owned subsidiaries, LAKE Merger Sub, Inc.
with Sierra Pacific as the surviving corporation (the "First Merger" and,
together with the Second Merger, the "Mergers"). Upon completion of the
Mergers, Nevada Power and Sierra Pacific Power Company will each be a first
tier utility subsidiary of Sierra Pacific and
(2) a proposal to postpone or adjourn the Special Meeting, if proposed by the
Board of Directors of Nevada Power (the "Adjournment Proposal").
The Mergers and related matters are described in detail in the accompanying
Joint Proxy Statement/Prospectus. Please review it carefully. YOUR BOARD OF
DIRECTORS RECOMMEND THAT YOU VOTE FOR THE MERGER AGREEMENT AND FOR THE
ADJOURNMENT PROPOSAL.
Whether or not you plan to attend, it is important that your shares are
represented at the meeting. Accordingly, you are requested to promptly vote,
sign, date and mail the attached proxy in the envelope provided.
Thank you for your consideration and continued support.
Very truly yours,
Charles A. Lenzie
Chairman of the Board
and Chief Executive Officer
PLEASE DETACH HERE
- -------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NEVADA POWER
COMPANY.
The signing shareholder(s) hereby appoints Mary Kaye Cashman, Fred D. Gibson
Jr., and John L. Goolsby or any one of them, with full power of substitution,
the attorneys and proxies of the signing stockholder(s) to vote all shares of
Common Stock of Nevada Power which the signing stockholder(s) is entitled to
vote at the Special Meeting of Nevada Power Company to be held on October 9,
1998, at 3:00 p.m. and at any and all adjournments of such meeting.
MANAGEMENT RECOMMENDS A "FOR" VOTE FOR ITEMS 1 AND 2.
(1) Approval of the Merger Agreement
For the Merger Agreement ____________ Against the Merger Agreement
_____ Abstain ____________
(2) Approval of the Adjournment Proposal
For the Adjournment Proposal__________ Against the Adjournment
Proposal_________ Abstain__________
----------------------------------------------------------------
(Signature) (Date)
----------------------------------------------------------------
(Signature) (Date)
(Please sign EXACTLY as your name(s) appears on this ballot.
Joint owners must EACH sign.)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SIGNING STOCKHOLDER(S), AND IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED IN FAVOR OF ITEMS 1 AND 2. IN THEIR DISCRETION, THE PROXIES ARE
AUTHORIZED TO VOTE UPON OTHER BUSINESS INCIDENT TO THE CONDUCT OF THE MEETING
AS MAY PROPERLY COME BEFORE THE MEETING.
<PAGE>
[LOGO]
Dear Sierra Pacific Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
Sierra Pacific resources, a Nevada corporation ("Sierra Pacific"), to be held at
9:00 a.m., local time, on October 9, 1998, at the Peppermill Hotel & Casino,
2707 South Virginia Street, Reno, Nevada (the "Special Meeting").
At the meeting you will be asked to approve:
(i) a proposal to approve an Agreement and Plan of Merger, dated as of April
29, 1998 (the "Merger Agreement"), by and among Nevada Power Company, a
Nevada corporation ("Nevada Power"), Sierra Pacific, DESERT Merger Sub,
Inc., a Nevada corporation and a wholly-owned subsidiary of Sierra Pacific
("DESERT Merger Sub"), and LAKE Merger Sub, Inc., a Nevada corporation and a
wholly-owned subsidiary of Sierra Pacific ("LAKE Merger Sub"), providing for
the merger of LAKE Merger Sub with and into Sierra Pacific (the "First
Merger"), with Sierra Pacific continuing as the surviving corporation, and
for the merger, immediately after the First Merger, of Nevada Power with and
into DESERT Merger Sub (the "Second Merger" and, together with the First
Merger, the "Mergers"), with DESERT Merger Sub continuing as a wholly owned
subsidiary of Sierra Pacific;
(ii) a proposal to approve the issuance of shares (the "Share Issuance") of
common stock par value $1.00 per share, together with associated stock
purchase rights, of Sierra Pacific (the "Sierra Pacific Common Stock")
pursuant to the Merger Agreement;
(iii) a proposal to amend Sierra Pacific's Amended and Restated Articles of
Incorporation to increase the maximum number of authorized shares of Sierra
Pacific Common Stock from 90,000,000 to 250,000,000 shares (the "Shares
Amendment"); and
(iv) a proposal to footnote or adjourn the Special Meeting, if proposed by the
Board of Directors of Sierra Pacific (the "Adjournment Proposal").
The Mergers and related matters are described in detail in the accompanying
Joint Proxy Statement/Prospectus. Please review it carefully. YOUR BOARD OF
DIRECTORS RECOMMEND THAT YOU VOTE FOR THE MERGER AGREEMENT, THE SHARE ISSUANCE
AND THE SHARES AMENDMENT AND THE ADJOURNMENT PROPOSAL.
Whether or not you plan to attend, it is important that your shares are
represented at the meeting. Accordingly, you are requested to promptly vote,
sign, date and mail the attached proxy in the envelope provided.
Thank you for your consideration and continued support.
Very truly yours,
Malyn K. Malquist
Chairman of the Board, President
and Chief Executive Officer
_______________________________PLEASE DETACH HERE_______________________________
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SIERRA PACIFIC.
THE BOARD OF DIRECTORS RECOMMENDS A "FOR" VOTE FOR EACH PROPOSAL.
PLEASE
MARK YOUR
VOTE
AS SUGGESTED
/X/
IN
THIS EXAMPLE.
The undersigned hereby appoints Harold P. Dayton, Jr. and Malyn K. Malquist or
either of them, each with full power of submission, proxies to vote all shares
of Sierra Pacific Common Stock which the undersigned may be entitled to vote at
the Special Meeting to be held on October 9, 1998 and at any and all
adjournments thereof:
(1) To approve the Merger Agreement.
<TABLE>
<C> <C> <C> <S>
For Against Abstain
/ / / / / /
</TABLE>
(2) To approve the Share Issuance.
<TABLE>
<C> <C> <C> <S>
For Against Abstain
/ / / / / /
</TABLE>
(3) To approve the Shares Amendment.
<TABLE>
<C> <C> <C> <S>
For Against Abstain
/ / / / / /
</TABLE>
(4) To approve the Adjournment Proposal.
<TABLE>
<C> <C> <C> <S>
For Against
/ / / /
</TABLE>
___________________________________
(Signature) (Date)
___________________________________
(Signature) (Date)
(Please sign EXACTLY as your
name(s) appear on this ballot.
Joint owners must EACH sign.)
THIS PROXY WHEN PROPERLY EXECUTED
WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE SIGNING
SHAREHOLDER(S). IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR
THE PROPOSALS. IN THEIR DISCRETION,
THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING.
<PAGE>
EXHIBIT 99.3
VOTE
[FOR]
THE MERGER
To Create A Premier Distribution,
Transmission and Energy Services
Company In the Western U.S.
[PHOTOGRAPH OF CACTUS]
[NEVADA POWER COMPANY LOGO] [SIERRA PACIFIC RESOURCES LOGO]
<PAGE>
This booklet includes forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. These forward-looking
statements reflect numerous assumptions, and involve a number of risks and
uncertainties. Among the factors that could cause actual results to differ
materially are: electric load and customer growth; abnormal weather conditions;
available sources and cost of fuel and generating capacity; the speed and degree
to which competition enters the power generation, wholesale and retail sectors
of the electric utility industry; state and federal regulatory initiatives that
increase competition, threaten cost and investment recovery, and impact rate
structures; the ability of the combined company to successfully reduce its cost
structure; the economic climate and growth in the service territories of the two
companies; economies generated by the merger; interest costs and the other risks
detailed in the Joint Proxy Statement/Prospectus and from time to time in the
two companies' SEC reports.
<PAGE>
Dear Stockholder:
Recently, we mailed to you a copy of our Joint Proxy Statement/Prospectus, a
comprehensive document required by the Securities and Exchange Commission in
connection with the proposed merger of Nevada Power Company and Sierra Pacific
Resources. We urge you to read that document carefully. It contains all the
important information you need to consider the merger. This brochure provides
an overview of the merger and what we believe will be the resulting benefits.
This merger is about growth, opportunity and maximizing shareholder value in the
face of dramatic changes taking place in the utility industry. Together, Nevada
Power and Sierra Pacific will create a strong, customer-focused company that can
effectively serve the needs of Nevada, the fastest-growing state in the nation.
Combining Nevada Power with Sierra Pacific will enhance our ability to
capitalize on the rapid customer growth in our service territories and convert
it into bottom-line growth.
Your Board of Directors believes that the merger is in the best interests of
Nevada Power and its stockholders and has unanimously recommended a vote FOR
approval of the Merger Agreement.
We urge you to return the enclosed proxy card today with a vote FOR approval of
the Merger Agreement. If you have questions regarding the merger transaction,
please call 1-888-750-5834.
Sincerely,
[SIGNATURE OF CHARLES A. LENZIE] [SIGNATURE OF MICHAEL R. NIGGLI]
Charles A. Lenzie Michael R. Niggli
Chairman of the Board President and
and Chief Executive Officer Chief Operating Officer
Nevada Power Company Nevada Power Company
<PAGE>
WHAT AM I BEING ASKED TO VOTE FOR?
Stockholders of both Nevada Power and Sierra Pacific are being asked to
approve a Merger Agreement involving a series of transactions in which
Nevada Power and Sierra Pacific Power will be subsidiaries of Sierra
Pacific Resources, the current holding company for Sierra Pacific Power.
Both Nevada Power and Sierra Pacific will retain their individual names and
identities in their respective service territories. Stockholders of Sierra
Pacific are also being asked to approve the issuance of shares of Sierra
Pacific common stock in connection with the merger and a charter amendment
to increase the maximum number of authorized shares of Sierra Pacific
common stock.
WHY SHOULD I VOTE FOR THE MERGER?
Your Board of Directors unanimously recommends that you vote FOR approval
of the Merger Agreement. The combination of Nevada Power and Sierra
Pacific is expected to provide substantial strategic and financial benefits
to the stockholders of both companies, as well as to their employees and
customers and the communities in which they do business.
ARE THERE RISKS CONNECTED TO THE MERGER?
Yes, there are some risks and possible detriments to the merger; but your
Board carefully considered these matters before making its recommendation
that you approve the merger. Achieving the benefits of the merger will
depend on our receiving favorable orders from the regulatory bodies that
must approve the merger. The cash price or the number of shares you will
receive in the merger are fixed. Even if the market price of the Nevada
Power stock or the Sierra Pacific stock should change between now and when
the mergers are completed, the cash price or number of shares you will
receive in the merger will not change. You will make your election of cash
or stock shortly before the completion of the merger in mid-1999. You
should read this Joint Proxy Statement/Prospectus for a more complete
discussion of the risks and benefits of the merger.
WHAT HAPPENS IF I DON'T VOTE?
To approve the Merger Agreement, we must receive the affirmative votes of
the holders of a majority of the outstanding common stock of both Nevada
Power and Sierra Pacific. Not voting or abstaining from voting has the
same effect as a vote against the merger.
WHAT ARE THE FEDERAL TAX CONSEQUENCES OF THE MERGER TO STOCKHOLDERS?
It is expected that stockholders who exchange their stock solely for shares
of the combined company will recognize no gain or loss for U.S. federal
income tax purposes. Stockholders who receive cash in connection with the
merger may recognize taxable gains. Such gains will, under most
circumstances, be treated as capital gains. For more detailed information
of how this will affect you personally, please review the Joint Proxy
Statement/Prospectus and consult your tax advisor.
<PAGE>
WHAT WILL BE THE DIVIDEND LEVEL OF THE COMBINED COMPANY?
After the merger, the combined company expects to establish an initial
annual dividend rate of $1.00 per share, which would result in a payout
ratio of between 50% and 55% of net income.
DOES THIS REPRESENT A CHANGE TO THE CURRENT DIVIDEND LEVEL?
The expected annual dividend level for the combined company will be
consistent with Nevada Power's recent announcement that it intends to pay
quarterly dividends of $0.25 per share, effective with the November 1998
quarterly dividend.
WHEN WILL THE MERGER TAKE PLACE?
The merger will take place after all necessary approvals have been
received. The Boards of Directors of both Nevada Power and Sierra Pacific
have already unanimously approved the Merger Agreement. The merger
requires the affirmative vote of the holders of a majority of both Nevada
Power and Sierra Pacific common stock, and also requires the approval of
the Public Utilities Commission of Nevada, the Federal Energy Regulatory
Commission and the Securities and Exchange Commission, as well as certain
federal antitrust reviews. It is anticipated that the merger will occur in
mid-1999.
WHAT DO I NEED TO DO NOW?
Whether or not you plan to attend the special meeting of stockholders, we
urge you to vote FOR, sign and date the proxy card and return it in the
enclosed postage-paid envelope today. Not voting or abstaining from voting
has the same effect as voting against the merger.
YOUR VOTE IS IMPORTANT.
TO VOTE IN FAVOR OF THE MERGER,
VOTE FOR, SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD TODAY.
<PAGE>
COMPETITIVE BENEFITS FOR
STOCKHOLDERS AND CUSTOMERS
RETAIL ELECTRIC KWH SALES
5-YEAR AVERAGE
[GRAPH]
Combined Company 7%
Industry Average 2%
CUSTOMERS
5-YEAR AVERAGE
[GRAPH]
Combined Company 5%
Industry Average 1%
<PAGE>
COMPANY PROFILES
SIERRA PACIFIC RESOURCES
NYSE symbol: SRP
Headquartered in Reno, Nevada
453,000 electric, gas and water customers
1,500 employees
$663 million in total operating revenues (*)
$74 million in earnings*
30.9 million in weighted average shares outstanding*
NEVADA POWER COMPANY
NYSE and PE symbol: NVP
Headquartered in Las Vegas, Nevada
530,000 electric customers
1,900 employees
$800 million in total operating revenues *
$83 million in earnings*
49.7 million in weighted average shares outstanding*
- -----------------
(*) For 1997
<PAGE>
(MAP OF COMBINED SERVICE TERRITORY)
<PAGE>
TERMS OF THE MERGER AGREEMENT
The combined company, Sierra Pacific Resources, will be the holding company for
Nevada Power Company, Sierra Pacific Power Company and other subsidiaries.
Upon consummation of the merger, each stockholder of Nevada Power will have the
opportunity, subject to proration described in the Joint Proxy
Statement/Prospectus under "Allocation of Cash and Stock" in the Summary Section
to elect to receive either 1.00 share of the combined company's common stock per
share or $26.00 in cash per share. The cash amount represents a 5% premium to
Nevada Power's 10-day average trading price through April 28, 1998, the date
prior to approval of the Merger Agreement by Nevada Power's Board.
If Nevada Power stockholders fail to elect to receive all of the $304.6 million
in cash allocated to them, stockholders will receive, in lieu of a portion of
their shares, cash which will be proportionately allocated among those
stockholders who have elected to receive shares of the combined company's common
stock.
If Nevada Power stockholders fail to elect to receive all of the shares of the
combined company's common stock allocated to them, stockholders will receive, in
lieu of all or a portion of the cash they elected to receive, shares which will
be proportionately allocated among those stockholders who have elected to
receive cash. Holders of fewer than 100 shares or holders who elect to receive
fewer than 100 shares will receive cash in any event.
The cash price or the number of shares you will receive in the merger are fixed.
Even if the market price of the Nevada Power stock or the Sierra Pacific stock
should change between now and when the mergers are completed, the cash price or
number of shares you will receive in the merger will not change. You will not
have to decide whether you want stock or cash until just before the
effectiveness of the merger -- expected by mid-1999.
After consummation of the merger, the combined company's common stock will be
owned approximately 50.2% by former Nevada Power stockholders and 49.8% by
former Sierra Pacific stockholders.
<PAGE>
IMPORTANT
After careful review and consideration, your Board of Directors has unanimously
approved the Merger Agreement, and recommends a vote FOR approval of the Merger
Agreement.
We urge you to carefully review the Joint Proxy Statement/Prospectus and then
vote FOR, sign and date the enclosed proxy card and return it today in the
postage-paid envelope provided. Remember, not voting or abstaining from voting
will have the same effect as voting against the merger.
If you have any questions, or need further assistance, please call our proxy
solicitor, INNISFREE M&A Incorporated, at 1-888-750-5834.
WE URGE YOU TO VOTE FOR
THE APPROVAL OF THE
MERGER AGREEMENT.
PLEASE VOTE FOR,
SIGN AND DATE THE PROXY CARD
AND RETURN IT TODAY.
THANK YOU FOR YOUR SUPPORT.
<PAGE>
VOTE
[FOR]
THE MERGER
[NEVADA POWER COMPANY LOGO] [SIERRA PACIFIC RESOURCES LOGO]
<PAGE>
EXHIBIT 99.4
VOTE
[FOR]
THE MERGER
To Create A Premier Distribution,
Transmission and Energy Services
Company In the Western U.S.
[PHOTOGRAPH OF PINE TREE]
[NEVADA POWER COMPANY LOGO] [SIERRA PACIFIC RESOURCES LOGO]
<PAGE>
This booklet includes forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. These forward-looking
statements reflect numerous assumptions, and involve a number of risks and
uncertainties. Among the factors that could cause actual results to differ
materially are: electric load and customer growth; abnormal weather conditions;
available sources and cost of fuel and generating capacity; the speed and degree
to which competition enters the power generation, wholesale and retail sectors
of the electric utility industry; state and federal regulatory initiatives that
increase competition, threaten cost and investment recovery, and impact rate
structures; the ability of the combined company to successfully reduce its cost
structure; the economic climate and growth in the service territories of the two
companies; economies generated by the merger; interest costs and the other risks
detailed in the Joint Proxy Statement/Prospectus and from time to time in the
two companies' SEC reports.
<PAGE>
Dear Stockholder:
Recently, we mailed to you a copy of our Joint Proxy Statement/Prospectus, a
comprehensive document required by the Securities and Exchange Commission in
connection with the proposed merger of Sierra Pacific Resources and Nevada Power
Company. We urge you to read that document carefully. It contains all the
important information you need to consider the merger. This brochure provides
an overview of the merger and what we believe will be the resulting benefits.
This merger is about growth, opportunity and maximizing shareholder value in the
face of dramatic changes taking place in the utility industry. Together, Sierra
Pacific and Nevada Power will create a strong, customer-focused company that can
effectively serve the needs of Nevada, the fastest-growing state in the nation.
Combining Sierra Pacific with Nevada Power will enhance our ability to
capitalize on the rapid customer growth in our service territories and convert
it into bottom-line growth.
For Sierra Pacific stockholders, the expected initial annual dividend level for
the combined company multiplied by the merger exchange ratio reflects an 11%
increase over Sierra Pacific's current annual dividend of $1.30 per share.
Your Board of Directors believes that the merger is in the best interests of
Sierra Pacific and its stockholders and has unanimously recommended a vote FOR
approval of the Merger Agreement, the Share Issuance and the Shares Amendment.
We urge you to return the enclosed proxy card today with a vote FOR approval of
the Merger Agreement and the related Share Issuance and Shares Amendment. If
you have questions regarding the merger transaction, please call 1-800-322-2885.
Sincerely,
[SIGNATURE OF MALYN K. MALQUIST]
Malyn K. Malquist
Chairman of the Board,
President and Chief Executive Officer
Sierra Pacific Resources
<PAGE>
QUESTIONS & ANSWERS
WHAT AM I BEING ASKED TO VOTE FOR?
Stockholders of both Nevada Power and Sierra Pacific are being asked to
approve a Merger Agreement involving a series of transactions in which
Nevada Power and Sierra Pacific Power will be subsidiaries of Sierra
Pacific Resources, the current holding company for Sierra Pacific Power.
Both Nevada Power and Sierra Pacific will retain their individual names and
identities in their respective service territories. Stockholders of Sierra
Pacific are also being asked to approve the issuance of shares of Sierra
Pacific common stock in connection with the merger and a charter amendment
to increase the maximum number of authorized shares of Sierra Pacific
common stock.
WHY SHOULD I VOTE FOR THE MERGER?
Your Board of Directors unanimously recommends that you vote FOR approval
of the Merger Agreement. The combination of Nevada Power and Sierra
Pacific is expected to provide substantial strategic and financial benefits
to the stockholders of both companies, as well as to their employees and
customers and the communities in which they do business.
ARE THERE RISKS CONNECTED TO THE MERGER?
Yes, there are some risks and possible detriments to the merger; but your
Board carefully considered these matters before making its recommendation
that you approve the merger. Achieving the benefits of the merger will
depend on our receiving favorable orders from the regulatory bodies that
must approve the merger. The cash price or the number of shares you will
receive in the merger are fixed. Even if the market price of the Nevada
Power stock or the Sierra Pacific stock should change between now and when
the mergers are completed, the cash price or number of shares you will
receive in the merger will not change. You will make your election of cash
or stock shortly before the completion of the merger in mid-1999. You
should read this Joint Proxy Statement/Prospectus for a more complete
discussion of the risks and benefits of the merger.
WHAT HAPPENS IF I DON'T VOTE?
To approve the Merger Agreement, we must receive the affirmative votes of
the holders of a majority of the outstanding common stock of both Nevada
Power and Sierra Pacific. Not voting or abstaining from voting has the
same effect as a vote against the merger.
WHAT ARE THE FEDERAL TAX CONSEQUENCES OF THE MERGER TO STOCKHOLDERS?
It is expected that stockholders who exchange their stock solely for shares
of the combined company will recognize no gain or loss for U.S. federal
income tax purposes. Stockholders who receive cash in connection with the
merger may recognize taxable gains. Such gains will, under most
circumstances, be treated as capital gains. For more detailed information
of how this will affect you personally, please review the Joint Proxy
Statement/Prospectus and consult your tax advisor.
<PAGE>
QUESTIONS & ANSWERS
WHAT WILL BE THE DIVIDEND LEVEL OF THE COMBINED COMPANY?
After the merger, the combined company expects to establish an initial
annual dividend rate of $1.00 per share, which would result in a payout
ratio of between 50% and 55% of net income.
DOES THIS REPRESENT A CHANGE TO THE CURRENT DIVIDEND?
For Sierra Pacific stockholders, the expected annual dividend level for the
combined company multiplied by the exchange ratio reflects an 11% increase
over Sierra Pacific's current annual dividend of $1.30 per share.
WHEN WILL THE MERGER TAKE PLACE?
The merger will take place after all necessary approvals have been
received. The Boards of Directors of both Nevada Power and Sierra Pacific
have already unanimously approved the Merger Agreement. The merger
requires the affirmative vote of the holders of a majority of both Nevada
Power and Sierra Pacific common stock, and also requires the approval of
the Public Utilities Commission of Nevada, the Federal Energy Regulatory
Commission and the Securities and Exchange Commission, as well as certain
federal antitrust reviews. It is anticipated that the merger will occur in
mid-1999.
WHAT DO I NEED TO DO NOW?
Whether or not you plan to attend the special meeting of stockholders, we
urge you to vote FOR, sign and date the proxy card and return it in the
enclosed postage-paid envelope today. Not voting or abstaining from voting
has the same effect as voting against the merger.
YOUR VOTE IS IMPORTANT.
TO VOTE IN FAVOR OF THE MERGER,
VOTE FOR, SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD TODAY.
<PAGE>
COMPETITIVE BENEFITS FOR
STOCKHOLDERS AND CUSTOMERS
RETAIL ELECTRIC kwh SALES
5-YEAR AVERAGE
[GRAPH]
<TABLE>
<CAPTION>
<S> <C>
Combined Company 7%
Industry Average 2%
</TABLE>
CUSTOMERS
5-YEAR AVERAGE
[GRAPH]
<TABLE>
<CAPTION>
<S> <C>
Combined Company 5%
Industry Average 1%
</TABLE>
<PAGE>
COMPANY PROFILES
SIERRA PACIFIC RESOURCES
NYSE symbol: SRP
Headquartered in Reno, Nevada
453,000 electric, gas and water customers
1,500 employees
$663 million in total operating revenues*
$74 million in earnings*
30.9 million in weighted average shares outstanding*
NEVADA POWER COMPANY
NYSE and PE symbol: NVP
Headquartered in Las Vegas, Nevada
530,000 electric customers
1,900 employees
$800 million in total operating revenues*
$83 million in earnings*
49.7 million in weighted average shares outstanding*
<PAGE>
(MAP OF COMBINED SERVICE TERRITORY)
<PAGE>
TERMS OF THE MERGER AGREEMENT
Sierra Pacific Resources will be the holding company for Nevada Power Company,
Sierra Pacific Power Company and other subsidiaries.
Upon consummation of the merger, each stockholder of Sierra Pacific will have
the opportunity, subject to proration described in the joint Proxy
Statement/Prospectus under "Allocation of Cash and Stock" in the Summary Section
to elect to receive either 1.44 shares of the combined company's common stock
per share or $37.55 in cash per share. The cash amount represents a 5% premium
to Sierra Pacific's 10-day average trading price through April 28, 1998, the
date prior to approval of the Merger Agreement by Sierra Pacific's Board.
If Sierra Pacific stockholders fail to elect to receive all of the $151.6
million in cash allocated to them, stockholders will receive, in lieu of a
portion of their shares, cash. The cash will be proportionately allocated among
those stockholders who have elected to receive shares of the combined company's
common stock.
If stockholders of Sierra Pacific fail to elect to receive all of the shares of
the combined company's common stock allocated to them, stockholders will
receive, in lieu of all or a portion of the cash they elected to receive,
shares. The shares will be proportionately allocated among those stockholders
who have elected to receive cash. Holders of fewer than 100 shares or holders
who elect to receive fewer than 100 shares will receive cash in any event.
The cash price or the number of shares you will receive in the merger are fixed.
Even if the market price of the Nevada Power stock or the Sierra Pacific stock
should change between now and when the mergers are completed, the cash price or
number of shares you will receive in the merger will not change. You will not
have to decide whether you want stock or cash until just before the
effectiveness of the merger -- expected by mid-1999.
After consummation of the merger, the combined company's common stock will be
owned approximately 50.2% by former Nevada Power stockholders and 49.8% by
former Sierra Pacific stockholders.
<PAGE>
IMPORTANT
After careful review and consideration, your Board of Directors has unanimously
approved the Merger Agreement and the related Share Issuance and Shares
Amendment, and recommends a vote FOR approval of the Merger Agreement, the Share
Issuance and the Shares Amendment.
We urge you to carefully review the Joint Proxy Statement/Prospectus and then
vote FOR, sign and date the enclosed proxy card today and return it in the
postage-paid envelope provided. Remember, not voting or abstaining from voting
will have the same effect as voting against the merger.
If you have any questions or need further assistance, please call our proxy
solicitor, MacKenzie Partners, Inc., at 1-800-322-2885.
WE URGE YOU TO VOTE FOR
THE APPROVAL OF THE
MERGER AGREEMENT.
PLEASE VOTE FOR,
SIGN AND DATE THE PROXY CARD
AND RETURN IT TODAY.
THANK YOU FOR YOUR SUPPORT.
<PAGE>
VOTE
[FOR]
THE MERGER
[NEVADA POWER COMPANY LOGO] [SIERRA PACIFIC RESOURCES LOGO]
<PAGE>
EXHIBIT (99)-5
SIERRA PACIFIC RESOURCES
CONSENT OF PROSPECTIVE DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended
(the "Securities Act"), the undersigned hereby consents to be named as about
to become a director of Sierra Pacific Resources (the "Registrant") in the
Registration Statement on Form S-4 of the Registrant relating to the merger
of Registrant with Nevada Power Company to be filed with the Securities and
Exchange Commission pursuant to the Securities Act.
/s/ Michael R. Niggli
-----------------------------------
Michael R. Niggli
September 4, 1998
- ------------------------------
Date
