-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BpRWHAfyD4vfO3Kn5A2y9WVs4aZCfI3NYAGmnkm53zoMV7H/NhmS9bkf0Z3RkoBK AFYzz3g9hY4BEs0Mu86M4A== 0000071180-98-000005.txt : 19980324 0000071180-98-000005.hdr.sgml : 19980324 ACCESSION NUMBER: 0000071180-98-000005 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980323 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEVADA POWER CO CENTRAL INDEX KEY: 0000071180 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 880045330 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-04698 FILM NUMBER: 98570796 BUSINESS ADDRESS: STREET 1: 6226 W SAHARA AVE CITY: LAS VEGAS STATE: NV ZIP: 89102 BUSINESS PHONE: 7023675000 MAIL ADDRESS: STREET 1: P O BOX 230 CITY: LAS VEGAS STATE: NV ZIP: 89151 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHERN NEVADA POWER CO DATE OF NAME CHANGE: 19701113 10-K405 1 1997 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 Commission file number 1-4698 NEVADA POWER COMPANY (Exact name of registrant as specified in its charter) Nevada 88-0045330 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 6226 West Sahara Avenue 89102 Las Vegas, Nevada (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (702) 367-5000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered -------------------------- ----------------------- Common Stock, $1 Par Value New York Stock Exchange Pacific Exchange Stock Purchase Rights New York Stock Exchange 8.2% Cumulative Quarterly Income Preferred Securities, Series A New York Stock Exchange * issued by NVP Capital I, a Delaware Statutory Business Trust The payment of trust distributions and payments on liquidation or redemption are guaranteed under certain circumstances by Nevada Power Company. Nevada Power Company is the owner of 100% of the common securities issued by NVP Capital I. Securities registered pursuant to Section 12(g) of the Act: Cumulative Preferred Stock, $20 Par Value, 5.40% Series (Title of class) Cumulative Preferred Stock, $20 Par Value, 5.20% Series (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ---- 50,690,453 shares of Common Stock were outstanding as of March 18, 1998. The aggregate market value of Common Stock, which is the only voting stock, held by non-affiliates as of March 18, 1998, was $1,305,279,164. (Computed by reference to the closing price on March 18, 1998, as reported by the Wall Street Journal as New York Stock Exchange Composite Transactions.) DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the Registrant's Annual Report to Shareholders for the year ended December 31, 1997 are incorporated by reference into Parts II and IV hereof. (2) Portions of the Registrant's definitive Proxy Statement dated March 12, 1998 for the Company's annual meeting of shareholders on May 8, 1998, are incorporated by reference into Part III hereof. TABLE OF CONTENTS Page ---- PART I Item 1. Business ...................................... 1 Item 2. Properties .................................... 8 Item 3. Legal Proceedings ............................. 9 Item 4. Submission of Matters to a Vote of Security Holders........................................ 10 Supplemental Item. Executive Officers of Registrant .............. 10 PART II Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters ............... 11 Item 6. Selected Financial Data ....................... 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation... 11 Item 8. Consolidated Financial Statements and Supplementary Data ............................ 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........ 12 PART III Item 10. Directors and Executive Officers of the Registrant .................................... 12 Item 11. Executive Compensation ........................ 12 Item 12. Security Ownership of Certain Beneficial Owners and Management ................................ 12 Item 13. Certain Relationships and Related Transactions. 13 PART IV Item 14. Exhibits, Consolidated Financial Statement Schedule, and Reports on Form 8-K ............. 13 SIGNATURES .................................................. 26 PART I ITEM 1. BUSINESS THE COMPANY Nevada Power Company (Company), incorporated in 1929 under the laws of Nevada, is an operating public utility engaged in the electric utility business in the City of Las Vegas and vicinity in southern Nevada. Most of the Company's operations are conducted in Clark County, Nevada (with an estimated service area population of 1,303,000 at December 31, 1997) where the Company furnishes electric service in the communities of Las Vegas, North Las Vegas, Henderson, Searchlight, Laughlin and adjoining areas and to Nellis Air Force Base (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 Public Utilities Commission of Nevada (PUCN). See the "Competition" section in this Form 10-K. SOURCES OF ELECTRIC ENERGY SUPPLY The electric energy obtained from the Company's own generating facilities will be produced at the following plants: Number Net Capacity Plant of Units (Megawatts) ----- -------- ------------ Coal Fuel: Reid Gardner (Steam).............. 3 330 Reid Gardner Unit No. 4 (Steam)... 1 275(1) Mohave (Steam).................... 2 196(2) Navajo (Steam).................... 3 255(3) Natural Gas and Oil Fuel: Clark (Steam)..................... 3 175 Clark (Gas Turbine)............... 1 50 Clark (Combined Cycle)............ 2 462 Sunrise (Steam)................... 1 80 Sunrise (Gas Turbine)............. 1 69 Harry Allen (Gas Turbine)......... 1 72 ----- 1,964 ===== _________________ (1) This represents 25 megawatts of base load capacity, 235 megawatts of peaking capacity and 15 megawatts (MW) upgrade capacity accomplished in 1990. Reid Gardner Unit No. 4, placed in service July 25, 1983, is a coal- fired unit which is owned 32.2% by the Company and 67.8% by the Department of Water Resources of the State of California (CDWR). The Company is entitled to use 100% of the unit's peaking capacity for 1,500 hours each year. The Company is entitled to 9.6% of the first 260 megawatts of capacity and associated energy and is entitled to all of the 1990 15 megawatt upgrade through August 31, 1998 when the 15 megawatt upgrade capacity will be transferred to CDWR. The Company had options for the use of increasing amounts of capacity and energy from the unit beginning in 1998 so that the Company would have been entitled to use all of the unit's output 15 years from that date. However, the 1998 through 2002 options for 10.17 MW per year were not exercised by the Company and have expired. (2) This represents the Company's 14% undivided interest in the Mohave Generating Station as tenant in common without right of partition with three other non-affiliated utilities, less operating restrictions. 1 (3) This represents the Company's 11.3% undivided interest in the Navajo Generating Station as tenant in common without right of partition with five other non-affiliated utilities. The Company purchases Hoover Dam power pursuant to a contract with the State of Nevada which became effective June 1, 1987 and will continue through September 30, 2017. The Company's allocation of capacity is 235 MW. The peak electric demand experienced by the Company was 3,469 megawatts on August 7, 1997. This demand plus a reserve margin was served by a combination of Company owned generation, and firm and short-term power purchases. For 1998, the Company has contracts to purchase power from an independent power producer (IPP) and four qualifying facilities (QF) (also known as cogenerators) as follows: Contract Term Net Capacity --------------------- From To (Megawatts) -------- -------- ------------ Independent Power Producer: --------------------------- Nevada Sun-Peak Limited Partnership ............. 06/08/91 05/31/16 210 Qualifying Facilities: ---------------------- Saguaro Power Company .... 10/17/91 04/30/22 90 Nevada Cogeneration Associates #1 ........... 06/18/92 04/30/23 85 Nevada Cogeneration Associates #2 ........... 02/01/93 04/30/23 85 Las Vegas Cogeneration Limited Partnership ..... 05/10/94 05/31/24 45 --- 515 === The Company has total generating capacity of 2,714 megawatts, including 235 megawatts of Hoover Dam power, 210 megawatts of IPP power and 305 megawatts of QF power. This along with agreements with other suppliers to purchase 1130 megawatts of firm capacity and associated energy, for the summer of 1998, will not be sufficient to meet the 1998 anticipated peak load demand and reserve margin needs. Accordingly, the Company is utilizing a competitive bidding process as well as spot market purchases to obtain resources from other suppliers for additional firm capacity and associated energy to meet the projected peak needs for 1998. FUEL SUPPLIES The fuels used to provide energy for the Company's generating facilities are coal, natural gas and oil. Its other sources of electricity are hydroelectric (Hoover Dam) and purchased power. The Company's primary fuel source for generation is coal. The following table shows the actual sources of fuel for generation for 1997 and anticipated sources of fuel for generation in 1998 and 1999. 1997 1998 1999 ---- ---- ---- Coal........................ 67% 66% 65% Natural Gas................. 33 34 35 --- --- --- 100% 100% 100% === === === The Company's average delivered cost per ton of coal burned was as follows: 1995 - $30.37; 1996 - $29.02; 1997 - $29.72. 2 Coal for both the Mohave and Navajo Stations is obtained from surface mining operations conducted by Peabody Coal Company (Peabody) on portions of the Black Mesa in Arizona within the Navajo and Hopi Indian reservations. The supply contracts with Peabody extend to December 31, 2005 for Mohave and to June 1, 2011 for Navajo, each contract having an option to extend for an additional 15 years. Partial requirements for coal at the Reid Gardner Generating Station are presently under contract through the year 2007. Although the Company cannot predict how the coal market may fluctuate in the future, the Company anticipates no major difficulties in purchasing the remainder of its coal requirements based upon current coal market conditions in the Western United States. All coal for Reid Gardner presently comes from underground mines in Utah and Colorado. CONSTRUCTION AND FINANCING PROGRAMS The Company carries on a continuing program to extend and enlarge its facilities to meet current and future loads on its system. Gross plant additions and retirements for the five years ended December 31, 1997 amounted to $956,714,000 and $88,430,000, respectively. Excluding Allowance for Funds Used During Construction, the Company's actual construction expenditures for 1997 were $211 million, and currently estimated construction expenditures for 1998 and 1999 are $295 million and $255 million, respectively. The Company's construction program and estimated expenditures are subject to continuing review and are revised from time to time due to various factors, including the rate of load growth, escalation of construction costs, availability of fuel types, changes in environmental regulations, adequacy of rate relief and the Company's ability to raise necessary capital. The Company will utilize internally generated cash and the proceeds from industrial development revenue bonds (IDBs), first mortgage bonds (FMBs), unsecured borrowings, preferred securities and common stock issues through public offerings and the Stock Purchase and Dividend Reinvestment Plan (SPP) to meet capital expenditure requirements through 1999. The Company has the option of issuing new shares or using open market purchases of its common stock to meet the requirements of the SPP. The Company issued 1,515,716 shares of its common stock in 1997 under the SPP. At the end of 1997, common equity represented 45% of total capitalization. On November 20, 1997, Clark County, Nevada issued $52.3 million 5.9% IDBs Series 1997A (Nevada Power Company Project) due 2032 and Coconino County, Arizona issued $20 million 5.8% Pollution Control Revenue Bonds (PCRBs) Series 1997B (Nevada Power Company Project) due 2032. Net proceeds from the sale of the IDBs were placed on deposit with a trustee and will be used to finance the construction of certain facilities which qualify for tax-exempt financing. Net proceeds from the sale of the PCRBs were placed on deposit with a trustee and are being used to finance the construction of the Navajo scrubber facilities which qualify for tax-exempt financing. At December 31, 1997, $52.9 million remained on deposit with the trustee. The Company also remarketed $85 million Series 1995B Clark County, Nevada (Nevada Power Company Project) variable rate IDBs due 2030 at a 5.9 percent fixed rate on November 24, 1997. On January 29, 1998, the Company remarketed at fixed rates $141.05 million Clark County, Nevada (Nevada Power Company Project) variable rate revenue bonds consisting of $76.75 million Series 1995A IDBs due 2030 at 5.6 percent, $44 million Series 1995C IDBs due 2030 at 5.5 percent and $20.3 million Series 1995D PCRBs with $14 million due 2011 at 3 5.3 percent and $6.3 million due 2023 at 5.45 percent. On the same date, $13 million Coconino County, Arizona (Nevada Power Company Project) Series 1995E PCRBs due 2022 were remarketed at a 5.35 percent fixed rate. The Indenture under which the Company's first mortgage bonds are issued provides that no additional bonds may be issued unless earnings as defined equal at least two and one-half times the interest requirements on all bonds to be outstanding after the new issue. Based on its earnings through December 31, 1997 and assuming a 7.5 percent interest rate on new bonds, the Company would be able to issue approximately $594 million of additional first mortgage bonds. The Company's ability to issue additional debt is also limited by the need to maintain a reasonable ratio of debt to equity. The Company's ability to sell additional preferred stock is limited by the necessity to meet required dividend coverages. At December 31, 1997, the applicable dividend coverage test would permit the issuance of $429 million of additional preferred stock at a dividend rate of 7.5 percent. On April 2, 1997, NVP Capital I (Trust), a wholly-owned subsidiary of the Company, issued 4,754,860 8.2% Quarterly Income Preferred Securities (QUIPS) at $25 per security. The Company owns all of the Series A common securities, 147,058 shares issued by the Trust for $3.7 million. The QUIPS and the common securities represent undivided beneficial ownership interests in the assets of the Trust, a statutory business trust formed under the laws of the state of Delaware. The existence of the Trust is for the sole purpose of issuing the QUIPS and the common securities and using the proceeds thereof to purchase from the Company its 8.2% Junior Subordinated Deferrable Interest Debentures (QUIDS) due March 31, 2037, extendable to March 31, 2046 under certain conditions, in a principal amount of $122.6 million. The sole asset of the Trust is the QUIDS. The Company's obligations under the guarantee agreement entered into in connection with the QUIPS when taken together with the Company's obligation to make interest and other payments on the QUIDS issued to the Trust, and the Company's obligations under the Indenture pursuant to which the QUIDS are issued and its obligations under a trust agreement, including its liabilities to pay costs, expenses, debts and liabilities of the Trust, provides a full and unconditional guarantee by the Company of the Trust's obligations under the QUIPS. Financial statements of the Trust are consolidated with the Company's. Separate financial statements are not filed because the Trust is wholly-owned by the Company and essentially has no independent operations, and the Company's guarantee of the Trust's obligations is full and unconditional. The $118.9 million in net proceeds to the Company was used for general corporate utility purposes and the repayment of short-term debt incurred to redeem the Company's $38 million, 9.9% Redeemable Cumulative Preferred Stock on April 1, 1997. RESOURCE PLANNING The Company's rate of customer growth, especially in recent years, has been among the highest in the nation. The annual customer growth rate was 6.4 percent, 7.2 percent, and 6.0 percent in 1997, 1996 and 1995, respectively. The peak demand for electricity by the Company's customers increased from 3,332 megawatts in 1996 to 3,469 megawatts in 1997. The Company's 1997 energy sales reached 14,596,228 megawatthours, an increase of 6.6 percent over 1996. Pursuant to Nevada law, every three years the Company is required to file with the PUCN a forecast of electricity demands for the next 20 years and the Company's plans to meet those demands. The Company filed its 1997 Resource Plan on June 3, 1997. On October 20, 1997, the PUCN rendered a decision on this plan. Among the major items in the Company's 1997 Resource Plan which were approved by the PUCN are the following: (1) the Company will proceed to build a 500 kV transmission project known as the Crystal Transmission Project, with an in-service date of June 1, 1999; 4 (2) the Company will continue to pursue a strategy of relying on bulk power purchases to meet near-term incremental increases in load; (3) the Company will proceed with a joint 230 kV transmission project with the Colorado River Commission with costs subject to prudency review in a future rate case; (4) the Company received limited approval to proceed with six switchyard projects; (5) the Company received approval for pre-development costs to build two 144 megawatt (MW) combustion turbines in 2002 and 2003 which would be converted to a 410 MW combined cycle plant in 2004. An amendment to the 1997 Resource Plan will need to be filed by September 1999 for full approval if the Company wants to proceed with building the turbines. REGULATION AND RATES The Company is subject to regulation by the PUCN which has regulatory powers with respect to rates, facilities, services, reports, issuance of securities and other matters. On January 8, 1998, the PUCN approved a $45.6 million energy rate increase effective February 1, 1998. The Company requested the increase to recover higher costs for natural gas and purchased power. The PUCN also decided previously recorded revenues from the sale of sulfur dioxide emission allowances ($2.3 million, before tax) should be reversed and credited to a deferred liability account for a later determination. Following is a summary of the rate increases and decreases that have been granted the Company during the past three years. SUMMARY OF RATE ADJUSTMENTS 1995 THROUGH 1997 Amount in Effective Millions Date Nature of Increase (Decrease) of Dollars ------------- ------------------------------ ---------- October 1, 1995 Energy rate decrease $(20.1) December 1, 1995 Energy and resource plan net rate decrease (17.6) February 1, 1997 Energy rate decrease (45.0) All amounts are on an annual basis. As permitted by state statute, the Company defers differences between the current cost of fuel plus net purchased power and base energy costs as defined. Under regulations adopted by the PUCN, the balance in the deferred energy account at the end of twelve months should be cleared over a subsequent period. Recovery of increased costs is permitted to the extent that the Company has not realized its authorized overall rate of return. If the Company has exceeded the authorized rate of return, the portion of deferred energy costs represented in such excess is transferred to the next deferred energy recovery period. The energy costs deferred are included as a current item in determining taxable income for federal income tax purposes. However, for financial statement purposes, the federal income tax effect is deferred and amortized to income as the deferred energy account is cleared. PUCN regulations allow the fuel base portion of the Company's general rates to be changed at the time of a hearing to clear the balance in the deferred energy account. This permits the recovery of fuel expenses on a deferred basis, but, recovery will have no effect on the Company's earnings. Effective February 1, 1997, explicit capacity costs associated with certain purchased power contracts were included in general rates rather than the deferred energy cost accounting mechanism. The Company recovers the costs of developing its 20-year resource plan in general rates effective February 1997. In the past, the recovery of these costs was administered 5 under the state's deferred accounting procedures. Also, by an order of the PUCN in June 1988, the Company is allowed to capitalize certain costs associated with Commission approved conservation programs. ENVIRONMENTAL MATTERS The Company is subject to regulation by federal, state and local authorities with regard to air and water quality control and other environmental matters. Environmental expenditures made by the Company are currently being recovered through customer rates. The following is a discussion of pending environmental matters: The Federal Clean Air Act Amendments of 1990 (Amendments) include provisions for reduction of emissions of oxides of nitrogen by establishing new emission limits for coal-fired generating units. This will require the installation of additional pollution-control technology at some of the Reid Gardner Station generating units before 2000 at an estimated cost to the Company of no more than $6 million; $3 million has been spent to date. Also, the United States Congress authorized the EPA to study the potential impact the Mohave Generating Station (Mohave) may have on visibility in the Grand Canyon area. Results of this study are expected in 1998. The majority owner has estimated that control costs, if required, could total between $200 and $300 million. (See the Legal Proceedings section of this Form 10-K.) In 1991, the EPA published an order requiring the Navajo Generating Station (Navajo) to install scrubbers to remove 90 percent of sulfur dioxide emissions beginning in 1997. As an 11.3 percent owner of Navajo, the Company will be required to fund an estimated $50.9 million for installation of the scrubbers. The first of three scrubber units was placed in commercial operation in November 1997. At that point, the project was approximately 50 percent complete. The first of the other two units is expected to be on line in 1998 and the last unit in 1999. The Company has spent approximately $40.7 million through December 1997 on the scrubbers' construction. In 1992, the Company received resource planning approval from the PUCN for its share of the cost of the scrubbers. COMPETITION On January 22, 1998 the Nevada Supreme Court reversed an order of the Eighth Judicial District Court for Clark County, Nevada (District Court) in which the District Court concluded that the PUCN had erred in its interpretation of a 1963 territorial agreement between the Company and Valley Electric Association. The District Court's order found that under the 1963 territorial agreement each of those two electric suppliers had an exclusive right to provide service to a portion of the Nevada Test Site (Test Site). The Nevada Supreme Court agreed with the PUCN that the 1963 territorial agreement did not envision the creation of exclusive service areas within the Test Site. Both the Company and Valley Electric Association could provide service for the Test Site's entire load and the Test Site could choose the supplier of service. In February 1998, the United States Department of Energy (DOE) on behalf of the Test Site filed with the District Court a Motion for Order Consistent with the Nevada Supreme Court's ruling. During the above proceedings, Valley Electric, the Company, the PUCN Regulatory Operations Staff and Lincoln County Power District No. 1 (Lincoln Power)(a governmental electric supplier that holds itself out as providing electric service in Lincoln County, Nevada, where a portion of the Test Site is located), entered into a Stipulation, Settlement Agreement and Release (Settlement Agreement) for service to the Test Site. Under the Settlement Agreement, the Test Site's electrical usage would be split among Valley Electric (40 percent), the Company (40 percent) and Lincoln Power (20 percent), and each of the three electric suppliers unconditionally released and forever discharged each other from any and all claims for damages based directly or indirectly on the geographic 6 scope of the service provided to the Test Site before and during the term of the Settlement Agreement. On May 12, 1997 the PUCN approved the Settlement Agreement. Except for the release and discharge for damage claims, the term of the Settlement Agreement is three years, beginning May 12, 1997. The Settlement Agreement also provides, however, that, except for the release and discharge, under certain specified conditions it may be reopened, renegotiated or modified by PUCN orders terminating or modifying its terms. One of the conditions is reversal of the District Court's order. The PUCN must approve any changes to the Settlement Agreement. Regardless of the outcome of this matter, the Company believes there will not be a material impact on its operations, or upon its competitive position generally. On July 16, 1997, the Governor of the state of Nevada signed into law Assembly Bill 366 (AB 366) which provides for competition to be implemented in the electric utility industry in the state no later than December 31, 1999 unless the PUCN determines a different date is necessary to protect the public interest. AB 366 also changed the name of the Public Service Commission to the PUCN, reduced it from five to three members, and removed the regulation of transportation matters to another agency. It is expected that the generation, aggregation (buying and reselling electricity to customers) and marketing of electricity and possibly other utility services will be deemed competitive, while transmission and distribution services will be deemed noncompetitive and will continue to be regulated. The Company is required to submit a plan to the PUCN to unbundle its integrated rates. A provider of a noncompetitive service will be prohibited from providing a potentially competitive service except through an affiliate which the PUCN has determined, after a hearing, has an arm's length relationship with the provider of the noncompetitive service. Each provider of a noncompetitive service that is necessary to the provision of a potentially competitive service is required to make its facilities or services available to all alternative sellers on equal and nondiscriminatory terms and conditions. Alternative sellers of electricity must be licensed under rules yet to be determined by the PUCN. AB 366 allows the PUCN to authorize full recovery of costs which they determine to be stranded but does not guarantee full recovery of those costs. Costs that were incurred by utilities to serve their customers with the understanding that state regulatory commissions would allow the costs to be recovered through electric rates are potentially stranded costs. The greater part of the Company's potentially stranded costs are related to contracts with qualifying facilities all of which were previously approved by the PUCN. The PUCN shall designate a vertically integrated electric utility or another entity to provide electric service to customers who are unable to obtain electric service from an alternative seller or who fail to select an alternative seller. The provider of last resort so designated by the PUCN is obligated to provide electric service to those customers. The PUCN may authorize the right to buy from alternative sellers in gradual phases. The rate charged for residential service for customers who are unable to obtain electric service from an alternative seller or who fail to select an alternative seller must not exceed the rate charged for that service on July 1, 1997, however, the PUCN may approve an increase in residential rates in an amount necessary to ensure recovery by the Company of its just and reasonable costs. The residential rate restriction will remain in place until 2003. Two-tenths of one percent of all electric energy sold must come from a renewable resource produced in Nevada by January 1, 2001. Fifty percent of this energy must be derived from solar power. Every two years the standard increases by two-tenths of one percent until a total of one percent of all electricity consumed comes from renewable resources. In August 1997, the PUCN opened an investigatory docket of the issues to be considered as a result of restructuring of the electric industry. The docket sets forth the issues to be addressed as well as the steps the PUCN will take to address them. Issues to be addressed include the following: (1) Identification of all cost components in utility service and establishment of allocation methods necessary for later pricing of noncompetitive services; (2) Designation of services as potentially competitive or noncompetitive; 7 (3) Determination of rate design and non-price terms and conditions for noncompetitive services; (4) Establishment of licensing requirements for alternative sellers of potentially competitive services; (5) Past (stranded) costs; (6) Criteria and standards by which the PUCN will apply the legislative requirements concerning affiliate relations; (7) Criteria and process by which the PUCN will appoint providers of bundled electric service; (8) Consumer protection; (9) Anti-competitive behavior codes of conduct and enforcement; (10) Price regulation for potentially competitive services in immature markets; (11) Compliance plans in accordance with regulation; (12) Options for complying with legislative mandates for integrated resource planning and portfolio standards; (13) Innovative pricing for noncompetitive services. In its Order dated November 4, 1997, the PUCN designated unbundled services in eight major categories with twenty-six unbundled services in total. The major categories include Generation Capacity and Energy Supply, Generation Services Necessary to Support Transmission Service, Arranging for Power Supplies, Power Delivery, End-Use Metering, Customer Accounting, Marketing and Sales, and Public Good Services. The PUCN evaluated the cost unbundling methodologies for the unbundled services set forth in its Order and, after hearings, issued an Interim Order describing the process the parties should follow to complete developing cost unbundling methodologies and to work toward consensus on that issue. The PUCN has the authority to classify a service as a potentially competitive service if it finds the service meets specific requirements. The PUCN has proposed regulations and held a hearing on the contents of applications by any person seeking a designation of an unbundled service as potentially competitive. On January 21, 1998, the PUCN issued an Order to solicit comments on the Classification of Components of Electric Service as Potentially Competitive Services; Non-price Terms and Conditions for Distribution Tariffs; Licensing of Alternative Sellers; and Consumer Protection. PUCN workshops have been scheduled for March and April 1998 on these issues. In response to the PUCN investigatory docket, the Company formed a team of high level employees who have left their present positions to work exclusively on the issues set forth in the docket. These individuals will assist the officers of the Company in preparing for potential policy making. EMPLOYEES The Company had 1,909 employees at December 31, 1997. 8 ITEM 2. PROPERTIES The Company's generating facilities are described under "Item 1. Business, Sources of Electric Energy Supply". The Company shares ownership in a 59-mile, 500 kilovolt line and two 15- mile, 230 kilovolt lines that transmit power from the Mohave Generating Station near Davis Dam on the Colorado River via Eldorado Substation to Mead Substation located near Boulder City, Nevada. The Company has 32 miles of 230 kilovolt line from Mead Substation to Las Vegas. This line, together with two Company- owned 230 kilovolt lines presently connected to the Bureau of Reclamation lines between Mead Substation and Henderson, Nevada, transmit the Mohave Generating Station power to the Las Vegas area. A 25-mile, 230 kilovolt line between the Mead Substation and the Company's Winterwood Substation was energized in 1988. This line brings the additional Hoover energy to the Las Vegas Area and increases the Company's interconnected transmission capabilities. The Company shares ownership in 76 miles of 500 kilovolt transmission line from the Navajo Generating Station to the Moenkopi Switchyard in Coconino County, Arizona (the Southern Transmission System) and 274 miles of 500 kilovolt transmission line from the Navajo Generating Station to the McCullough Substation in Clark County, Nevada (the Western Transmission System). Power is transmitted from the McCullough Substation to the Las Vegas area via three 230 kilovolt lines of 23 miles, 25 miles and 32 miles in length, respectively. The 25-mile line was energized in May 1992. Two 230 kilovolt lines transmit power from the Reid Gardner Station located near Glendale, Nevada. One is a 39 mile line to the Pecos Substation and the other a 25 mile line to the Harry Allen Substation. In 1994, 20 miles of a 230 kilovolt line from the Harry Allen Substation to the Pecos Substation was energized. One 39-mile, 230 kilovolt line transmits power from the Reid Gardner Station located near Glendale, Nevada to the Pecos Substation near North Las Vegas. A 7 mile, 230 kilovolt line between Westside and Decatur Substations, both located in Las Vegas, was energized in 1991. In addition to the above, the Company has 300 miles of 138 kilovolt and 489 miles of 69 kilovolt transmission lines in service. In 1990 the Company added a new transmission interconnection consisting of a 345 kilovolt line from Harry Allen Substation in Southern Nevada to the Nevada-Utah border where it connects with a PacifiCorp line to Red Butte Substation in Southern Utah near the City of St. George and a 230 kilovolt line from Harry Allen Substation to Westside Substation which is located in Las Vegas. The Company owns the 50-mile, 230 kilovolt line and the 69 miles of the 345 kilovolt line from Harry Allen Substation to the Nevada-Utah border; PacifiCorp owns the portion of the 345 kilovolt line from the Nevada-Utah border to Red Butte Substation. At December 31, 1997, the Company owned 108 transmission and distribution substations with a total installed transformer capacity of 10,987,183 kilovolt- amperes. In addition it co-owns with others the above mentioned Eldorado Substation with installed transformer capacity of 1,000,000 kilovolt-amperes, the McCullough Substation with installed transformer capacity of 1,250,000 kilovolt-amperes, the Reid Gardner Unit No. 4 Substation with installed capacity of 318,000 kilovolt-amperes and Mead Substation with 250,000 kilovolt-amperes. At Harry Allen Substation, the Company has a 336,000 kilovolt-ampere transformer and two 336,000 kilovolt-ampere 345 kilovolt phase shifting transformers which are used for necessary voltage transformations and to control flows on the interconnection. As of December 31, 1997, there were approximately 3,162 miles of pole line together with approximately 8,957 cable miles of underground in the Company's distribution system with a total installed distribution transformer capacity of 6,676,565 kilovolt-amperes. 9 ITEM 3. LEGAL PROCEEDINGS The Grand Canyon Trust and Sierra Club filed a lawsuit in the U.S. District Court, District of Nevada, in February 1998 against the owners of the Mohave Generating Station (Mohave) alleging violations of the Clean Air Act regarding emissions of sulfur dioxide and particulates. The owners believe the emission limits referenced in the suit are not applicable to Mohave. The owners previously partnered with the Environmental Protection Agency (EPA) and the National Park Service on a multi-year study to determine the impacts, if any, of Mohave emissions on visibility in the Grand Canyon (see the Environmental Matters section of this Form 10-K). The environmental groups want the owners to install pollution control equipment at an estimated cost of $200 to $300 million. The Company owns a 14 percent interest in Mohave. The outcome of this action can not be determined at this time. The Company is involved in litigation arising in the normal course of business. While the results of such litigation cannot be predicted with certainty, management, based upon advice of counsel, believes that the final outcome will not have a material adverse effect on the Company's financial position, results of operations and net cash flow. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report, through the solicitation of proxies or otherwise. SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT The Company's executive officers are as follows: Age as of Name December 31, 1997 Position ---- ----------------- -------- Charles A. Lenzie 60 Chairman of the Board and Chief Executive Officer Michael R. Niggli 48 President and Chief Operating Officer David G. Barneby 52 Vice President, Power Delivery Sally L. Galati 36 Vice President, Distribution Cynthia K. Gilliam 49 Vice President, Retail Customer Services Richard L. Hinckley 42 Vice President, Secretary and General Counsel Steven W. Rigazio 43 Vice President, Finance and Planning, Treasurer, Chief Financial Officer Gloria T. Banks Weddle 48 Vice President, Corporate Services Each of the executive officers has been actively engaged in the business of the Company for more than five years with the exception of Mr. Niggli. Charles A. Lenzie was elected Chairman of the Board and Chief Executive Officer on May 1, 1989. Prior to that time he was President of the Company. Michael R. Niggli joined the Company as President and Chief Operating Officer in February 1998. Prior to joining the Company, he was Senior Vice President of the Custom Accounts Market Unit for Entergy, a New Orleans-based global energy company. At Entergy, Mr. Niggli served as Vice President of Fuels Management, Vice President of Strategic Planning and Vice President for Customer Service in Louisiana. He was promoted to Senior Vice President of Marketing in 1993 and Senior Vice President of the Custom Accounts Market Unit in 1996. David G. Barneby was elected Vice President, Power Delivery effective October 14, 1993. He joined the Company in 1965 as a Student Engineer and was made a Junior Engineer in 1967. He was promoted to Superintendent of the Reid Gardner Generating Station in 10 1976; Project Manager - Reid Gardner Unit 4 in 1979 and in 1985 appointed Manager - Generation Engineering and Construction. He was elected Vice President - Generation in 1989. His title was changed to Vice President - Power Supply later that year. Sally L. Galati was named Vice President, Distribution on March 13, 1997. She first joined the Company in 1984 as an Engineer working in the Customer Technical Services, Distribution and Transmission departments and was promoted to Supervisor, Major Projects in 1992, Acting Manager, Builder Services in 1993, Director, Distribution System Services in 1994 and Division Director, Distribution Operations & Construction in 1995. Cynthia K. Gilliam was elected Vice President, Retail Customer Services effective October 14, 1993. She joined the Company in 1974 as a Rate Analyst and was promoted to Rates Administrator in 1979 and to Manager of Financial Planning in 1983. In 1987, she was appointed Manager of Human Resource Planning. She was elected Vice President - Personnel in 1988 and her title was changed to Vice President - Human Resources in 1989. In 1992, she was elected Vice President - Customer Service. Richard L. Hinckley was elected Vice President, Secretary and General Counsel on May 15, 1991. He joined the Company as Staff Counsel in 1985 and was promoted to Assistant Secretary and Chief Counsel in 1989. Prior to joining the Company, he served as Staff Attorney with the PUCN and as Assistant Attorney General in Utah. Steven W. Rigazio was elected Vice President, Finance and Planning, Treasurer, Chief Financial Officer effective October 14, 1993. He joined the Company in 1984 as a Rates Administrator and was promoted to Supervisor of Rates and Regulations in 1985, Manager of Rates and Regulatory Affairs in 1986, Director of System Planning in 1990, Vice President - Planning in 1991 and Vice President and Treasurer, Chief Financial Officer in 1992. Gloria T. Banks Weddle was named Vice President, Corporate Services effective January 1, 1996. She first joined the Company in 1973, was promoted to Manager of Compensation and Benefits in 1988 and Director of Human Resources in 1991. She was elected Vice President - Human Resources in 1992. On October 14, 1993, she was elected Vice President, Human Resources and Corporate Services. Her title was changed to Vice President - Corporate Services in 1996. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Information with respect to the principal market for the Company's common stock, securities exchange, shareholders of record, quarterly high and low sales prices and quarterly dividend payments for 1997 and 1996 are hereby incorporated by reference from page 49 of the Company's Annual Report to Shareholders for the year ended December 31, 1997, which is filed herewith as Exhibit 13. ITEM 6. SELECTED FINANCIAL DATA The information required by Item 6 is hereby incorporated by reference from page 52 of the Company's Annual Report to Shareholders for the year ended December 31, 1997, which is filed herewith as Exhibit 13. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by Item 7 is hereby incorporated by reference from pages 27 to 31 of the Company's Annual Report to Shareholders for the year ended December 31, 1997, which are filed herewith as Exhibit 13. 11 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated financial statements for the years ended December 31, 1997, 1996 and 1995 together with the auditors' report thereon required by Item 8 are incorporated by reference from the following pages of the Company's Annual Report to Shareholders for the year ended December 31, 1997, which are filed herewith as Exhibit 13. Annual Report Page ------ Consolidated Statements of Income for the Years Ended December 31, 1997, 1996 and 1995....................... 32 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995................ 33 Consolidated Balance Sheets - December 31, 1997 and 1996.............................................. 34-35 Consolidated Schedules of Capitalization - December 31, 1997 and 1996............................. 36 Consolidated Schedules of Long-Term Debt - December 31, 1997 and 1996............................. 37 Consolidated Statements of Retained Earnings for the Years Ended December 31, 1997, 1996 and 1995.......... 38 Notes to Consolidated Financial Statements.............. 39-49 Independent Auditors' Report............................ 50 Report of Management.................................... 51 See Note 12 of Notes to Consolidated Financial Statements in the Company's Annual Report to Shareholders for the unaudited selected quarterly financial data required to be presented in this Item 8. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There has been no Report on Form 8-K filed within the twenty-four months prior to the date of the most recent consolidated financial statements, December 31, 1997, reporting a change of accountants. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by Item 10 with respect to the Company's executive officers is set forth in Part I, Item 4., under the preceding heading "Supplemental Item. Executive Officers of Registrant." The other information required by Item 10 is hereby incorporated by reference from the Company's definitive Proxy Statement dated March 12, 1998 and heretofore filed with the Securities and Exchange Commission (SEC.) (See the heading therein "Election of Directors.") ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is hereby incorporated by reference from the Company's definitive Proxy Statement dated March 12, 1998 and heretofore filed with the SEC. (See the heading therein "Executive Compensation.") ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is hereby incorporated by reference from the Company's definitive Proxy Statement dated March 12, 1998 and heretofore filed with the SEC. (See the heading therein "Security Ownership of Management.") 12 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Management of the Company has no knowledge of any transaction, relationship or indebtedness which is required to be disclosed by Item 13. PART IV ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The Company's consolidated financial statements for the years ended December 31, 1997, 1996 and 1995 together with the auditors' report appearing on pages 32 to 50 of Nevada Power Company's 1997 Annual Report to Shareholders are incorporated herein by reference and filed as Exhibit 13. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 PAGE - -------------------------------------------- ---- Independent Auditors' Consent and Report on Schedule.............. 24 Schedule II - Valuation and Qualifying Accounts................... 25 All other schedules are omitted because they are not applicable, not required, or because the information is included in the consolidated financial statements or notes thereto. EXHIBITS FILED DESCRIPTION - -------- ----------- 10.83 Financing Agreement between Clark County, Nevada and Nevada Power Company dated November 1, 1997 10.84 Financing Agreement between Coconino County, Arizona Pollution Control Corporation and Nevada Power Company dated November 1, 1997 10.85 Loan Agreement dated as of November 21, 1997 between Nevada Power Company, certain banks, Nationsbank of Texas, N.A. as Documentation Agent and Wells Fargo Bank, National Association as Arranger and Administrative Agent 13 Pages 27 to 52 of Nevada Power Company's Annual Report to Shareholders for the Year Ended December 31, 1997 (incorporated by reference in Parts II and IV hereof) 23 Independent Auditors' Consent and Report on Schedule 27 Financial Data Schedule - December 31, 1997 13 In addition to those Exhibits shown above, the Company hereby incorporates the following Exhibits pursuant to Exchange Act Rule 12B-32 and Regulation #201.24 by reference to the filings set forth below: EXHIBIT ORIGINALLY FILED NO. DESCRIPTION AS EXHIBIT FILE NO. - ------- ----------- ---------------- -------- 3.1 Restated Articles of Incorporation 3.8 to Form 10-K 1-4698 filed June 10, 1988 Year 1988 3.2 Amendment to Restated Articles of 4.7 to Form S-8 33-32372 Incorporation filed May 23, 1989 3.3 Amendment to Restated Articles of 4.8 to Form S-3 33-55698 Incorporation filed June 8, 1992 3.4 Restated Bylaws, as amended 3.4 to Form 10-K 1-4698 March 9, 1995 Year 1995 4.1 Certificate of Designation of Cumulative Preferred Stock as follows: 5.40% Series 2.1 to Form S-1 2-16968 5.20% Series 2.1 to Form S-1 2-20618 4.70% Series 3.2 to Form 8-K 1-4698 July 1965 8% Series 2.1 to Form S-7 2-44513 8.70% Series 2.1 to Form S-7 2-49622 11.50% Series 2.1 to Form S-7 2-52238 9.75% Series 2.1 to Form S-7 2-56788 Auction Series A 4.6 to Form S-3 33-15554 Auction Series A as amended November 14, 1991 4.9 to Form S-3 33-44460 Auction Series A as amended December 12, 1991 4.1 to Form 10-K 1-4698 Year 1992 9.90% Series 4.1 to Form 10-K 1-4698 Year 1992 4.2 Indenture of Mortgage and Deed of 4.2 to Form S-1 2-10932 Trust Providing for First Mortgage Bonds, dated October 1, 1953 and Twenty-Six Supplemental Indentures as follows: First Supplemental Indenture, 4.2 to Form S-1 2-11440 dated August 1, 1954 Second Supplemental Indenture, 4.9 to Form S-1 2-12566 dated September 1, 1956 Third Supplemental Indenture, 4.13 to Form S-1 2-14949 dated May 1, 1959 Fourth Supplemental Indenture, 4.5 to Form S-1 2-16968 dated October 1, 1960 Fifth Supplemental Indenture, 4.6 to Form S-16 2-74929 dated December 1, 1961 Sixth Supplemental Indenture, 4.6A to Form S-1 2-21689 dated October 1, 1963 Seventh Supplemental Indenture, 4.6B to Form S-1 2-22560 dated August 1, 1964 Eighth Supplemental Indenture, 4.6C to Form S-9 2-28348 dated April 1, 1968 Ninth Supplemental Indenture, 4.6D to Form S-1 2-34588 dated October 1, 1969 Tenth Supplemental Indenture, 4.6E to Form S-7 2-38314 dated October 1, 1970 Eleventh Supplemental Indenture, 2.12 to Form S-7 2-45728 dated November 1, 1972 14 EXHIBIT ORIGINALLY FILED NO. DESCRIPTION AS EXHIBIT FILE NO. - ------- ----------- ---------------- -------- Twelfth Supplemental Indenture, 2.13 to Form S-7 2-52350 dated December 1, 1974 Thirteenth Supplemental 4.14 to Form S-16 2-74929 Indenture, dated October 1, 1976 Fourteenth Supplemental 4.15 to Form S-16 2-74929 Indenture, dated May 1, 1977 Fifteenth Supplemental 4.16 to Form S-16 2-74929 Indenture, dated September 1, 1978 Sixteenth Supplemental Indenture, 4.17 to Form S-16 2-74929 dated December 1, 1981 Seventeenth Supplemental 4.2 to Form 10-K 1-4698 Indenture, dated August 1, 1982 Year 1982 Eighteenth Supplemental Indenture, 4.6 to Form S-3 33-9537 dated November 1, 1986 Nineteenth Supplemental Indenture, 4.2 to Form 10-K 1-4698 dated October 1, 1989 Year 1989 Twentieth Supplemental Indenture, 4.21 to Form S-3 33-53034 dated May 1, 1992 Twenty-First Supplemental 4.22 to Form S-3 33-53034 Indenture, dated June 1, 1992 Twenty-Second Supplemental 4.23 to Form S-3 33-53034 Indenture, dated June 1, 1992 Twenty-Third Supplemental 4.23 to Form S-3 33-53034 Indenture, dated October 1, 1992 Twenty-Fourth Supplemental 4.23 to Form S-3 33-53034 Indenture, dated October 1, 1992 Twenty-Fifth Supplemental 4.23 to Form S-3 33-53034 Indenture, dated January 1, 1993 Twenty-Sixth Supplemental 4.2 to Form 10-K 1-4698 Indenture, dated May 1, 1995 Year 1995 4.3 Instrument of Further Assurance 4.8 to Form S-1 2-12566 dated April 1, 1956 to Indenture of Mortgage and Deed of Trust dated October 1, 1953 4.4 Rights Agreement dated October 15, 4.1 to Form 8-A 1-4698 1990 between Manufacturers Hanover Year 1990 Trust Company and Nevada Power Company 4.5 Junior Subordinated Indenture 4.01 to Form S-3 333-21091 between Nevada Power and IBJ Schroder Bank & Trust Company, as Debenture Trustee dated March 1, 1997 4.6 Trust Agreement of NVP Capital I 4.03 to Form S-3 333-21091 dated March 1, 1997 4.7 Form of Amended and Restated Trust 4.10 to Form S-3 333-21091 Agreement dated March 1, 1997 4.8 Form of Preferred Security 4.11 to Form S-3 333-21091 Certificate for NVP Capital I and NVP Capital II dated March 1, 1997 4.9 Form of Guarantee Agreement 4.12 to Form S-3 333-21091 dated March 1, 1997 15 EXHIBIT ORIGINALLY FILED NO. DESCRIPTION AS EXHIBIT FILE NO. - ------- ----------- ---------------- -------- 4.10 Form of Supplemental Indenture 4.13 to Form S-3 333-21091 between Nevada Power and IBJ Schroder Bank & Trust Company, as Debenture Trustee dated March 1, 1997 4.11 Form of Agreement as to Expenses 4.14 to Form S-3 333-21091 and Liabilities between Nevada Power and NVP Capital I dated March 1, 1997 10.1 Contract for Sale of Electrical 13.9A to Form S-1 2-10932 Energy between State of Nevada and the Company, dated October 10, 1941 10.2 Amendment dated June 30, 1953 to 13.9A to Form S-1 2-10932 Exhibit 10.1 10.3 Contract for Sale of Electrical 13.10 to Form S-1 2-10932 Energy between State of Nevada and the Company, dated June 1, 1951 10.4 Agreement dated November 10, 1948 13.18 to Form S-1 2-12697 between the Company and Lincoln County Power District No. 1 and Overton Power District No. 5 10.5 Agreement dated October 21, 1949 13.19 to Form S-9 2-12697 between the Company and Lincoln County Power District No. 1 and Overton Power District No. 5 10.6 Mohave Project Plant Site 13.27 to Form S-9 2-28348 Conveyance and Co-tenancy Agreement dated May 29, 1967 between the Company and Salt River Project Agricultural Improvement and Power District and Southern California Edison Company 10.7 Eldorado System Conveyance and 13.30 to Form S-9 2-28348 Co-tenancy Agreement dated December 20, 1967 between the Company and Salt River Project Agricultural Improvement and Power District and Southern California Edison Company 10.8 Mohave Operating Agreement dated 13.26F to Form S-1 2-38314 July 6, 1970 between the Company, Salt River Project Agricultural Improvement and Power District, Southern California Edison Company and Department of Water and Power of the City of Los Angeles 16 EXHIBIT ORIGINALLY FILED NO. DESCRIPTION AS EXHIBIT FILE NO. - ------- ----------- ---------------- -------- 10.9 Navajo Project Participation 13.27A to Form S-1 2-38314 Agreement dated September 30, 1969 between the Company, the United States of America, Arizona Public Service Company, Department of Water and Power of the City of Los Angeles, Salt River Project Agricultural Improvement and Power District and Tucson Gas & Electric Company 10.10 Navajo Project Coal Supply 13.27B to Form S-1 2-38314 Agreement dated June 1, 1970 between the Company, the United States of America, Arizona Public Service Company, Department of Water and Power of the City of Los Angeles, Salt River Project Agricultural District, Tucson Gas & Electric Company and the Peabody Coal Company 10.11 Contract dated January 1, 1968 13.32 to Form S-1 2-34588 between the Company and United States Bureau of Reclamation for interconnections at Mead Station 10.12 Note Agreement dated December 11, 5.35 to Form S-7 2-49622 1973 relating to $25,000,000 8-1/2% Promissory Notes due 1998 10.13 Reclaimed Wastewater Purchase 5.36 to Form S-7 2-52238 Agreement dated June 21, 1974 among City of Las Vegas, Nevada, Clark County Sanitation District No. 1, County of Clark, Nevada and Nevada Power Company 10.14 Equipment Lease dated as of 5.37 to Form 8-K 1-4698 March 1, 1974 between Nevada Power April 1974 Company, Lessor, and Clark County, Nevada, Lessee 10.15 Sublease Agreement dated as of 5.38 to Form 8-K 1-4698 March 1, 1974 between Clark April 1974 County, Nevada, Sublessor, and Nevada Power Company, Sublessee 10.16 Guaranty Agreement dated as of 5.39 to Form 8-K 1-4698 March 1, 1974 between Nevada April 1974 Power Company and Commerce Union Bank as Trustee 17 EXHIBIT ORIGINALLY FILED NO. DESCRIPTION AS EXHIBIT FILE NO. - ------- ----------- ---------------- -------- 10.17 Navajo Project Co-tenancy 5.31 to Form 8-K 1-4698 Agreement dated March 23, 1976 April 1974 between the Company, Arizona Public Service Company, Department of Water and Power of the City of Los Angeles, Salt River Project Agricultural Improvement and Power District, Tucson Gas & Electric Company and the United States of America 10.18 Amended Mohave Project Coal Supply 5.35 to Form S-7 2-56356 Agreement dated May 26, 1976 between the Company and Southern California Edison Company, Department of Water and Power of the City of Los Angeles, Salt River Project Agricultural Improvement and Power District and the Peabody Coal Company 10.19 Amended Mohave Project Coal Slurry 5.36 to Form S-7 2-56356 Pipeline Agreement dated May 26, 1976 between Peabody Coal Company and Black Mesa Pipeline, Inc. (Exhibit B to Exhibit 10.18) 10.20 Coal Supply Agreement dated October 5.38 to Form S-7 2-56356 15, 1975 between the Company and United States Fuel Company 10.21 Amendment dated November 19, 1976 5.30 to Form S-7 2-62105 to Exhibit 10.20 10.22 Participation Agreement Reid 5.34 to Form S-7 2-65097 Gardner Unit No. 4 dated July 11, 1979 between the Company and California Department of Water Resources 10.23 Coal Supply Agreement dated 5.37 to Form S-7 2-62509 March 1, 1980 between the Company and Beaver Creek Coal Company 10.24 Coal Supply Agreement dated 5.38 to Form S-7 2-62509 March 1, 1980 between the Company and Trail Mountain Coal Company 10.25 Coal Supply Agreement dated 10.26 to Form 10-K 1-4698 December 8, 1980 between the Year 1981 Company and Plateau Mining Company 10.26 Coal Supply Agreement dated 10.26 to Form 10-K 1-4698 August 31, 1982 between Year 1982 the Company and CO-OP Mining Company 10.27 Coal Supply Agreement dated 10.27 to Form 10-K 1-4698 September 8, 1982 between the Year 1982 Company and Getty Mining Company 18 EXHIBIT ORIGINALLY FILED NO. DESCRIPTION AS EXHIBIT FILE NO. - ------- ----------- ---------------- -------- 10.28 Coal Supply Agreement dated 10.28 to Form 10-K 1-4698 September 8, 1982 between the Year 1982 Company and Tower Resources, Inc. 10.29 Coal Supply Agreement dated 10.29 to Form 10-K 1-4698 September 22, 1982 between the Year 1982 Company and Beaver Creek Coal Company 10.30 Memorandum of Understanding 10.30 to Form 10-K 1-4698 Concerning Interconnection Year 1983 between Utah Power & Light Company and Nevada Power Company dated February 2, 1984 10.31 Sublease Agreement between Powveg 10.31 to Form 10-K 1-4698 Leasing Corp., as Lessor and Year 1983 Nevada Power Company as Lessee, dated January 11, 1984 for lease of administrative headquarters 10.32 Participation Agreement between 10.32 to Form 10-K 1-4698 Utah Power & Light Company and Year 1985 the Company dated December 19, 1985 10.33 Sale and Purchase Agreement dated 10.33 to Form 10-K 1-4698 as of December 23, 1985 by and Year 1985 between Nevada Power Company and CP National Corporation 10.34 Restated Coal Sales Agreement as 10.34 to Form 10-K 1-4698 of July 1, 1985 by and between Year 1985 Nevada Power Company and Trail Mountain Coal Company 10.35 Summary of Supplemental Executive 10.35 to Form 10-K 1-4698 Retirement Plan as approved Year 1985 November 14, 1985 10.36 Financing Agreement dated as of 10.36 to Form 10-K 1-4698 February 1, 1983 between Clark Year 1985 County, Nevada and Nevada Power Company 10.37 Financing Agreement between Clark 10.37 to Form 10-K 1-4698 County, Nevada and Nevada Power Year 1985 Company dated as of December 1, 1985 10.38 Reimbursement Agreement dated 10.38 to Form 10-K 1-4698 as of December 1, 1985 between Year 1986 The Fuji Bank, Limited and Nevada Power Company 10.39 Contract for Sale of Electrical 10.39 to Form 10-K 1-4698 Energy between the State of Year 1987 Nevada and the Company, dated July 8, 1987 10.40 Power Sales Agreement between 10.40 to Form 10-K 1-4698 Utah Power & Light Company and Year 1987 the Company, dated August 17, 1987 19 EXHIBIT ORIGINALLY FILED NO. DESCRIPTION AS EXHIBIT FILE NO. - ------- ----------- ---------------- -------- 10.41 Transmission Facilities Agreement 10.41 to Form 10-K 1-4698 between Utah Power & Light Year 1987 Company and the Company, dated August 17, 1987 10.42 Financing Agreement between Clark 10.42 to Form 10-K 1-4698 County, Nevada and Nevada Power Year 1988 Company dated as of November 1, 1988 10.43 Reimbursement Agreement dated 10.43 to Form 10-K 1-4698 as of November 1, 1988 between Year 1988 The Fuji Bank, Limited and Nevada Power Company 10.44 Power Purchase Contract dated 10.45 to Form 10-K 1-4698 February 15, 1990 between Year 1989 Mission Energy Company and Nevada Power Company 10.45 Contact for Long-Term Power 10.46 to Form 10-K 1-4698 Purchases from Qualifying Year 1989 Facilities dated May 1, 1989 between Oxford Energy of Nevada and Nevada Power Company 10.46 Contract A for Long-Term Power 10.47 to Form 10-K 1-4698 Purchases from Qualifying Year 1989 Facilities dated May 2, 1989 between Bonneville Nevada Corporation and Nevada Power Company 10.47 Contract for Long-Term Power 10.48 to Form 10-K 1-4698 Purchases from Qualifying Year 1989 Facilities dated April 10, 1989 between Magna Energy Systems, Eastern Sierra Energy Company and Nevada Power Company 10.48 Contract B for Long-Term Power 10.49 to Form 10-K 1-4698 Purchases from a Qualifying Year 1989 Facility dated October 27, 1989 between Bonneville Nevada Corporation and Nevada Power Company 10.49 Contract for Long-Term Power 10.50 to Form 10-K 1-4698 Purchases from Qualified Year 1989 Facilities dated February 12, 1990 between Las Vegas Co-generation, Inc. and Nevada Power Company 10.50 Agreement for Transmission 10.51 to Form 10-K 1-4698 Service dated March 29, 1989 Year 1989 between Overton Power District No. 5 , Lincoln County Power District No. 1 and Nevada Power Company 10.51 Contract dated June 30, 1988 10.52 to Form 10-K 1-4698 between United States Department Year 1989 of Energy Western Area Power Administration and Nevada Power Company 20 EXHIBIT ORIGINALLY FILED NO. DESCRIPTION AS EXHIBIT FILE NO. - ------- ----------- ---------------- -------- 10.52 Executive Performance Incentive 10.53 to Form 10-K 1-4698 Plan dated as of January 1, 1989 Year 1989 10.53 Severance Allowance Plan 10.54 to Form 10-K 1-4698 adopted September 14, 1989 Year 1989 10.54 Power Purchase Contract dated 10.55 to Form 10-K 1-4698 July 5, 1990 between Year 1990 Mission Energy Company and Nevada Power Company 10.55 Contract B for Long-Term Power 10.56 to Form 10-K 1-4698 Purchases from a Qualifying Year 1990 Facility dated May 24, 1990 between Bonneville Nevada Corporation and Nevada Power Company 10.56 Amendment dated June 15, 1989 to 10.57 to Form 10-K 1-4698 Exhibit 10.45 Year 1990 10.57 Amendment dated August 23, 1989 10.58 to Form 10-K 1-4698 to Exhibit 10.45 Year 1990 10.58 Amendment dated April 23, 1990 10.59 to Form 10-K 1-4698 to Exhibit 10.45 Year 1990 10.59 Exhibit H dated August 13, 1990 10.60 to Form 10-K 1-4698 to Exhibit 10.45 Year 1990 10.60 Western Systems Power Pool 10.61 to Form 10-K 1-4698 Agreement (Agreement) dated Year 1990 January 2, 1991 between thirty-nine other Western Systems Power Pool members as listed on pages 1 and 2 of the Agreement and Nevada Power Company 10.61 Financing Agreement between Clark 10.62 to Form 10-K 1-4698 County, Nevada and Nevada Power Year 1990 Company dated June 1, 1990 10.62 Restated Power Sales Agreement 10.63 to Form 10-K 1-4698 dated March 25, 1991 between Year 1991 Pacificorp and Nevada Power Company 10.63 Amendment dated July 17, 1990 to 10.64 to Form 10-K 1-4698 Exhibit 10.54 Year 1991 10.64 Financing Agreement between Clark 10.65 to Form 10-K 1-4698 County, Nevada and Nevada Power Year 1992 Company dated June 1, 1992 (Series 1992A) 10.65 Financing Agreement between Clark 10.66 to Form 10-K 1-4698 County, Nevada and Nevada Power Year 1992 Company dated June 1, 1992 (Series 1992B) 10.66 Financing Agreement between Clark 10.67 to Form 10-K 1-4698 County, Nevada and Nevada Power Year 1992 Company dated October 1, 1992 10.67 Power Sales Agreement dated 10.68 to Form 10-K 1-4698 October 19, 1992 between the Year 1992 Department of Water and Power of the City of Los Angeles and Nevada Power Company 21 EXHIBIT ORIGINALLY FILED NO. DESCRIPTION AS EXHIBIT FILE NO. - ------- ----------- ---------------- -------- 10.68 Long-Term Incentive Plan dated 10.69 to Form 10-K 1-4698 as of January 1, 1993 Year 1993 10.69 Contract for Long-Term Power 10.70 to Form 10-K 1-4698 Purchases from Qualifying Year 1993 Facilities dated May 27, 1992 between Las Vegas Co-generation, Inc. and Nevada Power Company Replaces Exhibit 10.49 10.70 Settlement Agreement and Promissory 10.71 to Form 10-K 1-4698 Note between Mountain Coal Company Year 1993 and Atlantic Richfield Company and Nevada Power Company dated March 9, 1994 10.71 401(k) Savings Plan, as amended 99.1 to Form S-8 33-50809 and restated January 1, 1990 10.72 Amendment dated January 1, 1991 99.2 to Form S-8 33-50809 to Exhibit 10.71 10.73 Letter of Credit and Reimbursement 10.72 to Form 10-K 1-4698 Agreement dated as of April 12, Year 1994 1994 between Nevada Power Company and Societe Generale, Los Angeles Branch and Amendment No. 1 thereto dated as of May 3, 1994 10.74 Loan Agreement dated as of November 10.73 to Form 10-K 1-4698 21, 1994 between Nevada Power Year 1994 Company, certain banks, and First Interstate Bank of Nevada, N.A. as the Administrative Agent 10.75 Financing Agreement between Clark 10.75 to Form 10-K 1-4698 County, Nevada and Nevada Power Year 1995 Company dated October 1, 1995 (Series 1995A) 10.76 Financing Agreement between Clark 10.76 to Form 10-K 1-4698 County, Nevada and Nevada Power Year 1995 Company dated October 1, 1995 (Series 1995B) 10.77 Financing Agreement between Clark 10.77 to Form 10-K 1-4698 County, Nevada and Nevada Power Year 1995 Company dated October 1, 1995 (Series 1995C) 10.78 Financing Agreement between Clark 10.78 to Form 10-K 1-4698 County, Nevada and Nevada Power Year 1995 Company dated October 1, 1995 (Series 1995D) 10.79 Financing Agreement between 10.79 to Form 10-K 1-4698 Coconino County, Arizona Pollution Year 1995 Control Corporation and Nevada Power Company dated October 1, 1995 (Series 1995E) 10.80 Letter of Credit and Reimbursement 10.80 to Form 10-K 1-4698 Agreement dated as of October 1, Year 1995 1995 among Nevada Power Company, The Banks Named Herein, and Societe Generale, Los Angeles Branch 22 EXHIBIT ORIGINALLY FILED NO. DESCRIPTION AS EXHIBIT FILE NO. - ------- ----------- ---------------- -------- 10.81 Letter of Credit and Reimbursement 10.81 to Form 10-K 1-4698 Agreement dated as of October 1, Year 1995 1995 among Nevada Power Company, The Banks Named Herein, and Barclays Bank PLC, New York Branch 10.82 Financing Agreement between Coconino 10.82 to Form 10-K 1-4698 County, Arizona Pollution Control Year 1996 Corporation and Nevada Power Company dated October 1, 1996 REPORTS ON FORM 8-K The Company filed no current report on Form 8-K during the quarter ended December 31, 1997. 23 INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE We consent to the incorporation by reference in Registration Statements No. 333-46567 and 333-21091 on Form S-3 and in Registration Statements No. 33-34011 and 33-61365 on Form S-8 of Nevada Power Company of our report dated February 13, 1998 incorporated by reference in this Annual Report on Form 10-K of Nevada Power Company for the year ended December 31, 1997. Our audits of the consolidated financial statements referred to in our aforementioned report also included the consolidated financial statement schedule of Nevada Power Company, listed in Item 14. This consolidated financial statement schedule is the responsibility of Nevada Power Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Las Vegas, Nevada March 19, 1998 24 NEVADA POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS OF DOLLARS) RESERVE FOR DOUBTFUL ACCOUNTS ----------- BALANCE AT JANUARY 1, 1995............................... $ 1,395 Provision charged to income............................. 3,590 Amounts written off, less recoveries.................... (3,658) ------- BALANCE AT DECEMBER 31, 1995............................. 1,327 Provision charged to income............................. 3,829 Amounts written off, less recoveries.................... (2,264) ------- BALANCE AT DECEMBER 31, 1996............................. 2,892 Provision charged to income............................. 2,737 Amounts written off, less recoveries.................... (3,338) ------- BALANCE AT DECEMBER 31, 1997............................. $ 2,291 ======= 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NEVADA POWER COMPANY ------------------------------------- (Registrant) March 23, 1998 By CHARLES A. LENZIE ------------------------------------- Charles A. Lenzie Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 23, 1998 By CHARLES A. LENZIE ------------------------------------- Charles A. Lenzie, Chairman of the Board and Chief Executive Officer and Director (Principal Executive Officer) March 23, 1998 By STEVEN W. RIGAZIO ------------------------------------- Steven W. Rigazio, Vice President, Finance and Planning, Treasurer, Chief Financial Officer (Principal Financial and Principal Accounting Officer) March 23, 1998 By MARY KAYE CASHMAN ------------------------------------- Mary Kaye Cashman, Director March 23, 1998 By MARY LEE COLEMAN ------------------------------------- Mary Lee Coleman, Director March 23, 1998 By FRED D. GIBSON JR. ------------------------------------- Fred D. Gibson Jr., Director March 23, 1998 By JOHN L. GOOLSBY ------------------------------------- John L. Goolsby, Director March 23, 1998 By JERRY E. HERBST ------------------------------------- Jerry E. Herbst, Director March 23, 1998 By MICHAEL R. NIGGLI ------------------------------------- Michael R. Niggli, President, Chief Operating Officer and Director March 23, 1998 By JOHN F. O'REILLY ------------------------------------- John F. O'Reilly, Director March 23, 1998 By FRANK E. SCOTT ------------------------------------- Frank E. Scott, Director By ------------------------------------- Arthur M. Smith, Director March 23, 1998 By JELINDO A. TIBERTI ------------------------------------- Jelindo A. Tiberti, Director 26 EX-13 2 EXHIBIT 13 FOR 1997 FORM 10-K 27\ RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- GENERAL In 1997, earnings increased, as compared to 1996, due primarily to the $5.5 million, net of tax, write-off recorded in the fourth quarter of 1996 resulting from the Public Utilities Commission of Nevada (PUCN) (previously the Public Service Commission of Nevada) order in the 1995 deferred energy case. In 1996, earnings were only slightly higher and earnings per share decreased, as compared to 1995, due primarily to a fourth quarter write-off resulting from the PUCN order in the 1995 deferred energy case. An increase in average shares of common stock outstanding, as compared to 1995, also contributed to the decrease in earnings per share. Average shares of common stock outstanding for 1997 increased by 1.7 million shares compared to 1996 and by 1.7 million shares for 1996 compared to 1995, as a result of the sale of shares through the Stock Purchase and Dividend Reinvestment Plan (SPP). - -------------------------------------------------------------------------------- REVENUES Revenues during 1997, 1996 and 1995 were $799 million, $805 million and $750 million, respectively. The .8 percent decrease in 1997 as compared to 1996 was primarily a result of an energy rate decrease effective February 1, 1997. The 7.4 percent increase in 1996, as compared to 1995, was a result of warmer weather and continued customer growth.
- -------------------------------------------------------------------------------- INCREASE (DECREASE) IN REVENUE FROM PRIOR YEAR (IN MILLIONS) NATURE OF INCREASE (DECREASE) 1997 1996 1995 - -------------------------------------------------------------------------------- Kilowatthour sales $ 44.1 $ 86.2 $ (5.5) General rate changes 111.7 - (5.2) Deferred energy adjustments (25.8) (27.1) (3.9) Fuel cost less rate changes (137.3) (4.5) .1 Other 1.1 .8 .3 ----------------------------------- Total increase (decrease) $ (6.2) $ 55.4 $(14.2) - -------------------------------------------------------------------------------- -----------------------------------
- -------------------------------------------------------------------------------- FUEL AND PURCHASED POWER Fuel expense increased $26.6 million in 1997, as compared with 1996, primarily due to higher average fuel prices and increased generation. In 1997, as compared to 1996, purchased power expense increased 5.1 percent due to higher average purchased power prices. Fuel expense increased $8.7 million in 1996, as compared with 1995, primarily due to higher average natural gas prices. In 1996, as compared to 1995, purchased power expense increased 14.5 percent due to increased power purchases offset in part by lower average purchased power prices. Effective February 1, 1997 and October 1 and December 1, 1995, the PUCN granted Nevada Power Company (Company) decreases of $45.0 million, $20.1 million and $17.1 million, respectively, in energy rates. In 1997, the Company deferred $27.8 million of increased energy costs for collection in a later period and refunded $32.6 million of energy cost decreases which had been previously deferred. In 1996, the Company deferred $14.5 million of decreased energy costs for refund in a later period and refunded $5.7 million of energy cost decreases which had been previously deferred. In 1995, the Company deferred $19.8 million of decreased energy costs for refund in a later period and collected $22.9 million of energy cost increases which had been previously deferred. Recovery of fuel expenses is administered under the state's deferred energy cost accounting procedures. (See Note 1 of "Notes to Consolidated Financial Statements.") Under the deferred energy procedure, changes in the costs of fuel and purchased power are reflected in customer rates through annual rate adjustments and do not affect earnings. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NEVADA POWER COMPANY 1997 ANNUAL REPORT /28 The following tables summarize kilowatthour data.
SOURCE OF KILOWATTHOURS SOLD 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------- Company generation 54% 50% 56% Hoover Dam hydroelectric 4 4 4 Purchased power 42 46 40 ---------------------------------------------------------- 100% 100% 100% - -------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------- COMPANY GENERATED KILOWATTHOURS BY FUEL SOURCE - -------------------------------------------------------------------------------------------------------------- Coal 67% 76% 77% Natural Gas 33 24 23 ---------------------------------------------------------- 100% 100% 100% - -------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------- FUEL COSTS PER KILOWATTHOUR - -------------------------------------------------------------------------------------------------------------- Coal 1.39 CENTS 1.39 CENTS 1.44 CENTS Natural Gas 2.25 1.95 1.51 - -------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------
- -------------------------------------------------------------------------------- OTHER OPERATING EXPENSES AND TAXES Other operations expense increased $3.8 million in 1996 due primarily to increased administrative and general expenses and transmission expenses resulting from increased labor costs. The level of maintenance and repair expenses depends primarily upon the scheduling, magnitude and number of unit overhauls at the Company's generating stations. In 1997, these expenses increased by $7.7 million due primarily to increased maintenance expense at the Reid Gardner and Clark Generating Stations. In 1996, these expenses increased by $10.9 million due primarily to increased maintenance expense at the Reid Gardner and Navajo Generating Stations. Depreciation expense increased $4.5 million in 1997 and $6.5 million in 1996 because of a growing electric plant asset base. - ------------------------------------------------------------------------------- OTHER INCOME AND EXPENSES Other miscellaneous, net increased by $4.4 million in 1997 due primarily to the $5.5 million, net of tax, write-off recorded in the fourth quarter of 1996 resulting from the PUCN order in the 1995 deferred energy case. Other miscellaneous, net decreased by $11.1 million in 1996 due primarily to the $2.3 million, net of tax, gain recorded in the first quarter of 1995 for the sale of mining property by the Company's unregulated subsidiary, the $5.5 million, net of tax, write-off resulting from the above mentioned PUCN order and $2.1 million, net of tax, in decreased carrying charges on deferred energy costs. LIQUIDITY AND CAPITAL RESOURCES - -------------------------------------------------------------------------------- CASH FLOWS Overall net cash flows increased during 1997, as compared to 1996, as a result of more cash being provided by financing activities partially offset by less cash being provided by operating activities and more cash being used in investing activities. The energy rate decrease effective February 1, 1997 was the primary cause of the decrease in cash being provided by operating activities partially offset by timing differences in federal income tax payments. The increase in cash used in investing activities was due to increased construction expenditures. The increase in cash being provided by financing activities was a result of the issuance of the Series A, 8.2% Cumulative Quarterly Income Preferred Securities (QUIPS) by the Company's subsidiary trust, NVP Capital I (See Note 6 to "Consolidated Financial Statements") and the issuance of the Series 1997B $20 million Pollution Control Revenue Bonds (PCRBs). The net proceeds from the issuance of the Series 1997A $52.3 million Industrial Development Revenue Bonds (IDBs) remain on deposit with a trustee. (See the Long-Term Debt section of "Management's Discussion and Analysis of Financial Condition and Results of Operations.") Overall net cash flows decreased during 1996, as compared to 1995, as a result of less cash being provided by operating activities and more cash being used in investing activities. Energy rate decreases effective October 1 and December 1, 1995 were the main cause of the reduction in cash provided by operating activities. The increase in net cash used in investing activities in 1996 over 1995 resulted primarily from the 1995 transfer of cash from the sale of mining property by the Company's unregulated subsidiary. The change in cash flows from 1995 to 1996 related to long-term debt and the associated funds held in trust resulted mainly from the 1995 issuance of the $85 million Series AA First Mortgage Bonds (FMBs) and $239.05 million in variable rate revenue bonds. The net proceeds from MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NEVADA POWER COMPANY 1997 ANNUAL REPORT 29\ the variable rate revenue bonds were placed on deposit with a trustee and $162.3 million of those proceeds were then withdrawn from trust in 1995 for the redemption of various series of revenue bonds. A portion of the proceeds from the Series AA FMBs were used to redeem the $50 million Series U FMBs in 1995. - ------------------------------------------------------------------------------- RESOURCE DEVELOPMENT AND CONSTRUCTION PROGRAMS Pursuant to Nevada law, every three years the Company is required to file with the PUCN a forecast of electricity demands for the next 20 years and the Company's plans to meet those demands. The Company filed its 1997 Resource Plan on June 3, 1997. On October 20, 1997, the PUCN rendered a decision on this plan. Among the major items in the Company's 1997 Resource Plan which were approved by the PUCN are the following: (1) the Company will proceed to build a 500 kV transmission project known as the Crystal Transmission Project, with an in-service date of June 1, 1999; (2) the Company will continue to pursue a strategy of relying on bulk power purchases to meet near-term incremental increases in load; (3) the Company will proceed with a joint 230 kV transmission project with the Colorado River Commission with costs subject to prudency review in a future rate case; (4) the Company received limited approval to proceed with six switchyard projects; (5) the Company received approval for pre-development costs to build two 144 megawatt (MW) combustion turbines in 2002 and 2003 which would be converted to a 410 MW combined cycle plant in 2004. An amendment to the 1997 Resource Plan will need to be filed by September 1999 for full approval if the Company wants to proceed with building the turbines. Budgeted construction expenditures for 1998 and 1999 are $295 million and $255 million, respectively, excluding allowance for funds used during construction. For the next five years customer growth is estimated to average 5.1 percent per year while demand for electricity is estimated to increase by an average of 6.0 percent per year. In order to assemble the resource plan and budget construction expenditures and also estimate customer growth and demand for electricity, the Company is required to make assumptions. The assumptions include but are not limited to economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices, and other factors. If actual events differ from any of these assumptions, the resource plan and predictions of future expenditures, growth and demand may change. - ------------------------------------------------------------------------------- FINANCIAL STRATEGIES Rapid growth continues to be forecasted for the Company's service territory for the late 1990s and into the next century. As in the past, the Company will rely upon the financial markets to provide a substantial portion of the funds to build necessary Company-owned facilities. Customer growth averaged 6.6 percent annually during the three years ended December 31, 1997. During this period of continued rapid growth, the Company is committed to maintaining shareholder value by utilizing a balanced and flexible financing approach using low cost financing whenever possible, reducing costs and seeking legislative and regulatory support as needed. - ------------------------------------------------------------------------------- CAPITALIZATION The Company will utilize internally generated cash and the proceeds from IDBs, FMBs, unsecured borrowings, preferred securities and common stock issues through public offerings and the SPP to meet capital expenditure requirements through 1999. - ------------------------------------------------------------------------------- NEW FINANCING CAPACITY Under the tests required by the Company's FMBs and the terms of its preferred stock issues, as of December 31, 1997, the Company could issue up to $594 million of additional FMBs at an assumed interest rate of 7.5 percent and up to $429 million of additional preferred stock at an assumed dividend of 7.5 percent. On August 21, 1997, the Company received approval from the PUCN to issue and sell up to $213 million of preferred stock, tax advantaged preferred stock and/or common stock through public or private offerings, the Company's SPP, the Company's 401(k) plan or any other method deemed appropriate. Approval was also received to issue and sell $487 million of tax-exempt, taxable, tax advantaged and/or any other type of debt the Company determines to be appropriate at the time. The Company also received approval to secure any of the debt through the issuance and pledge of first mortgage bonds only if it cannot, at the time of issuance, economically and effectively issue investment grade unsecured debt. The financing approval expires on December 31, 1999. - ------------------------------------------------------------------------------- EARNINGS TO INTEREST AND PREFERRED DIVIDENDS COVERAGE For the year 1997, the ratio of earnings to interest charges was 2.76 times compared to 2.92 times in 1996. The ratio of earnings to interest charges plus preferred dividends was 2.70 times in 1997 compared to 2.66 times in 1996. - ------------------------------------------------------------------------------- COMMON EQUITY The Company has the option to issue new common shares or purchase shares on the open market to satisfy the needs of the SPP. During 1997, the Company issued $31.8 million of common stock under the SPP. (See Note 5 of "Notes to Consolidated Financial Statements.") At year end, common equity represented 45 percent of total capitalization. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NEVADA POWER COMPANY 1997 ANNUAL REPORT /30 - ------------------------------------------------------------------------------- CUMULATIVE QUARTERLY INCOME PREFERRED SECURITIES On April 2, 1997, NVP Capital I (Trust), a wholly-owned subsidiary of the Company, issued 4,754,860 8.2% QUIPS at $25 per security. The Company owns all of the Series A common securities, 147,058 shares issued by the Trust for $3.7 million. The $118.9 million in net proceeds to the Company was used for general corporate utility purposes and repayment of short-term debt incurred to redeem the Company's $38 million, 9.9% Redeemable Cumulative Preferred Stock on April 1, 1997. (See Note 6 of "Notes to Consolidated Financial Statements.") - ------------------------------------------------------------------------------- SHORT-TERM DEBT The Company has PUCN approval for authority to issue short-term unsecured promissory notes not to exceed $225 million with such authorization to expire on December 31, 1999 and has a committed bank line for $125 million which expires on November 21, 2002. The short-term financing is expected to be utilized to fund some of the Company's construction expenditures until long-term financing is secured. At December 31, 1997, the Company had no balance outstanding on this line. - ------------------------------------------------------------------------------- LONG-TERM DEBT On November 20, 1997, Clark County, Nevada issued $52.3 million 5.9% IDBs Series 1997A (Nevada Power Company Project) due 2032 and Coconino County, Arizona issued $20 million 5.8% Pollution Control Revenue Bonds (PCRBs) Series 1997B (Nevada Power Company Project) due 2032. Net proceeds from the sale of the IDBs were placed on deposit with a trustee and will be used to finance the construction of certain facilities which qualify for tax-exempt financing. Net proceeds from the sale of the PCRBs were placed on deposit with a trustee and are being used to finance the construction of the Navajo scrubber facilities which qualify for tax-exempt financing. At December 31, 1997, $52.9 million remained on deposit with the trustee. The Company also remarketed $85 million Series 1995B Clark County, Nevada (Nevada Power Company Project) variable rate IDBs due 2030 at a 5.9 percent fixed rate on November 24, 1997. On January 29, 1998, the Company remarketed at fixed rates $141.05 million Clark County, Nevada (Nevada Power Company Project) variable rate revenue bonds consisting of $76.75 million Series 1995A IDBs due 2030 at 5.6 percent, $44 million Series 1995C IDBs due 2030 at 5.5 percent and $20.3 million Series 1995D PCRBs with $14 million due 2011 at 5.3 percent and $6.3 million due 2023 at 5.45 percent. On the same date, $13 million Coconino County, Arizona (Nevada Power Company Project) Series 1995E PCRBs due 2022 were remarketed at a 5.35 percent fixed rate. A discussion of long-term debt maturities, including sinking fund requirements, is contained in Note 7 of "Notes to Consolidated Financial Statements." - ------------------------------------------------------------------------------- REGULATION The PUCN allows recovery of costs on an historical test year in setting rates charged to customers for electrical service. (See Industry Restructuring section below.) Environmental expenditures made by the Company are currently being recovered through customer rates. A discussion of pending environmental matters is contained in Note 9 of "Notes to Consolidated Financial Statements." - ------------------------------------------------------------------------------- CONCLUDED RATE MATTERS On January 8, 1998, the PUCN approved a $45.6 million energy rate increase effective February 1, 1998. The Company requested the increase to recover higher costs for natural gas and purchased power. The PUCN also decided previously recorded revenues from the sale of sulfur dioxide emission allowances ($2.3 million, before tax) should be reversed and credited to a deferred liability account for a later determination in a general rate case. The table below summarizes the rate adjustments that have been granted to the Company during the past three years. - ------------------------------------------------------------------------------- SUMMARY OF RATE ADJUSTMENTS 1995 THROUGH 1997 (IN MILLIONS)
EFFECTIVE DATE NATURE OF INCREASE (DECREASE) Amount - ------------------------------------------------------------------------------- October 1, 1995 Energy rate decrease $(20.1) December 1, 1995 Energy and resource plan net rate decrease (17.6) February 1, 1997 Energy rate decrease (45.0) - -------------------------------------------------------------------------------
INDUSTRY RESTRUCTURING On July 16, 1997, the Governor of the state of Nevada signed into law Assembly Bill 366 (AB 366) which provides for competition to be implemented in the electric utility industry in the state no later than December 31, 1999 unless the PUCN determines a different date is necessary to protect the public interest. AB 366 also changed the name of the Public Service Commission to the PUCN, reduced it from five to three members, and removed the regulation of transportation matters to another agency. It is expected that the generation, aggregation (buying and reselling electricity to customers) and marketing of electricity and possibly other utility services will be deemed competitive, while transmission and distribution services will be deemed noncompetitive and will continue MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NEVADA POWER COMPANY 1997 ANNUAL REPORT 31\ to be regulated. The Company is required to submit a plan to the PUCN to unbundle its integrated rates. A provider of a noncompetitive service will be prohibited from providing a potentially competitive service except through an affiliate which the PUCN has determined, after a hearing, has an arm's length relationship with the provider of the noncompetitive service. Each provider of a noncompetitive service that is necessary to the provision of a potentially competitive service is required to make its facilities or services available to all alternative sellers on equal and nondiscriminatory terms and conditions. Alternative sellers of electricity must be licensed under rules yet to be determined by the PUCN. AB 366 allows the PUCN to authorize full recovery of costs which they determine to be stranded but does not guarantee full recovery of those costs. Costs that were incurred by utilities to serve their customers with the understanding that state regulatory commissions would allow the costs to be recovered through electric rates are potentially stranded costs. The greater part of the Company's potentially stranded costs are related to contracts with qualifying facilities all of which were previously approved by the PUCN. The PUCN shall designate a vertically integrated electric utility or another entity to provide electric service to customers who are unable to obtain electric service from an alternative seller or who fail to select an alternative seller. The provider of last resort so designated by the PUCN is obligated to provide electric service to those customers. The PUCN may authorize the right to buy from alternative sellers in gradual phases. The rate charged for residential service for customers who are unable to obtain electric service from an alternative seller or who fail to select an alternative seller must not exceed the rate charged for that service on July 1, 1997, however, the PUCN may approve an increase in residential rates in an amount necessary to ensure recovery by the Company of its just and reasonable costs. The residential rate restriction will remain in place until 2003. Two-tenths of one percent of all electric energy sold must come from a renewable resource produced in Nevada by January 1, 2001. Fifty percent of this energy must be derived from solar power. Every two years the standard increases by two-tenths of one percent until a total of one percent of all electricity consumed comes from renewable resources. In August 1997, the PUCN opened an investigatory docket of the issues to be considered as a result of restructuring of the electric industry. The docket sets forth the issues to be addressed as well as the steps the PUCN will take to address them. Issues to be addressed include the following: (1) Identification of all cost components in utility service and establishment of allocation methods necessary for later pricing of noncompetitive services; (2) Designation of services as potentially competitive or noncompetitive; (3) Determination of rate design and non-price terms and conditions for noncompetitive services; (4) Establishment of licensing requirements for alternative sellers of potentially competitive services; (5) Past (stranded) costs; (6) Criteria and standards by which the PUCN will apply the legislative requirements concerning affiliate relations; (7) Criteria and process by which the PUCN will appoint providers of bundled electric service; (8) Consumer protection; (9) Anti-competitive behavior codes of conduct and enforcement; (10) Price regulation for potentially competitive services in immature markets; (11) Compliance plans in accordance with regulation; (12) Options for complying with legislative mandates for integrated resource planning and portfolio standards; (13) Innovative pricing for noncompetitive services. In its Order dated November 4, 1997, the PUCN designated unbundled services in eight major categories with twenty-six unbundled services in total. The major categories include Generation Capacity and Energy Supply, Generation Services Necessary to Support Transmission Service, Arranging for Power Supplies, Power Delivery, End-Use Metering, Customer Accounting, Marketing and Sales, and Public Good Services. The PUCN evaluated the cost unbundling methodologies for the unbundled services set forth in its Order and, after hearings, issued an Interim Order describing the process the parties should follow to complete developing cost unbundling methodologies and to work toward consensus on that issue. The PUCN has the authority to classify a service as a potentially competitive service if it finds the service meets specific requirements. The PUCN has proposed regulations and held a hearing on the contents of applications by any person seeking a designation of an unbundled service as potentially competitive. On January 21, 1998, the PUCN issued an Order to solicit comments on the Classification of Components of Electric Service as Potentially Competitive Services; Non-price Terms and Conditions for Distribution Tariffs; Licensing of Alternative Sellers; and Consumer Protection. PUCN workshops have been scheduled for March and April 1998 on these issues. The deregulation of the electric utility industry has caused a reevaluation of current accounting guidelines for electric utilities. A discussion of this subject is included in Note 1 of "Notes to Consolidated Financial Statements." - ------------------------------------------------------------------------------- YEAR 2000 The Company has begun converting its computer systems to be year 2000 compliant (e.g., to recognize the difference between '99 and '00 as one year instead of negative 99 years). The Company believes the impact the year 2000 issue will have on its business applications will not be material. The Company is still reviewing this issue for its electrical systems equipment. A plan is in progress to identify and correct problems related to the year 2000 issue. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NEVADA POWER COMPANY 1997 ANNUAL REPORT /32 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995 ELECTRIC REVENUES (NOTE 1) $799,148 $805,374 $749,981 - -------------------------------------------------------------------------------------------------- OPERATING EXPENSES AND TAXES: Fuel 138,956 112,321 103,582 Purchased and interchanged power 277,644 264,143 230,694 Deferred energy cost adjustments, net (Note 1) (60,400) 8,817 42,658 ------------------------------------------- Net energy costs 356,200 385,281 376,934 Other production operations 21,214 17,834 17,813 Other operations 101,597 99,266 95,458 Maintenance and repairs 52,126 44,464 33,598 Provision for depreciation (Note 1) 66,273 61,771 55,302 General taxes 21,064 19,558 18,946 Federal income taxes (Notes 1 and 2) 43,478 44,970 34,372 ------------------------------------------- 661,952 673,144 632,423 - -------------------------------------------------------------------------------------------------- OPERATING INCOME 137,196 132,230 117,558 - -------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSES): Allowance for other funds used during construction (Note 1) 8,760 6,240 5,353 Other miscellaneous, net (5,741) (10,116) 996 ------------------------------------------- 3,019 (3,876) 6,349 - -------------------------------------------------------------------------------------------------- INCOME BEFORE INTEREST DEDUCTIONS 140,215 128,354 123,907 - -------------------------------------------------------------------------------------------------- INTEREST DEDUCTIONS: Interest on long-term debt 50,791 47,792 47,745 Other interest 1,531 2,584 1,566 Allowance for borrowed funds used during construction (Note 1) (2,579) (890) (2,375) ------------------------------------------- 49,743 49,486 46,936 - -------------------------------------------------------------------------------------------------- DISTRIBUTION REQUIREMENTS ON COMPANY- OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST (NOTE 6) 7,256 - - - -------------------------------------------------------------------------------------------------- NET INCOME 83,216 78,868 76,971 DIVIDEND REQUIREMENTS ON PREFERRED STOCK 1,125 3,956 3,966 - -------------------------------------------------------------------------------------------------- EARNINGS AVAILABLE FOR COMMON STOCK $ 82,091 $ 74,912 $ 73,005 - -------------------------------------------------------------------------------------------------- ------------------------------------------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 49,691 47,976 46,288 - -------------------------------------------------------------------------------------------------- ------------------------------------------- EARNINGS PER AVERAGE COMMON SHARE $ 1.65 $ 1.56 $ 1.58 - -------------------------------------------------------------------------------------------------- -------------------------------------------
See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF INCOME NEVADA POWER COMPANY 1997 ANNUAL REPORT 33\ (IN THOUSANDS)
- -------------------------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 83,216 $ 78,868 $ 76,971 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 78,274 69,876 66,950 Deferred income taxes and investment tax credits 21,599 5,679 (15,975) Allowance for other funds used during construction (8,760) (6,240) (5,353) Changes in- Receivables (15,407) (1,754) 5,099 Fuel stock and materials and supplies 163 2,105 (2,053) Accounts payable and other current liabilities 8,306 (6,257) (1,526) Deferred energy costs (59,543) 12,093 42,624 Accrued taxes and interest 2,416 (13,105) 16,784 Other assets and liabilities 108 13,725 2,398 ------------------------------------------- Net cash provided by operating activities 110,372 154,990 185,919 - -------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Construction expenditures and gross additions (213,550) (180,871) (178,770) Investment in subsidiaries and other (463) 70 17,942 ------------------------------------------- Net cash used in investing activities (214,013) (180,801) (160,828) - -------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of capital stock 32,473 37,395 33,339 Issuance of company-obligated mandatorily redeemable preferred securities 118,872 - - Issuance of long-term debt 72,285 20,000 324,050 Deposit of funds held in trust (74,672) (22,814) (240,690) Withdrawal of funds held in trust 74,424 47,581 170,381 Retirement of long-term debt (5,334) (5,418) (219,351) Retirement of preferred stock (38,200) (200) (200) Cash dividends (81,216) (80,370) (77,699) Other financing activiies 3,185 6,674 10,463 ------------------------------------------- Net cash provided by financing activities 101,817 2,848 293 - -------------------------------------------------------------------------------------------------- CASH AND TEMPORARY CASH INVESTMENTS (NOTE 1): Net increase (decrease) during the year (1,824) (22,963) 25,384 Beginning of year 2,544 25,507 123 ------------------------------------------- End of year $ 720 $ 2,544 $ 25,507 - -------------------------------------------------------------------------------------------------- ------------------------------------------- CASH PAID DURING THE YEAR FOR: Interest, net of amounts capitalized $ 64,692 $ 59,521 $ 56,644 - -------------------------------------------------------------------------------------------------- ------------------------------------------- Income taxes $ 19,545 $ 51,282 $ 32,885 - -------------------------------------------------------------------------------------------------- -------------------------------------------
See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF CASH FLOWS NEVADA POWER COMPANY 1997 ANNUAL REPORT /34 (IN THOUSANDS)
- -------------------------------------------------------------------------------------------- December 31, 1997 1996 ASSETS Electrical Plant, at original cost (Notes 1, 7, 9 and 11): Production $ 900,971 $ 854,386 Transmission 326,917 321,041 Distribution 978,144 873,998 General 172,264 145,522 ------------------------------ 2,378,296 2,194,947 Less accumulated depreciation 647,208 592,571 ------------------------------ Net plant in service 1,731,088 1,602,376 Construction work in progress 158,029 140,820 Property under capital leases 69,261 73,803 Plant held for future use 2,331 2,331 ------------------------------ 1,960,709 1,819,330 - -------------------------------------------------------------------------------------------- Investments (Note 1) 13,571 10,734 - -------------------------------------------------------------------------------------------- Current Assets: Cash and temporary cash investments (Note 1) 720 2,544 Customer receivables- Billed 45,776 45,885 Unbilled (Note 1) 28,237 23,689 Reserve for doubtful accounts (2,291) (2,892) Other receivables 16,415 6,472 Fuel stock, at average cost 7,325 9,104 Materials and supplies, at average cost 35,045 27,501 Deferred energy asset (Note 1) 30,597 - Deferred taxes on deferred energy liability (Notes 1 and 2) - 10,139 Prepayments 6,711 8,203 ------------------------------ 168,535 130,645 - -------------------------------------------------------------------------------------------- Deferred Charges: Debt expense, being amortized 30,461 27,050 Other (Note 10) 166,146 175,465 ------------------------------ 196,607 202,515 - -------------------------------------------------------------------------------------------- TOTAL ASSETS $2,339,422 $2,163,224 - -------------------------------------------------------------------------------------------- ------------------------------
See Notes to Consolidated Financial Statements. CONSOLIDATED BALANCE SHEETS NEVADA POWER COMPANY 1997 ANNUAL REPORT 35\ (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------- DECEMBER 31, 1997 1996 CAPITALIZATION AND LIABILITIES Capitalization (See Consolidated Schedules of Capitalization and Long-Term Debt): Common shareholders' equity $ 833,623 $ 800,154 Redeemable cumulative preferred stock - 38,000 Cumulative preferred stock with mandatory sinking funds 3,463 3,663 Company-obligated mandatorily redeemable preferred securities 118,872 - Long-term debt 895,439 841,364 ------------------------------ 1,851,397 1,683,181 - ----------------------------------------------------------------------------------------------------------- Current Liabilities: Current maturities and sinking fund requirements (See Consolidated Schedules of Capitalization and Long-Term Debt) 19,937 5,714 Accounts payable 64,737 58,289 Accrued taxes 7,543 6,372 Accrued interest 7,284 6,039 Customers' service deposits 15,095 14,540 Deferred taxes on deferred energy asset (Notes 1 and 2) 10,709 - Deferred energy liability (Note 1) - 28,725 Other 22,554 21,611 ------------------------------ 147,859 141,290 - ----------------------------------------------------------------------------------------------------------- Commitments and Contingencies (Note 9) Deferred Credits and Other Liabilities: Deferred investment tax credits (Notes 1 and 2) 29,544 31,004 Deferred taxes on income (Notes 1 and 2) 235,846 234,209 Customers' advances for construction 55,772 51,123 Other (Note 10) 19,004 22,417 ------------------------------ 340,166 338,753 - ----------------------------------------------------------------------------------------------------------- TOTAL CAPITALIZATION AND LIABILITIES $2,339,422 $2,163,224 - ----------------------------------------------------------------------------------------------------------- ------------------------------
See Notes to Consolidated Financial Statements. CONSOLIDATED BALANCE SHEETS NEVADA POWER COMPANY 1997 ANNUAL REPORT /36 (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1997 1996 COMMON SHAREHOLDERS' EQUITY (NOTE 5): Common stock, $1 par value, authorized 70,000,000 shares; issued and outstanding 50,399,746 and 48,785,846 shares at December 31, 1997 and 1996; stated at $ 53,604 $ 51,990 Premium on capital stock 667,203 635,420 Unamortized capital stock expense (4,216) (4,616) Retained earnings 117,032 117,360 --------------------------------------------------------- Total common shareholders' equity 833,623 45.0% 800,154 47.5% - -------------------------------------------------------------------------------------------------------------------------- REDEEMABLE CUMULATIVE PREFERRED STOCK (NOTES 5, 6 AND 8): $20 par value, authorized 4,500,000 shares for all series; outstanding at December 31, 1997 and 1996; 9.90% Series, zero and 1,900,000 shares - 38,000 --------------------------------------------------------- Total - 38,000 2.3 - -------------------------------------------------------------------------------------------------------------------------- CUMULATIVE PREFERRED STOCK WITH MANDATORY SINKING FUNDS (NOTE 5): Outstanding at December 31, 1997 and 1996: 5.40% Series, 38,669 and 40,669 shares 773 813 5.20% Series, 36,507 and 38,507 shares 730 770 4.70% Series, 108,006 and 114,006 shares 2,160 2,280 --------------------------------------------------------- 3,663 3,863 Current sinking fund requirement (200) (200) --------------------------------------------------------- Total 3,463 .2 3,663 .2 - -------------------------------------------------------------------------------------------------------------------------- COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF THE COMPANY'S SUBSIDIARY TRUST, NVP CAPITAL I, HOLDING SOLELY $122.6 MILLION PRINCIPAL AMOUNT OF 8.2% JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY, DUE 2037 (NOTE 6) 118,872 6.4 - - - -------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT (See Consolidated Schedules of Long-Term Debt) 895,439 48.4 841,364 50.0 - -------------------------------------------------------------------------------------------------------------------------- Total capitalization $1,851,397 100.0% $1,683,181 100.0% - -------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------
See Notes to Consolidated Financial Statements. CONSOLIDATED SCHEDULES OF CAPITALIZATION NEVADA POWER COMPANY 1997 ANNUAL REPORT 37\ (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------- DECEMBER 31, 1997 1996 LONG-TERM DEBT (NOTES 7, 8 AND 9): First mortgage bonds: 7 1/8% Series I due 1998 $ 15,000 $ 15,000 7 5/8% Series L due 2002 15,000 15,000 7.80% Series T due 2009 15,000 15,000 6.70% Series V due 2022 105,000 105,000 6.60% Series W due 2019 39,500 39,500 7.20% Series X due 2022 78,000 78,000 6.93% Series Y due 1999 45,000 45,000 8.50% Series Z due 2023 45,000 45,000 7.06% Series AA due 2000 85,000 85,000 ---------------------------- 442,500 442,500 Industrial development revenue bonds: 7.80% due 2020 100,000 100,000 5.90% Series 1997A due 2032 52,285 - 5.90% Series 1995B due 2030 85,000 - Variable rate- Series 1995A due 2030 76,750 76,750 Series 1995B due 2030 - 85,000 Series 1995C due 2030 44,000 44,000 Pollution control revenue bonds: 6 3/8% due 2036 20,000 20,000 5.80% Series 1997B due 2032 20,000 - Variable rate- Series 1995D due 2011 14,000 14,000 Series 1995D due 2023 6,300 6,300 Series 1995E due 2022 13,000 13,000 Less funds held in trust (52,948) (52,700) 8.5% Note Due 2000 300 400 Obligations under capital leases 93,985 97,629 ---------------------------- 915,172 846,879 Debt premium and discount, being amortized 4 (1) Current maturities and sinking fund requirements (19,737) (5,514) - ----------------------------------------------------------------------------------------------------------- Total long-term debt $895,439 $841,364 - ----------------------------------------------------------------------------------------------------------- ---------------------------- See Notes to Consolidated Financial Statements.
CONSOLIDATED SCHEDULES OF LONG-TERM DEBT NEVADA POWER COMPANY 1997 ANNUAL REPORT /38 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995 BALANCE AT BEGINNING OF YEAR $117,360 $118,860 $119,600 Add-Net Income 83,216 78,868 76,971 ------------------------------------------ 200,576 197,728 196,571 ------------------------------------------ Deduct: Dividends paid in cash: Cumulative preferred stock- 5.40%, 5.20% and 4.70% Series 184 194 204 9.90% Series (Notes 5 and 6) 941 3,762 3,762 Common stock 79,176 76,412 73,745 ------------------------------------------ 80,301 80,368 77,711 Redemption of preferred stock (Notes 5 and 6) 3,243 - - ------------------------------------------ 83,544 80,368 77,711 ------------------------------------------ Balance at End of Year $117,032 $117,360 $118,860 - ----------------------------------------------------------------------------------------------------------- ------------------------------------------ See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS NEVADA POWER COMPANY 1997 ANNUAL REPORT 39\ 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------------------- For ratemaking and other purposes, the Company is subject to the jurisdiction of the PUCN and the Federal Energy Regulatory Commission (FERC). The accounting records of the Company are maintained in accordance with the uniform system of accounts prescribed by the FERC and adopted by the PUCN. The Company is subject to the provisions of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation, which require the Company to record certain regulatory assets and liabilities. - -------------------------------------------------------------------------------- CONTINUING APPLICABILITY OF FASB 71 The Company's rates are currently subject to approval by the PUCN and are designed to recover the Company's costs of providing services to its customers. A primary difference between a rate regulated entity and an unregulated entity is the timing of recognizing certain assets and expenses for financial reporting purposes. The Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (FAS 71), prescribes the method to be used to record the financial transactions of a regulated entity. The criteria for applying FAS 71 include the following: (i) rates are set by an independent third party regulator, (ii) approved rates are intended to recover the specific costs of the regulated products or services, (iii) rates set at levels that will recover costs, can be charged to and collected from customers. If the Company determines as a result of competitive changes in Nevada, PUCN orders or otherwise that its business, or a portion of its business, fails to meet any of these three criteria of FAS 71, it may have to eliminate from its Consolidated Financial Statements the related transactions prescribed by the regulators that would not have been recognized if it had been a non-regulated company, which could result in an impairment of or write-off of utility assets. The Company believes, however, that it continues to meet the criteria for operating as a rate regulated entity, as prescribed by FAS 71. In July 1997, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board reached a consensus on several issues which have arisen due to deregulation of the electric utility industry and the continuing applicability of FAS 71. The EITF reached a consensus that a company should stop applying FAS 71 to a separable portion of its business when deregulatory legislation or a rate order which results in deregulation gives enough detail for the company to reasonably determine how the transition plan to deregulation will effect that separable portion. Once FAS 71 is no longer applied to that separable portion of the business it will be disclosed separately in the company's financial statements. Any regulatory assets and liabilities that originated in that separable portion of the company should be evaluated on the basis of which portion of the business the regulated cash flows to settle them will come from and will not be eliminated until they are recovered, individually impaired or eliminated by the regulator or the portion of the business where the regulated cash flows come from can no longer apply FAS 71. Any new regulatory assets and liabilities are recognized within the portion of the company where the regulated cash flows for their recovery or settlement are derived and are eliminated in the same manner as existing regulatory assets and liabilities as described above. - -------------------------------------------------------------------------------- PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, NVP Capital I. All significant intercompany transactions and balances have been eliminated in consolidation. - -------------------------------------------------------------------------------- USE OF ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. - -------------------------------------------------------------------------------- ELECTRIC REVENUES The Company bills its customers monthly on a cycle basis and recognizes the estimated amount of revenue applicable to kilowatthours of energy sold but not yet billed at the end of an accounting period. - -------------------------------------------------------------------------------- DEFERRED ENERGY COST ADJUSTMENTS As permitted by state statute, the Company defers differences between the current cost of fuel plus net purchased power and base energy costs as defined. Any over or under recoveries are deferred in the balance sheet as a current asset or current liability. Under regulations adopted by the PUCN, deferred energy rates are revised at least every 12 months to clear the accumulated deferred balance over a future period. Effective February 1, 1997, explicit capacity costs associated with certain purchased power contracts were included in general rates rather than the deferred energy cost accounting mechanism. - -------------------------------------------------------------------------------- ELECTRIC PLANT The costs of betterments and additions to electric plant and replacements of retirement units of property are capitalized. Such costs include labor, payroll taxes, material, transportation, an allowance for funds used during construction and, where applicable, property taxes. Maintenance is charged with the cost of repairs and minor replacements. Accumulated depreciation is charged for the cost of plant retired, less net salvage. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NEVADA POWER COMPANY 1997 ANNUAL REPORT /40 Depreciation has been provided for financial statement purposes on a straight-line basis at rates based upon the estimated useful lives of the various classes of plant. The provisions for depreciation during 1997, 1996 and 1995 were equivalent to an annual rate of approximately 2.9 percent of the average gross investment in depreciable plant. - -------------------------------------------------------------------------------- ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION The allowance for funds used during construction (AFUDC) represents the estimated costs of borrowed and equity funds applicable to electric plant construction. The FERC has prescribed a specific computational method for determining the AFUDC rate. The PUCN has authorized the AFUDC rate to be the lesser of the rate determined under the FERC computational method or the rate equivalent to the overall rate of return authorized by the PUCN. The overall rate of return authorized by the PUCN was 9.66 percent beginning July 1994. The Company's actual AFUDC rate averaged 9.66 percent for 1997, 1996 and 1995. - -------------------------------------------------------------------------------- RECENTLY ISSUED ACCOUNTING STANDARDS The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards No. 128 (FAS 128), Earnings Per Share, which the Company adopted as of December 15, 1997. FAS 128 establishes standards for computing and presenting earnings per share to make them comparable to international earnings per share standards and requires dual presentation of basic and diluted earnings per share for entities with complex capital structures. The adoption resulted in no effect on the computation of the Company's earnings per share. The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards No. 130 (FAS 130), Reporting Comprehensive Income, which is effective for fiscal years beginning after December 15, 1997. FAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. After adoption, the Company expects there will be no material effect on the disclosures in its consolidated financial statements. The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards No. 131 (FAS 131), Disclosures about Segments of an Enterprise and Related Information, which is effective for financial statements for fiscal years beginning after December 15, 1997. FAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Due to recent legislation enacted in Nevada for restructuring the electric utility industry, the Company cannot predict the effect adoption of FAS 131 will have on disclosures in its consolidated financial statements. - -------------------------------------------------------------------------------- FEDERAL INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes. FAS 109 requires recognition of deferred tax liabilities and assets for the future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company's December 31, 1997 consolidated balance sheet contains a net regulatory asset of $79 million related to federal income taxes. (See Note 10 of "Notes to Consolidated Financial Statements.") In November 1991, the PUCN issued an order which allows the Company to recover the previously flowed through tax benefits ratably over the estimated remaining book life of the plant. Calculated at current rates, approximately $32 million of income taxes will be allowed in future rates. Investment tax credits earned have been deferred and are being amortized to income ratably over the estimated service lives of the related property. - -------------------------------------------------------------------------------- CASH FLOW INFORMATION Cash equivalents, which generally are convertible to cash at par on short notice and mature three months or less from the date of acquisition, are reported as temporary cash investments. The Company had no material noncash investing or financing transactions during 1997, 1996 or 1995. - -------------------------------------------------------------------------------- OTHER ACCOUNTING POLICIES The Company uses the equity method of accounting to report immaterial investments in unconsolidated subsidiaries. Certain amounts in prior periods have been reclassified to conform to the consolidated financial statement presentation for December 31, 1997. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NEVADA POWER COMPANY 1997 ANNUAL REPORT 41\ 2 FEDERAL INCOME AND OTHER TAXES - -------------------------------------------------------------------------------- The total federal income tax expense as set forth in the accompanying Consolidated Statements of Income results in an effective federal income tax rate different from the statutory federal income tax rate for the following reasons:
(DOLLARS IN THOUSANDS) FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------- Federal income tax at statutory rate $44,954 35.0% $42,613 35.0% $40,167 35.0% Adjustments: Investment tax credit amortization (1,460) (1.1) (1,460) (1.2) (1,460) (1.3) Other items 1,731 1.3 1,731 1.4 (916) (.8) -------------------------------------------------------------------------------------- Total recorded federal income tax $45,225 35.2% $42,884 35.2% $37,791 32.9% - ------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- Federal income taxes included in: Operating expenses $43,478 $44,970 $34,372 Other miscellaneous, net 1,747 (2,086) 3,419 -------------------------------------------------------------------------------------- $45,225 $42,884 $37,791 - ------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------
The current and deferred components of federal income taxes included in operating expenses are as follows: (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------- Current federal income taxes $ 21,899 $ 39,312 $ 50,367 ------------------------------------------ Deferred federal income taxes: Depreciation differences 13,669 16,427 8,323 Deferred energy costs 20,848 (3,544) (15,595) Contributions in aid of construction (6,302) (7,720) (4,510) Allowance for borrowed funds used during construction (2,406) (281) 683 Coal contract buyout (787) 1,752 (1,039) Other-net (1,983) 484 (2,397) ------------------------------------------ 23,039 7,118 (14,535) ------------------------------------------ Investment tax credit amortization (1,460) (1,460) (1,460) ------------------------------------------ Total $43,478 $44,970 $ 34,372 - ------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------
The regulatory asset for temporary differences related to liberalized depreciation will continue to be amortized using the average rate assumption method required by the Tax Reform Act of 1986. The regulatory liability for temporary differences caused by investment tax credits will be amortized ratably in the same fashion as the deferred investment tax credit under former Internal Revenue Code Section 46(f)(2). NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NEVADA POWER COMPANY 1997 ANNUAL REPORT /42 The net deferred federal income tax liability consists of deferred federal income tax liabilities less deferred federal income tax assets related to: (IN THOUSANDS)
DECEMBER 31, 1997 1996 - -------------------------------------------------------------------------------------------------- DEFERRED FEDERAL INCOME TAX LIABILITIES: Temporary basis differences-plant $ (95,077) $(101,596) Investment tax credits (29,544) (31,004) Excess of tax depreciation over book depreciation (133,084) (121,822) Coal contract buyout (1,138) (1,925) Accrued taxes (3,298) (3,326) Demand-side program costs (712) (2,353) Debt reacquisition costs (2,420) (2,663) Deferred energy (10,709) - Other (116) (524) ----------------------------- Total (276,098) (265,213) - -------------------------------------------------------------------------------------------------- DEFERRED FEDERAL INCOME TAX ASSETS: Unamortized investment tax credits 15,908 16,694 Refundable customer advances 18,920 17,295 Deferred energy - 10,139 Nonrefundable contributions in aid of construction 15,017 10,339 Capitalized expenses (27) (231) Supplemental executive retirement plan 2,249 1,601 Other 681 2,281 ----------------------------- Total 52,748 58,118 - -------------------------------------------------------------------------------------------------- Net deferred tax liability $(223,350) $(207,095) - -------------------------------------------------------------------------------------------------- -----------------------------
3 EMPLOYEE BENEFITS - -------------------------------------------------------------------------------- DEFINED CONTRIBUTION RETIREMENT PLAN The Company maintains an employee investment plan (401(k) Plan) which was established January 1, 1990, under Section 401(k) of the Internal Revenue Code. Employees who are at least 21 years old and have completed one month of service may become "participants" in the 401(k) Plan. The Company matches 50 percent of a participant's contributions to the 401(k) Plan not to exceed 3 percent of the participants annual compensation. All Company contributions are invested in common stock of the Company. The amounts expensed for Company matching contributions to the 401(k) Plan were $2,074,000 for 1997, $1,821,000 for 1996 and $1,533,000 for 1995. - -------------------------------------------------------------------------------- DEFINED BENEFIT RETIREMENT PLAN The Company has a non-contributory defined benefit retirement plan (PLAN) designed to meet the provisions of the Employee Retirement Income Security Act of 1974. All employees age 21 and over who have completed one year of service with at least 1,000 hours worked participate in the PLAN. Benefits under the PLAN are dependent upon each participant's salary for the highest consecutive 60 months of service and length of service. The Company also has a Supplemental Executive Retirement Plan (SERP) in addition to the regular PLAN. Participation is limited to such officers as the Board of Directors may select. Presently, 28 active or retired designated officers and employees participate in the SERP. The SERP will be funded as benefits are disbursed. The table on the next page sets forth the funded status and amounts recognized in the Company's consolidated financial statements at December 31, 1997, 1996 and 1995 for both the PLAN and SERP. The discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligations for both the PLAN and SERP were 7.5 percent and 4.5 percent in 1997, 8 percent and 4.5 percent in 1996, and 7.25 percent and 4.5 percent in 1995, respectively. The expected rate of return on PLAN assets was 8.5 percent in 1997, 1996 and 1995. PLAN assets are primarily invested in listed stocks, fixed income securities and federal agencies securities. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NEVADA POWER COMPANY 1997 ANNUAL REPORT 43\
RECONCILIATION OF FUNDED STATUS (IN THOUSANDS) PLAN SERP FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------- Actuarial present value of: Vested benefit obligation $ 78,646 $ 69,822 $ 72,412 $ 6,235 $ 5,123 $ 5,038 Nonvested benefit obligation 4,904 4,228 4,702 1,217 319 838 --------------------------------------------------------------------------------------- Accumulated benefit obligation $ 83,550 $ 74,050 $ 77,114 $ 7,452 $ 5,442 $ 5,876 - ------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- Projected benefit obligation $110,503 $ 96,592 $103,973 $ 9,030 $ 6,662 $ 7,063 Plan assets at fair value 100,899 81,564 74,628 - - - --------------------------------------------------------------------------------------- Plan assets less than projected benefit obligation (9,604) (15,028) (29,345) (9,030) (6,662) (7,063) Unrecognized prior service costs 5,809 6,386 7,147 515 495 594 Unrecognized net loss (292) 2,712 16,000 3,646 1,692 2,492 4th quarter contributions/benefits 1,196 800 - 109 110 - --------------------------------------------------------------------------------------- Pension liability $ (2,891) $ (5,130) $ (6,198) $ (4,760) $ (4,365) $ (3,977) - ------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- Net pension expense comprised the following: Service cost $ 4,304 $ 4,843 $ 3,351 $ 102 $ 102 $ 96 Interest cost on projected benefit obligation 7,893 7,642 6,947 544 517 502 Return on plan assets (16,493) (3,897) (14,049) - - - Net amortization and deferral 10,054 (2,060) 9,125 185 235 160 - ------------------------------------------------------------------------------------------------------------------------------- Net periodic pension cost $ 5,758 $ 6,528 $ 5,374 $ 831 $ 854 $ 758 - ------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company accounts for postretirement benefits other than pensions in accordance with Statement of Financial Accounting Standards No. 106 (FAS 106), Employers' Accounting for Postretirement Benefits Other Than Pensions. The Company has elected to amortize its transition obligation at January 1, 1993 over a period of 20 years. The Company currently provides postretirement medical, dental and vision benefits to employees who have retired. The postretirement health care plan is contributory, and retirees' contributions can be adjusted annually for increases in the cost of providing the benefits. The postretirement health care plan is being funded in amounts not to exceed the lesser of amounts collected from customers through rates or amounts allowable under the Internal Revenue Code as amended from time to time. Net periodic postretirement benefit cost for the years ended December 31, 1997, 1996 and 1995 included the following components: (IN THOUSANDS)
1997 1996 1995 - ------------------------------------------------------------------------------------------------- Service cost $ 370 $ 406 $ 293 Interest cost on projected benefit obligation 1,269 1,223 1,881 Return on assets (1,589) (543) (303) Amortization of transition obligation 1,532 713 1,198 ---------------------------------------- Net periodic postretirement benefit cost $1,582 $1,799 $3,069 - ------------------------------------------------------------------------------------------------- ----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NEVADA POWER COMPANY 1997 ANNUAL REPORT /44 A reconciliation of the funded status of the plan to the amounts recognized in the Consolidated Balance Sheets as of December 31, 1997 and 1996 is as follows: (IN THOUSANDS)
1997 1996 - -------------------------------------------------------------------------------------------------- Retirees $ (9,901) $(11,331) Fully eligible active employees (247) (182) Other active employees (5,348) (4,552) ---------------------------- Accumulated postretirement benefit obligation (15,496) (16,065) Fair value of assets 8,665 7,075 ---------------------------- Accumulated postretirement benefit obligation in excess of assets (6,831) (8,990) Unrecognized transition obligation 14,530 15,498 Unrecognized gain (11,576) (9,667) 4th quarter contributions/benefits 1,267 174 ---------------------------- Accrued postretirement benefit liability $ (2,610) $(2,985) - -------------------------------------------------------------------------------------------------- ----------------------------
The medical cost trend rate assumed for 1998 was 7.0 percent, grading down to 4.75 percent in 2001 and remaining at that level thereafter. The health care cost trend rate has a significant effect on the accumulated postretirement benefit obligation and net periodic cost. A one-percentage-point increase in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligation at December 31, 1997 by $803,000 and would increase the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1997 by $60,000. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation at December 31, 1997 was 7.5 percent. The expected rate of return on assets was 8.5 percent in 1997. Assets are primarily invested in listed stocks, fixed income securities and federal agencies securities. 4 SHORT-TERM BORROWINGS - -------------------------------------------------------------------------------- The Company has a $125 million bank revolving credit facility which expires on November 21, 2002, and pays a facility fee based on the Company's senior unsecured debt rating. Borrowing rates under the bank line are determined by both current market rates and the Company's senior unsecured debt rating. There were no short-term borrowings outstanding on the bank line at December 31, 1997 and 1996. 5 CAPITAL STOCK - -------------------------------------------------------------------------------- The changes in common stock shares for 1995, 1996 and 1997 are as follows:
SHARES Outstanding, January 1, 1995 45,382,370 Issued under 401(k) Savings Plan 77,846 Issued under Stock Purchase and Dividend Reinvestment Plan 1,577,977 - ---------------------------------------------------------------------------------- Outstanding, December 31, 1995 47,038,193 Issued under 401(k) Savings Plan 87,889 Issued under Stock Purchase and Dividend Reinvestment Plan 1,659,764 - ---------------------------------------------------------------------------------- Outstanding, December 31, 1996 48,785,846 Issued under 401(k) Savings Plan 98,184 Issued under Stock Purchase and Dividend Reinvestment Plan 1,515,716 - ---------------------------------------------------------------------------------- Outstanding, December 31, 1997 50,399,746 - ---------------------------------------------------------------------------------- --------------
Premium on capital stock increased $31.8 million, $35.2 million and $31.9 million during 1997, 1996 and 1995, respectively, due to issuances of common stock. Cash dividends paid per share on common stock were $1.60 each year during 1997, 1996 and 1995. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NEVADA POWER COMPANY 1997 ANNUAL REPORT 45\ On April 30, 1992, the Company issued shares of Redeemable Cumulative Preferred Stock, 9.90% Series with a 10-year dividend period requiring mandatory redemption April 1, 2002. All of this preferred stock was redeemed on April 1, 1997. Under the provisions of the 4.70%, 5.20% and 5.40% series cumulative preferred stock with mandatory sinking funds, the Company is obligated to use its best efforts to purchase, each year, up to an aggregate of 6,000, 2,000 and 2,000 shares, respectively, at prices not in excess of $20.00 per share. The obligations are not cumulative. The 5.20% series and 5.40% series are presently redeemable at the option of the Company at $21.00 per share and the 4.70% series at $20.25 per share. In October 1990, the Company adopted a Stockholder Rights Plan and issued through dividend to its common shareholders one stock purchase right for each outstanding share of common stock. The rights expire in October 2000. The rights to purchase junior preference shares, common shares or shares of a successor corporation are not exercisable unless certain events occur and are intended to assure fair shareholder treatment in any takeover of the Company and to guard against abusive takeover tactics. 6 PREFERRED SECURITIES - -------------------------------------------------------------------------------- On April 2, 1997, NVP Capital I (Trust), a wholly-owned subsidiary of the Company, issued 4,754,860 8.2% QUIPS at $25 per security. The Company owns all of the Series A common securities, 147,058 shares issued by the Trust for $3.7 million. The QUIPS and the common securities represent undivided beneficial ownership interests in the assets of the Trust, a statutory business trust formed under the laws of the state of Delaware. The existence of the Trust is for the sole purpose of issuing the QUIPS and the common securities and using the proceeds thereof to purchase from the Company its 8.2% Junior Subordinated Deferrable Interest Debentures (QUIDS) due March 31, 2037, extendable to March 31, 2046 under certain conditions, in a principal amount of $122.6 million. The sole asset of the Trust is the QUIDS. The Company's obligations under the guarantee agreement entered into in connection with the QUIPS when taken together with the Company's obligation to make interest and other payments on the QUIDS issued to the Trust, and the Company's obligations under the Indenture pursuant to which the QUIDS are issued and its obligations under a trust agreement, including its liabilities to pay costs, expenses, debts and liabilities of the Trust, provides a full and unconditional guarantee by the Company of the Trust's obligations under the QUIPS. Financial statements of the Trust are consolidated with the Company's. Separate financial statements are not filed because the Trust is wholly-owned by the Company and essentially has no independent operations, and the Company's guarantee of the Trust's obligations is full and unconditional. The $118.9 million in net proceeds to the Company was used for general corporate utility purposes and the repayment of short-term debt incurred to redeem the Company's $38 million, 9.9% Redeemable Cumulative Preferred Stock on April 1, 1997. 7 LONG-TERM DEBT - -------------------------------------------------------------------------------- None of the long-term debt is held by or for the account of the Company. The amounts of long-term debt maturities, including sinking fund requirements, are $19.7 million in 1998, $50.2 million in 1999, $90.4 million in 2000, $3.6 million in 2001 and $20.0 million in 2002, including $4.5 million, $4.9 million, $5.2 million, $3.5 million and $5.0 million for obligations under capital leases, respectively. Generally, electric plant is subject to the first mortgage lien. It is the Company's intention to meet the sinking fund requirements for its series I and L first mortgage bonds by pledging property additions in lieu of cash payments. The series T, V, W and X first mortgage bonds correspond with respect to their terms to two series of collateralized pollution control revenue bonds and two series of industrial development revenue bonds issued by Clark County, Nevada. The industrial development revenue bonds and pollution control revenue bonds were issued by various municipal authorities and are guaranteed as to payment of principal and interest by the Company. 8 FAIR VALUE OF FINANCIAL INSTRUMENTS - -------------------------------------------------------------------------------- Disclosure by the Company of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107 (FAS 107), Disclosures about Fair Value of Financial Instruments. At December 31, 1997, the provisions of FAS 107 apply only to the Company's long-term debt and QUIPS. At December 31, 1996, the provisions of FAS 107 apply only to the Company's long-term debt and redeemable cumulative preferred stock. The Company's redeemable cumulative preferred stock was redeemed on April 1, 1997. (See Note 6 of "Notes to Consolidated Financial Statements.") NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NEVADA POWER COMPANY 1997 ANNUAL REPORT /46 In accordance with FAS 107, the Company estimates the fair value of its long-term debt based on quoted market prices for the same or similar issues or on current interest rates available to the Company for debt with similar terms and maturity. The fair value of the Company's redeemable cumulative preferred stock was based on the per share closing price times the number of shares outstanding at December 31, 1996. The book value and estimated fair value of the Company's long-term debt, including current maturities and sinking fund requirements and excluding obligations under capital leases, were $821 million and $857 million at December 31, 1997, and $749 million and $782 million at December 31, 1996, respectively. The book value and estimated fair value of the QUIPS were $119 million and $125 million at December 31, 1997, respectively. The book value and estimated fair value of the redeemable cumulative preferred stock were $38 million and $40.4 million at December 31, 1996, respectively. The estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have an effect on the estimated fair value amounts. 9 COMMITMENTS AND CONTINGENCIES - -------------------------------------------------------------------------------- LEGAL MATTERS The Company is involved in litigation arising in the normal course of business. While the results of such litigation cannot be predicted with certainty, management, based upon advice of counsel, believes that the final outcome will not have a material adverse effect on the Company's financial position, results of operations and net cash flow. On February 6, 1997, the PUCN issued its opinion and order in the last phase of the 1995 deferred energy case concerning the prudency of the Company's fuel and purchased power expenditures during the period June 1993 to May 1995, a buyout of a coal supply agreement and a credit to customers related to the use of coal reserves in an unregulated subsidiary company. The PUCN order resulted in a fourth quarter 1996 charge of $5.5 million, net of tax, for amounts disallowed by the PUCN. On May 7, 1997, the Company filed a Petition for Judicial Review in the First District Court in Carson City, Nevada challenging the PUCN's findings which resulted in disallowances. The Grand Canyon Trust and Sierra Club filed a lawsuit in the U.S. District Court, District of Nevada, in February 1998 against the owners of the Mohave Generating Station (Mohave) alleging violations of the Clean Air Act regarding emissions of sulfur dioxide and particulates. The owners believe the emission limits referenced in the suit are not applicable to Mohave. The owners previously partnered with the Environmental Protection Agency (EPA) and the National Park Service on a multi-year study to determine the impacts, if any, of Mohave emissions on visibility in the Grand Canyon (See Environmental Matters below). The environmental groups want the owners to install pollution control equipment at an estimated cost of $200 to $300 million. The Company owns a 14 percent interest in Mohave. The outcome of this action cannot be determined at this time. - -------------------------------------------------------------------------------- ENVIRONMENTAL MATTERS The Federal Clean Air Act Amendments of 1990 (Amendments) include provisions for reduction of emissions of oxides of nitrogen by establishing new emission limits for coal-fired generating units. This will require the installation of additional pollution-control technology at some of the Reid Gardner Station generating units before 2000 at an estimated cost to the Company of no more than $6 million; $3 million has been spent to date. Also, the United States Congress authorized the EPA to study the potential impact Mohave may have on visibility in the Grand Canyon area. Results of this study are expected in 1998. The majority owner has estimated that control costs, if required, could total between $200 and $300 million. In 1991, the EPA published an order requiring the Navajo Generating Station (Navajo) to install scrubbers to remove 90 percent of sulfur dioxide emissions beginning in 1997. As an 11.3 percent owner of Navajo, the Company will be required to fund an estimated $50.9 million for installation of the scrubbers. The first of three scrubber units was placed in commercial operation in November 1997. At that point, the project was approximately 50 percent complete. The first of the other two units is expected to be on line in 1998 and the last unit in 1999. The Company has spent approximately $40.7 million through December 1997 on the scrubbers' construction. In 1992, the Company received resource planning approval from the PUCN for its share of the cost of the scrubbers. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NEVADA POWER COMPANY 1997 ANNUAL REPORT 47\ - -------------------------------------------------------------------------------- LEASES In 1984, the Company sold its administrative headquarters facility, less furniture and fixtures, for $27 million and entered into a 30-year capital lease of that facility with five-year renewal options beginning in year 31. The fixed rental obligation for the first 30 years is $5.1 million per year. Future cash rental payments as of December 31, 1997, are as follows: (IN THOUSANDS)
1998 $ 3,605 1999 4,880 2000 6,156 2001 6,156 2002 6,156 Thereafter 86,589 - -------------------------------------------------------------------------------- $113,542 - -------------------------------------------------------------------------------- ------------
The amount of imputed interest necessary to reduce the future cash rental payments to present value is $65.9 million as of December 31, 1997. Total interest expense on the lease obligation was $5.5 million and total amortization of the leased facility was $(12,000) for the year ended December 31, 1997. The total accumulated amortization of the leased facility on December 31, 1997, was $9.8 million. At December 31, 1997, the Company has certain long-term noncancelable operating lease agreements for which the future minimum lease payments are immaterial. - -------------------------------------------------------------------------------- FUEL AND PURCHASED POWER OBLIGATIONS The Company has eight long-term contracts for the purchase of electric energy and/or capacity. The contracts expire in years ranging from 1998 to 2016. Total payments under these contracts were $51.0 million, $48.6 million and $40.5 million in 1997, 1996 and 1995, respectively. The cost of power obtained under these contracts is included in purchased and interchanged power expense in the Consolidated Statements of Income. At December 31, 1997, the estimated future payments for capacity and energy that the Company is obligated to purchase under these contracts, subject in part to certain conditions, are as follows:
Accounted for as Long-Term Accounted for Executory as Long-Term (IN THOUSANDS) Contracts Capital Lease 1998 $ 39,050 $ 12,373 1999 21,376 11,844 2000 11,297 11,315 2001 - 10,786 2002 - 10,282 Thereafter - 101,404 - -------------------------------------------------------------------------------- Total minimum payment $ 71,723 158,004 - ------------------------------------------------------------ ---------- Less amount representing estimated executory costs included in total minimum payment (86,248) ------------- Net minimum payments 71,756 Less amount representing interest (25,442) ------------- Present value of net minimum payments $ 46,314 - -------------------------------------------------------------------------------- -------------
Total interest expense on the purchase power obligation accounted for as a capital lease was $4.6 million and total amortization was $5.2 million in 1997. Total accumulated amortization was $36.7 million as of December 31, 1997. The Company has contracted with various coal suppliers to provide coal to the Reid Gardner Generating Station. The contracts expire in years ranging from 1999 to 2007. Costs of approximately $18.1 million, $25.9 million and $25.0 million were incurred under the long-term coal contracts in 1997, 1996 and 1995, respectively. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NEVADA POWER COMPANY 1997 ANNUAL REPORT /48 In addition, the Company has long-term transportation arrangements with railway companies to transport coal to the Reid Gardner Generating Station and a coal railcar lease. The contracts expire in 1999, 2000 and 2011. Costs of approximately $15.0 million, $18.5 million and $20.9 million were incurred under the coal transportation contracts in 1997, 1996 and 1995, respectively. At December 31, 1997 the estimated future payments for purchase and transportation of coal that the Company is obligated to purchase under these contracts are as follows:
(IN THOUSANDS) Coal Transportation Coal Use 1998 $14,070 $ 14,652 1999 13,278 14,754 2000 12,111 12,223 2001 1,012 12,468 2002 1,012 12,717 Thereafter 9,026 60,018 ---------------------------------------- $50,509 $126,832 - -------------------------------------------------------------------------------- ----------------------------------------
- -------------------------------------------------------------------------------- CONSTRUCTION Certain commitments have been incurred at December 31, 1997, in connection with the 1998 construction budget. Construction expenditures are estimated at $295 million, excluding AFUDC, for 1998. 10 OTHER DEFERRED CHARGES AND CREDITS - -------------------------------------------------------------------------------- OTHER DEFERRED CHARGES At December 31, 1997, other deferred charges include a regulatory asset of $95.1 million and a deferred tax asset of $15.9. The regulatory asset represents future revenue to be received from customers due to the flow-through of tax benefits of temporary differences in prior years and the deferred tax asset is from temporary differences caused by investment tax credits. At December 31, 1997, organizational study, early retirement and severance costs of $4 million are included in other deferred charges as a regulatory asset and are being amortized over an eight-year period effective February 1994 as approved in an order issued by the PUCN in 1994. These costs are a result of the completion of a comprehensive organizational study started in 1993. Other deferred charges as of December 31, 1997, also include $33.9 million for deferred federal income taxes on customer advances for construction and $1.1 million for conservation programs. - -------------------------------------------------------------------------------- OTHER DEFERRED CREDITS Other deferred credits as of December 31, 1997, include a regulatory liability of $15.9 million representing amounts to be refunded to customers in the future as a result of the Company adopting FAS 109. 11 INTERESTS IN JOINTLY OWNED ELECTRIC UTILITY FACILITIES - -------------------------------------------------------------------------------- At December 31, 1997, the Company owned the following undivided interests in jointly owned electric utility facilities:
Company's Share of - ---------------------------------------------------------------------------------------------------------------- Construction Percent Owned Plant Accumulated Net Plant Work In (IN THOUSANDS) by Company In Service Depreciation In Service Progress FACILITY Navajo Generating Station 11.3 $173,856 $ 74,767 $ 99,089 $ 19,300 Mohave Generating Station 14.0 76,971 28,387 48,584 937 Reid Gardner Unit No. 4 Generating Station 32.2 140,111 44,514 95,597 1,153 --------------------------------------------------------- Total $390,938 $147,668 $243,270 $21,390 - ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------
The amounts above for Navajo and Mohave include the Company's share of transmission systems and general plant equipment and, in the case of Navajo, the Company's share of the jointly owned railroad which delivers coal to the plant. Each participant provides its own financing for all of these jointly owned facilities. The Company's share of operating expenses for these facilities is included in the corresponding operating expenses in the Consolidated Statements of Income. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NEVADA POWER COMPANY 1997 ANNUAL REPORT 49\ 12 QUARTERLY FINANCIAL DATA (UNAUDITED) - --------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) March 31 June 30 September 30 December 31 1997: Electric Revenues $155,355 $199,970 $284,994 $158,829 Operating Income 19,441 32,297 66,483 18,975 Net Income 8,570 18,870 52,747 3,029 Earnings Available for Common Stock 7,583 18,823 52,701 2,984 Earnings per Average Common Share .15 .38 1.06 .06 Dividends per Common Share .40 .40 .40 .40 Common Stock Price per Share: High 20 25/32 21 1/2 22 3/16 27 5/8 Low 19 3/4 19 3/8 20 5/8 20 5/8 - ------------------------------------------------------------------------------------------------------------------ 1996: Electric Revenues $147,128 $199,468 $293,536 $165,242 Operating Income 14,678 33,239 69,272 15,041 Net Income (Loss) 3,518 21,182 57,435 (3,267) Earnings (Loss) Available for Common Stock 2,529 20,192 56,446 (4,255) Earnings (Loss) per Average Common Share .05 .42 1.17 (.09) Dividends per Common Share .40 .40 .40 .40 Common Stock Price per Share: High 22 7/8 22 21 3/4 20 7/8 Low 21 1/8 19 3/4 19 7/8 20 - ------------------------------------------------------------------------------------------------------------------
The business of the Company is seasonal in nature and it is management's opinion that comparisons of earnings for the quarters do not give a true indication of overall trends and changes in the Company's operations. The fourth quarter of 1996 reflects a write-off of $5.5 million, net of tax, or 11 cents per average common share resulting from the PUCN order in the 1995 deferred energy case. High and low common stock prices shown are as reported by the Wall Street Journal as New York Stock Exchange Composite Transactions. The common stock is also listed on the Pacific Exchange. Holders of common stock are entitled to dividends as are declared by the Board of Directors, subject to the rights of the cumulative preferred stock and the preference stock of the Company to quarterly cumulative dividends as declared by the Board of Directors. The Company has paid quarterly dividends on its common stock since August 1954. The Company had 49,174 shareholders of record of common stock at December 31, 1997. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NEVADA POWER COMPANY 1997 ANNUAL REPORT /50 TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF NEVADA POWER COMPANY: We have audited the consolidated balance sheets and schedules of capitalization and long-term debt of Nevada Power Company as of December 31, 1997 and 1996, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Las Vegas, Nevada February 13, 1998 REPORT OF INDEPENDENT AUDITORS NEVADA POWER COMPANY 1997 ANNUAL REPORT 51\ The management of Nevada Power Company is responsible for the consolidated financial statements presented in this report. Management prepared the consolidated financial statements in conformity with generally accepted accounting principles applicable to public utilities which are consistent in all material respects with the accounting prescribed by the Public Utilities Commission of Nevada and the Federal Energy Regulatory Commission. In preparing the consolidated financial statements, management made informed judgments and estimates relating to events and transactions being reported. The Company has a system of internal accounting and financial controls and procedures in place to insure that the financial records reflect the transactions of the Company and that assets are safeguarded. This system is examined by management on a continuing basis for effectiveness and efficiency and is reviewed on a regular basis by an internal audit staff that reports directly to the Audit Committee of the Board of Directors. The consolidated financial statements have been audited by Deloitte & Touche LLP, independent auditors. The auditors provide an objective, independent review as to management's discharge of its responsibilities as they relate to the fairness of reported operating results and financial condition. Their audit includes procedures which provide them reasonable assurance that the consolidated financial statements are not misleading and includes a review of the Company's system of internal accounting and financial controls and a test of transactions. The Board of Directors has oversight responsibility for determining that management has fulfilled its obligation in the preparation of consolidated financial statements and the ongoing examination of the Company's system of internal accounting controls. The Audit Committee, which is composed solely of outside directors, meets regularly with management, Deloitte & Touche LLP and the internal audit staff to discuss accounting, auditing and financial reporting matters. The Audit Committee reviews the program of audit work performed by the internal audit staff. To insure auditor independence, both Deloitte & Touche LLP and the internal audit staff have complete and free access to the Audit Committee. REPORT OF MANAGEMENT NEVADA POWER COMPANY 1997 ANNUAL REPORT /52
1997 1996 1995 1994 1993 SUMMARY OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS): Electric Revenues: Residential $ 358,921 $ 354,883 $ 319,373 $ 331,671 $ 267,941 Commercial and industrial 380,531 394,743 383,080 380,223 326,006 Other electric sales 48,749 45,683 38,700 43,732 48,504 Miscellaneous 10,947 10,065 8,828 8,532 9,321 -------------------------------------------------------------------------- 799,148 805,374 749,981 764,158 651,772 -------------------------------------------------------------------------- Net Income (a) 83,216 78,868 76,971 81,870 73,548 Dividend Requirements on Preferred Stock 1,125 3,956 3,966 3,976 3,986 Earnings Available for Common Stock (a) $ 82,091 $ 74,912 $ 73,005 $ 77,894 $ 69,562 Weighted Average Number of Common Shares Outstanding 49,691 47,976 46,288 42,784 39,482 Earnings per Average Common Share (a) $ 1.65 $ 1.56 $ 1.58 $ 1.82 $ 1.76 Dividends per Common Share $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 1.60 CAPITALIZATION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS): Long-Term Debt $ 895,439 $ 841,364 $ 799,999 $ 712,571 $ 716,589 Company-obligated Mandatorily Redeemable Preferred Securities of the Company's Subsidiary Trust, NVP Capital I 118,872 - - - - Cumulative Preferred Stock - 38,000 38,000 38,000 38,000 Cumulative Preferred Stock with Mandatory Sinking Funds 3,463 3,663 3,863 4,064 4,264 Common Shareholders' Equity 833,623 800,154 764,361 731,749 645,924 Book Value per Common Share $ 16.54 $ 16.40 $ 16.25 $ 16.12 $ 15.56 RETURN ON COMMON SHAREHOLDERS' EQUITY 9.85% 9.36% 9.55% 10.64% 10.77% ELECTRIC PLANT INVESTMENT (IN THOUSANDS): Gross $ 2,607,917 $ 2,411,901 $ 2,247,923 $ 2,079,694 $ 1,901,448 Depreciated 1,960,709 1,819,330 1,701,120 1,584,003 1,450,146 TOTAL ASSETS (IN THOUSANDS) $ 2,339,422 $ 2,163,224 $ 2,073,050 $ 1,907,389 $ 1,809,337 CONSTRUCTION EXPENDITURES EXCLUDING AFUDC (IN THOUSANDS) $ 210,971 $ 179,981 $ 176,395 $ 179,674 $ 157,458 OPERATING AND SALES DATA: Generating Capacity and Firm Purchases (Megawatts) 3,621 3,858 3,525 3,462 3,488 Peak Load (Megawatts) 3,469 3,332 3,066 2,920 2,681 Electric Sales (Megawatthours) 14,596,228 13,697,059 12,109,355 11,942,724 11,155,270 Number of Customers (Year-End) 518,391 487,064 454,166 428,286 403,875 Average Annual Kilowatthour Sales per Residential Customer 12,757 13,199 12,367 13,605 13,008 NUMBER OF EMPLOYEES (YEAR-END) 1,909 1,792 1,761 1,759 1,741 - -----------------------------------------------------------------------------------------------------------------------------
(a) Amount for 1993 includes write-offs for deferred energy costs and preliminary study costs for a cancelled coal-fired generating station project. Amount for 1994 includes other income from the resolution of a regulatory investigation of replacement power costs resulting from a 1985 generating station accident. Amount for 1996 includes a write-off resulting from the PUCN order in the 1995 deferred energy case. STATISTICAL SUMMARY 1997-1993 NEVADA POWER COMPANY 1997 ANNUAL REPORT EX-10.83 3 CLARK COUNTY BONDS FINANCING AGREEMENT FINANCING AGREEMENT Dated as of November 1, 1997 By and Between CLARK COUNTY, NEVADA and NEVADA POWER COMPANY RELATING TO INDUSTRIAL DEVELOPMENT REVENUE BONDS (NEVADA POWER COMPANY PROJECT) SERIES 1997A The amounts payable to the Issuer (except for amounts payable to, and certain rights and privileges of, the Issuer under Sections 3.1, 4.2(e), 4.2(g), 5.3 and 6.4 hereof and any rights of the Issuer to receive any notices, certificates, requests, requisitions or communications hereunder) and certain other rights of the Issuer under this Financing Agreement have been pledged and assigned under the Indenture of Trust dated as of November 1, 1997, between the Issuer and United States Trust Company of New York, as Trustee. FINANCING AGREEMENT TABLE OF CONTENTS (This Table of Contents is not a part of this Agreement and is only for convenience of reference) SECTION HEADING PAGE ARTICLE I DEFINITIONS........................................1 ARTICLE II REPRESENTATIONS....................................5 Section 2.1. Representations and Covenants by the Issuer......5 Section 2.2. Representations by the Company...................6 ARTICLE III COMPLETION OF THE PROJECT; ISSUANCE OF THE BONDS...7 Section 3.1. Agreement to Complete the Acquisition, Construction and Equipping of the Project........7 Section 3.2. Agreement to Issue Bonds; Application of Bond Proceeds.........................................7 Section 3.3. Disbursements from the Construction Fund.........8 Section 3.4. Establishment of Completion Date.................9 Section 3.5. Investment of Moneys in the Bond Fund and Construction Fund...............................10 Section 3.6. Tax Exempt Status of Bonds......................11 ARTICLE IV LOAN AND PROVISIONS FOR REPAYMENT.................11 Section 4.1. Loan of Bond Proceeds...........................11 Section 4.2. Loan Repayments and Other Amounts Payable.......11 Section 4.3. No Defense or Set-Off...........................14 Section 4.4. Payments Pledged and Assigned...................14 Section 4.5. Letter of Credit and Credit Facility............14 Section 4.6. Payment of the Bonds and Other Amounts..........15 ARTICLE V SPECIAL COVENANTS AND AGREEMENTS..................16 [Section 5.1. Company to Maintain Its Corporate Existence; Conditions under Which Exceptions Permitted.....16 Section 5.2. Annual Statement................................16 Section 5.3. Maintenance and Repair; Insurance; Taxes; Etc...16 Section 5.4. Recordation and Other Instruments...............16 Section 5.5. No Warranty by the Issuer.......................17 Section 5.6. Agreement as to Ownership and Use of the Project.........................................17 Section 5.7. Company to Furnish Notice of Adjustments of Interest Rate Periods...........................17 -ii- Section 5.8. Information Reporting, Etc......................17 Section 5.9. Limited Liability of Issuer.....................17 Section 5.10. Inspection of Project...........................18 Section 5.11. Purchases of Bonds by Company or Issuer Prohibited; Exceptions..........................18 ARTICLE VI EVENTS OF DEFAULT AND REMEDIES....................18 Section 6.1. Events of Default Defined.......................18 Section 6.2. Remedies on Default.............................20 Section 6.3. No Remedy Exclusive.............................20 Section 6.4. Agreement to Pay Fees and Expenses of Counsel...21 Section 6.5. No Additional Waiver Implied by One Waiver; Consents to Waivers.............................21 ARTICLE VII OPTIONS AND OBLIGATIONS OF COMPANY; PREPAYMENTS; REDEMPTION OF BONDS...............................22 Section 7.1. Option to Prepay................................22 Section 7.2. Obligation to Prepay............................22 Section 7.3. Notice of Prepayment............................22 ARTICLE VIII MISCELLANEOUS.....................................23 Section 8.1. Notices.........................................23 Section 8.2. Assignments.....................................23 Section 8.3. Severability....................................23 Section 8.4. Execution of Counterparts.......................23 Section 8.5. Amounts Remaining in Bond Fund..................23 Section 8.6. Amendments, Changes and Modifications...........24 Section 8.7. Governing Law...................................24 Section 8.8. Authorized Issuer and Company Representatives...24 Section 8.9. Term of the Agreement...........................24 Section 8.10. Cancellation at Expiration of Term..............24 Section 8.11. References to Bank and Provider.................25 Section 8.12. Specific Request for Ratings Required...........25 Signatures.......................................................26 EXHIBIT A - DESCRIPTION OF THE PROJECT -ii- THIS FINANCING AGREEMENT made and entered into as of November 1, 1997, by and between CLARK COUNTY, NEVADA, a political subdivision of the State of Nevada, party of the first part (hereinafter referred to as the "Issuer"), and NEVADA POWER COMPANY, a corporation duly organized and existing under the laws of the State of Nevada, party of the second part (hereinafter referred to as the "Company"), WITNESSETH: In consideration of the respective representations and agreements hereinafter contained, the parties hereto agree as follows (provided, that in the performance of the agreements of the Issuer herein contained, any obligation it may thereby incur shall not constitute or give rise to a pecuniary liability or a charge upon its general credit or against its taxing powers but shall be payable solely out of the Revenues (as hereinafter defined) derived from this Financing Agreement and the Bonds, as hereinafter defined): ARTICLE I DEFINITIONS; The following terms shall have the meanings specified in this Article unless the context clearly requires otherwise. The singular shall include the plural and the masculine shall include the feminine. "Act" means the County Economic Development Revenue Bond Law, as amended, contained in Sections 244A.669 to 244A.763, inclusive, of the Nevada Revised Statutes. "Act of Bankruptcy" means the filing of a petition in bankruptcy by or against the Company or the Issuer under the Bankruptcy Code. "Administrative Expenses" means the reasonable and necessary expenses (including the reasonable value of employee services and fees of Counsel) incurred by the Issuer in connection with the Bonds, this Agreement, the Indenture and any transaction or event contemplated by this Agreement or the Indenture. "Agreement" means this Financing Agreement by and between the Issuer and the Company, as from time to time amended and supplemented. "Authorized Company Representative" means any person who, at the time, shall have been designated to act on behalf of the Company by a written certificate furnished to the Issuer, the Remarketing Agent and the Trustee containing the specimen signature of such person and signed on behalf of the Company by any officer of the Company. Such certificate may designate an alternate or alternates. -1- "Authorized Issuer Representative" means any person at the time designated to act on behalf of the Issuer by a written certificate furnished to the Company and the Trustee containing the specimen signature of such person and signed on behalf of the Issuer by its Chair. Such certificate may designate an alternate or alternates. "Bank" means the Provider of any Letter of Credit delivered in accordance with Section 4.5 of this Agreement, in its capacity as issuer of such Letter of Credit, its successors in such capacity, and its assigns. "Bankruptcy Code" means the United States Bankruptcy Reform Act of 1978, as amended from time to time, or any substitute or replacement legislation. "Bond" or "Bonds" means any one or more of the bonds authorized, authenticated and delivered under the Indenture. "Bond Counsel" means the Counsel who renders the opinion as to the tax-exempt status of interest on the Bonds or other nationally recognized municipal bond counsel mutually acceptable to the Issuer, the Trustee, the Bank and the Company. "Bond Fund" means the fund created by Section 6.02 of the Indenture. "Business Day" means a day on which banks located in the city in which the Principal Office of the Trustee is located and in the city or cities in which any office at which any action must be instituted or taken in order to realize upon any Letter of Credit or Credit Facility then in effect is or are located, are not required or authorized to remain closed and on which the New York Stock Exchange is not closed. "Code" means the United States Internal Revenue Code of 1986, as amended, and regulations promulgated or proposed thereunder. "Company" means Nevada Power Company, a Nevada corporation, and its successors and assigns and any surviving, resulting or transferee corporation as permitted in Section 5.1 hereof. "Completion Date" means the date of completion of the acquisition and construction of the Project as that date shall be certified as provided in Section 3.4 hereof. "Construction Fund" means the fund created by Section 6.07 of the Indenture. "Construction Period" means the period between the beginning of construction and equipping of the Project or the date on which the Bonds are first delivered to the purchasers thereof, whichever is earlier, and the Completion Date. "Cost" or "Cost of the Project" means the items authorized to be paid from the Construction Fund pursuant to the provisions of paragraphs (a) to (i), inclusive, of Section 3.3 hereof. -2- "Counsel" means an attorney at law or a firm of attorneys (who may be an employee of or counsel to the Issuer or the Company or the Trustee) duly admitted to the practice of law before the highest court of any state of the United States of America or of the District of Columbia. "Credit Facility" means any credit facility, including any instruments accompanying or relating to such Credit Facility delivered to the Trustee in connection therewith, provided in accordance with Section 4.5 of this Agreement. "Exempt Facilities" means facilities for the local furnishing of electric energy within the meaning of Section 142(a)(8) of the Code. "Extraordinary Services" and "Extraordinary Expenses" means all services rendered and all expenses (including fees of Counsel) incurred under the Indenture and the Tax Agreement other than Ordinary Services and Ordinary Expenses. "Fitch" means Fitch Investors Service, L.P., a limited partnership organized and existing under the laws of the State of New York, its successors and their assigns, and, if such limited partnership shall be dissolved or liquidated or is no longer performing the functions of a securities rating agency, "Fitch" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Company and acceptable to the Bank, with notice to the Trustee. "Force Majeure" means acts of God, strikes, lockouts or other industrial disturbances; acts of public enemies; orders or restraints of any kind of the governments of the United States or of the State, or any of their departments, agencies or officials, or any civil or military authority; insurrections; riots; landslides; lightning; earthquakes; fires; tornadoes; volcanoes; storms; droughts; floods; explosions, breakage, or malfunction or accident to machinery, transmission lines, pipes or canals, even if resulting from negligence; civil disturbances; or any other cause not reasonably within the control of the Company. "Governing Body" means the Board of County Commissioners of the Issuer. "Hereof," "herein," "hereunder" and other words of similar import refer to this Agreement as a whole. "Indenture" means the Indenture of Trust relating to this Agreement between the Issuer and United States Trust Company of New York, as Trustee, of even date herewith, pursuant to which the Bonds are authorized to be issued, including any indentures supplemental thereto or amendatory thereof. "Insider" shall have the meaning set forth in the Bankruptcy Code. "Issuer" means Clark County, Nevada, and any successor body to the duties or functions of the Issuer. -3- "Letter of Credit" means any irrevocable direct-pay Letter of Credit issued by a Bank to the Trustee, including any extensions thereof, delivered in accordance with Section 4.5 of this Agreement. "Moody's" means Moody's Investors Service, Inc. a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Company and acceptable to the Bank, with notice to the Trustee. "Ordinary Services" and "Ordinary Expenses" means those services normally rendered and those expenses, including fees of Counsel, normally incurred by a trustee or paying agent under instruments similar to the Indenture and the Tax Agreement. "Original Purchaser" means Bear, Stearns & Co. Inc., acting on behalf of itself and others. "Owner" or "owner of Bonds" means the Person or Persons in whose name or names a Bond shall be registered on books of the Issuer kept by the Registrar for that purpose in accordance with the terms of the Indenture. "Person" means natural persons, firms, partnerships, associations, corporations, trusts and public bodies. "Project" means the facilities described in Exhibit A to this Agreement, as it may be amended and supplemented from time to time. "Project Certificate" means the Company's Project Certificate, delivered concurrently with the issuance of the Bonds, with respect to certain facts which are within the knowledge of the Company and certain reasonable assumptions of the Company, to enable Chapman and Cutler, as Bond Counsel, to determine that interest on the Bonds is not includable in the gross income of the Owners of the Bonds for federal income taxes purposes. "Rebate Fund" means the Rebate Fund, if any, created and established pursuant to the Tax Agreement and Section 6.21 of the Indenture. "Reimbursement Agreement" means any reimbursement agreement between the Company and a Bank pursuant to which a Letter of Credit is issued by such Bank and delivered to the Trustee, and in each case any and all modifications, amendments and supplements thereto. "Remarketing Agent" means the remarketing agent, if any, appointed in accordance with Section 4.11 of the Indenture and any permitted successor thereto. -4- "Revenues" means the amounts pledged under the Indenture to the payment of principal of, premium, if any, and interest on the Bonds, consisting of the following: (i) all amounts payable from time to time by the Company under Section 4.2(a) of this Agreement, and all receipts of the Trustee credited under the provisions of the Indenture against said amounts payable, including all moneys drawn by the Trustee under a Letter of Credit to pay the principal of and premium, if any, and interest on the Bonds and all amounts realized by the Trustee from any Credit Facility to pay the principal of and premium, if any, and interest on the Bonds, all of which amounts are to be deposited in the Bond Fund, (ii) any portion of the net proceeds of the Bonds deposited with the Trustee in the Bond Fund under Section 6.03 of the Indenture and (iii) any amounts paid into the Bond Fund from the Construction Fund, including income on investments. "S&P" means Standard & Poor's Rating Services, a division of The McGraw- Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, its successors and their assigns, and, if such division or corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Company and acceptable to the Bank, with notice to the Trustee. "State" means the State of Nevada. "Tax Agreement" means the Tax Exemption Certificate and Agreement with respect to the Bonds, dated the date of the delivery of the Bonds, among the Company, the Issuer and the Trustee, as from time to time amended and supplemented. "Trust Estate" means the property conveyed to the Trustee pursuant to the Granting Clauses of the Indenture. "Trustee" means United States Trust Company of New York, as trustee under the Indenture and any successor trustee appointed pursuant to Section 10.06 or 10.09 of the Indenture at the time serving as successor Trustee thereunder, and any separate or co-trustee serving as such thereunder. All other terms used herein which are defined in the Indenture shall have the same meanings assigned them in the Indenture unless the context otherwise requires. ARTICLE II REPRESENTATIONS; SECTION 2.1 REPRESENTATIONS AND CONVENANTS BY THE ISSUER. The Issuer makes the following representations and covenants as the basis for the undertakings on its part herein contained: -5- (a) The Issuer is a duly organized and existing political subdivision of the State. Under the provisions of the Act, the Issuer is authorized to enter into the transactions contemplated by this Agreement, the Indenture and the Tax Agreement and to carry out its obligations hereunder and thereunder. The Issuer has duly authorized the execution and delivery of this Agreement, the Indenture and the Tax Agreement. (b) The Bonds are to be issued under and secured by the Indenture, pursuant to which certain of the Issuer's interests in this Agreement and the Revenues derived by the Issuer pursuant to this Agreement will be pledged and assigned as security for payment of the principal of, premium, if any, and interest on, the Bonds. (c) The Governing Body of the Issuer has found that the issuance of the Bonds will further the public purposes of the Act. (d) The Issuer has not assigned and will not assign any of its interests in this Agreement other than pursuant to the Indenture. (e) No member of the Governing Body of the Issuer, nor any other officer of the Issuer, has any interest, financial, employment or other, in the Company or in the transactions contemplated hereby. SECTION 2.2. REPRESENTATIONS BY THE COMPANY. The Company makes the following representations as the basis for the undertakings on its part herein contained: (a) The Company is a corporation duly incorporated under the laws of the State and is in good standing in the State, is qualified to do business as a foreign corporation in all other states and jurisdictions wherein the nature of the business transacted by the Company or the nature of the property owned or leased by it makes such licensing or qualification necessary, has power to enter into and by proper corporate action has been duly authorized to execute and deliver this Agreement and the Tax Agreement. (b) Neither the execution and delivery of this Agreement or the Tax Agreement, the consummation of the transactions contemplated hereby and thereby, nor the fulfillment of or compliance with the terms and conditions of this Agreement and the Tax Agreement, conflicts with or results in a breach of any of the terms, conditions or provisions of any corporate restriction or any agreement or instrument to which the Company is now a party or by which it is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the Company under the terms of any instrument or agreement other than the Indenture. (c) The statements, information and descriptions contained in the Project Certificate and the Tax Agreement, as of the date hereof and at the time of the delivery of the Bonds to the Original Purchaser, are and will be true, correct and -6- complete, do not and will not contain any untrue statement or misleading statement of a material fact, and do not and will not omit to state a material fact required to be stated therein or necessary to make the statements, information and descriptions contained therein, in the light of the circumstances under which they were made, not misleading, and the estimates and the assumptions contained in the Project Certificate and the Tax Agreement, as of the date hereof and as of the date of issuance and delivery of the Bonds, are and will be reasonable and based on the best information available to the Company. ARTICLE III COMPLETION OF THE PROJECT; ISSUANCE OF THE BONDS SECTION 3.1. AGREEMENT TO COMPLETE THE ACQUISITION, CONSTRUCTION AND EQUIPPING OF THE PROJECT. The Company agrees that it will complete or cause to be completed the acquisition, construction and equipping of the Project with such reasonable dispatch as it shall deem prudent in the conduct of its affairs, and that the Project, while operated by the Company, as herein provided, will at all times be a "project" within the meaning of the Act and be Exempt Facilities. Exhibit A hereto may be amended or supplemented by the Company from time to time, to add to or remove from the Project any item or interest therein or to change the nature of all or any part of the facilities constituting the Project, provided that there shall be delivered by the Company to the Issuer and the Trustee in connection with any such amendment or supplement: (i) a certificate of the Authorized Company Representative describing the proposed changes and stating that they will not have the effect of disqualifying the Project as a "project" within the meaning of the Act or as Exempt Facilities; (ii) a copy of the amendment or supplement to Exhibit A hereto and such other documents, certificates and showings as may be required by Counsel rendering the opinion in clause (iii) of this paragraph; and (iii) an opinion of Bond Counsel to the effect that such amendment complies with the requirements of this Section 3.1 and is in proper form for execution and delivery by the Issuer and that the exemption from federal income taxes of interest on the Bonds is not adversely affected by reason of such amendment and the changes in the Project contemplated thereby. SECTION 3.2 AGREEMENT TO ISSUE BONDS; APPLICATION OF BOND PROCEEDS. In order to provide funds to lend to the Company to finance the Cost of the Project as provided in Section 4.1 hereof, the Issuer agrees that it will issue under the Indenture, sell and cause to be delivered to the Original Purchaser thereof, its Bonds in the aggregate principal amount of $52,285,000, bearing interest and maturing as set forth in the Indenture. The Issuer will thereupon deposit the proceeds received from the sale of the Bonds as -7- follows: (1) in the Bond Fund, a sum equal to any accrued interest paid by the Original Purchaser of the Bonds; and (2) in the Construction Fund, the balance of the proceeds (net of underwriting discount) from the sale of the Bonds. SECTION 3.3. DISBURSEMENTS FROM THE CONSTRUCTION FUND. The Issuer will in the Indenture authorize and direct the Trustee to disburse the moneys in the Construction Fund to or on behalf of the Company, upon compliance with Section 6.07 of the Indenture, for the following purposes (but, subject to the provisions of Section 3.5 hereof, for no other purpose): (a) Payment to the Company of such amounts, if any, as shall be necessary to reimburse the Company in full for all advances and payments made by it at any time prior to or after the delivery of the Bonds for expenditures in connection with the preparation of plans and specifications for the Project (including any preliminary study or planning of the Project or any aspect thereof) and the acquisition, construction and equipping of the Project. (b) Payment of the initial or acceptance fees, if any, of the Trustee, the application fee, the closing fee and the Administrative Expenses of the Issuer, bond insurance premium, legal and accounting fees and expenses and printing and engraving costs incurred in connection with the authorization, sale and issuance of the Bonds and the preparation of this Agreement, the Indenture, the Tax Agreement, the Bonds and all other documents in connection with the authorization, sale and issuance of the Bonds. (c) Payment for labor, services, materials and supplies used or furnished in site improvement and in the construction and equipping of the Project and miscellaneous expenditures incidental to any of the foregoing items. (d) Payment of the fees, if any, for architectural, engineering, legal, underwriting and supervisory services with respect to the Project. (e) Payment of the premiums on all insurance required to be taken out and maintained in connection with the Project during the Construction Period. (f) Payment of the taxes, assessments and other charges, if any, that may become payable during the Construction Period with respect to the Project. (g) Payment of expenses incurred in seeking to enforce any remedy against any contractor or subcontractor or any other third party in respect of any default under a contract relating to the Project. (h) Interest on the Bonds and any Letter of Credit fees during the construction of the Project, but only to the extent provided by the Project Certificate. -8- (i) Payment of any other costs which constitute a part of the Cost of the Project in accordance with generally accepted applicable accounting principles, which are permitted by the Act and which will not adversely affect the exemption from federal income taxes of interest on any of the Bonds. The Company covenants and agrees that it will not take any action or authorize or permit, to the extent such action is within its control, any action to be taken which would cause the interest on the Bonds to become includable in the federal gross income of the Owners of the Bonds, provided that the Company shall not have violated this covenant if the interest on any of the Bonds becomes includable in the federal gross income of an Owner or a beneficial owner who is a "substantial user" of the Project or a "related person" within the meaning of Section 147(a) of the Code. The Company further covenants and agrees to comply with all of the requirements and restrictions of the Project Certificate. SECTION 3.4. ESTABLISHMENT OF COMPLETION DATE. As soon as practicable after the completion of construction of the Project, and in any event not more than ninety (90) days thereafter, the Company shall furnish to the Trustee a certificate signed by an Authorized Company Representative stating (i) that construction of the Project has been completed substantially in accordance with the plans and specifications, (ii) the Completion Date, (iii) the Cost of the Project, (iv) the portion of the Cost of the Project which has then been paid and (v) the portion of the Cost of the Project which has not yet then been paid. Such certificate may state that it is given without prejudice to any rights against third parties which exist at the date of such certificate or which may subsequently come into being. Moneys (including investment proceeds) remaining in the Construction Fund on the date of such certificate may be used, at the direction of an Authorized Company Representative, to the extent indicated, for the payment, in accordance with the provisions of this Agreement, of any Cost of the Project not then paid as specified in the above-mentioned certificate. Any moneys (including investment proceeds) remaining in the Construction Fund on the date of the aforesaid certificate and not so set aside for the payment of such Cost of the Project shall be transferred or disbursed in accordance with Section 1.142-2 of the Regulations (as defined in the Tax Agreement) or any successor thereto. The Company acknowledges that these provisions generally require that a portion of the Bonds be redeemed, or defeased to the first call date (with appropriate notice to the Internal Revenue Service), within 90 days of the earlier of (i) the date on which the Company determines that the Project will not be completed or (ii) the date on which the Project is Placed-in-Service (as defined in the Tax Agreement). In the event the moneys in the Construction Fund available for payment of the Cost of the Project should not be sufficient to pay the costs thereof in full, the Company agrees to pay directly, or to deposit in the Construction Fund moneys sufficient to pay, the costs of completing the Project as may be in excess of the moneys available therefor in the Construction Fund. The Issuer does not make any warranty, either express or implied, that the moneys which will be paid into the Construction Fund and which, under the provisions of this Agreement, will be available for payment of the Cost of the Project, will be sufficient to pay all the costs which will be incurred in that connection. The Company agrees that if -9- after exhaustion of the moneys in the Construction Fund the Company should pay, or deposit moneys in the Construction Fund for the payment of, any portion of the Cost of the Project pursuant to the provisions of this Section, it shall not be entitled to any reimbursement therefor from the Issuer or from the Trustee or from the owners of any of the Bonds, nor shall it be entitled to any diminution of the loan repayment installments or other amounts payable under Section 4.2 hereof. SECTION 3.5. INVESTMENT OF MONEYS IN THE BOND FUND AND CONSTRUCTION FUND. Except as otherwise herein provided, any moneys held as a part of the Bond Fund or the Construction Fund shall be invested or reinvested by the Trustee at the written direction, or the oral direction promptly confirmed in writing, of an Authorized Company Representative as to specific investments, to the extent permitted by law, in: (a) bonds or other obligations of the United States of America; (b) bonds or other obligations, the payment of the principal of and interest on which is unconditionally guaranteed by the United States of America; (c) obligations issued or guaranteed as to principal and interest by any agency or person controlled or supervised by and acting as an instrumentality of the United States of America pursuant to authority granted by the Congress of the United States of America; (d) obligations issued or guaranteed by any state of the United States of America, or any political subdivision of any such state, or in funds consisting of such obligations to the extent described in Treasury Regulation 1.148- 8(e)(3)(iii); (e) prime commercial paper; (f) prime finance company paper; (g) bankers' acceptances drawn on and accepted by commercial banks; (h) repurchase agreements fully secured by obligations issued or guaranteed as to principal and interest by the United States of America or by any person controlled or supervised by and acting as an instrumentality of the United States of America pursuant to authority granted by the Congress of the United States of America; (i) certificates of deposit issued by commercial banks, including banks domiciled outside of the United States of America; and (j) units of taxable government money market portfolios composed of obligations guaranteed as to principal and interest by the United States of America or repurchase agreements fully collateralized by such obligations. -10- The investments so purchased shall be held by the Trustee and shall be deemed at all times a part of the Bond Fund or Construction Fund, as the case may be, and the interest accruing thereon and any profit realized therefrom shall be credited to such fund, subject to the provisions of the Tax Agreement. The Company agrees that to the extent any moneys in the Bond Fund represent moneys realized under a Letter of Credit or any Credit Facility or moneys held for the payment of Bonds pursuant to Sections 6.12 and 6.18 of the Indenture or moneys held for the payment of the purchase price of Bonds pursuant to Article IV of the Indenture, such moneys shall not be invested. In addition, the Company agrees that to the extent that any moneys in the Bond Fund represent moneys to be used to pay the premium portion of the redemption price of Bonds pursuant to Section 3.01(A)(3) or (4) of the Indenture, such moneys shall be invested only in Governmental Obligations maturing on or before the applicable redemption date or dates. SECTION 3.6. TAX EXEMPT STATUS OF BONDS. The Company covenants and agrees that it has not taken or permitted and will not take or permit any action which results in interest paid on the Bonds being included in gross income of the holders or beneficial owners of the Bonds for purposes of federal income taxation (other than a holder or beneficial owner who is a "substantial user" of the Project or a "related person" within the meaning of Section 147(a) of the Code). The Company covenants that none of the proceeds of the Bonds or the payments to be made under this Agreement, or any other funds which may be deemed to be proceeds of the Bonds pursuant to Section 148(a) of the Code, will be invested or used in such a way, and that no actions will be taken or not taken, as to cause the Bonds to be treated as "arbitrage bonds" within the meaning of Section 148(a) of the Code. Without limiting the generality of the foregoing, the Company covenants and agrees that it will comply with the provisions of the Tax Agreement and the Project Certificate. ARTICLE IV LOAN AND PROVISIONS FOR REPAYMENT; SECTION 4.1. LOAN OF BOND PROCEEDS. (a) The Issuer agrees, upon the terms and conditions in this Agreement, to lend to the Company the proceeds (exclusive of accrued interest, if any) received by the Issuer from the sale of the Bonds in order to pay the Cost of the Project and the Company agrees to apply the gross proceeds of such loan to pay the Cost of the Project or as otherwise permitted in Section 3.4 hereof. (b) The Issuer and the Company expressly reserve the right to enter into, to the extent permitted by law, an agreement or agreements other than this Agreement, with respect to the issuance by the Issuer, under an indenture or indentures other than the Indenture, of obligations to provide additional funds to pay the Cost of the Project or to refund all or any principal amount of the Bonds, or any combination thereof. SECTION 4.2. LOAN REPAYMENTS AND OTHER AMOUNTS PAYABLE. (a) On each date provided in or pursuant to the Indenture for the payment (whether at maturity or upon redemption or acceleration) of principal of, and premium, if any, and interest on, the Bonds, -11- until the principal of, and premium, if any, and interest on, the Bonds shall have been fully paid or provision for the payment thereof shall have been made in accordance with the Indenture, the Company shall pay to the Trustee in immediately available funds, for deposit in the Bond Fund, as a repayment installment of the loan of the proceeds of the Bonds pursuant to Section 4.1(a) hereof, a sum equal to the amount payable on such date (whether at maturity or upon redemption or acceleration) as principal of, and premium, if any, and interest on, the Bonds as provided in the Indenture; provided, however, that the obligation of the Company to make any such payment shall be deemed to be satisfied and discharged to the extent of the corresponding payment realized by the Trustee under any Letter of Credit or Credit Facility; and provided further, that the obligation of the Company to make any such repayment installment shall be reduced by the amount of any moneys then on deposit in the Bond Fund and available for such payment. (b) The Company shall pay to the Trustee amounts equal to the amounts to be paid by the Trustee for the purchase of Bonds pursuant to Article IV of the Indenture. Such amounts shall be paid by the Company to the Trustee in immediately available funds on the date such payments pursuant to Section 4.05 of the Indenture are to be made; provided, however, that the obligation of the Company to make any such payment shall be deemed to be satisfied and discharged to the extent of the corresponding payment realized by the Trustee under any Letter of Credit or Credit Facility or to the extent moneys are available from the sources described in clauses (i) and (ii) of Section 4.05(a) of the Indenture. (c) The Company agrees to pay to the Trustee (i) the fees of the Trustee for the Ordinary Services rendered by it and an amount equal to the Ordinary Expenses incurred by it under the Indenture and the Tax Agreement, as and when the same become due, and (ii) the reasonable fees, charges and expenses of the Trustee for reasonable Extraordinary Services and Extraordinary Expenses, as and when the same become due, incurred under the Indenture and the Tax Agreement. The Company agrees that the Trustee, its officers, agents, servants and employees, shall not be liable for, and agrees that it will at all times indemnify and hold harmless the Trustee, its officers, agents, servants and employees against, and pay all expenses of the Trustee, its officers, agents, servants and employees, relating to any lawsuit, proceeding or claim and resulting from any action or omission taken or made by or on behalf of the Trustee, its officers, agents, servants and employees pursuant to this Agreement, the Indenture or the Tax Agreement, that may be occasioned by any cause (other than the negligence or willful misconduct of the Trustee, its officers, agents, servants and employees). In case any action shall be brought against the Trustee in respect of which indemnity may be sought against the Company, the Trustee shall promptly notify the Company in writing and the Company shall be entitled to assume control of the defense thereof, including the employment of Counsel and the payment of all expenses. The Trustee shall have the right to employ separate Counsel in any such action and participate in the defense thereof, but the fees and expenses of such Counsel shall be paid by the Trustee unless the employment of such Counsel has been authorized by the Company. The Company shall not be liable for any settlement of any such action without its consent, but if any such action is settled with the consent of the Company or if there be final judgment for the plaintiff in any such action, the Company agrees to indemnify and hold harmless the Trustee from and against any loss or liability by reason of such settlement or final judgment. The Company -12- agrees that the indemnification provided herein shall survive the termination of this Agreement or the Indenture or the resignation of the Trustee. (d) The Company agrees to pay all costs incurred in connection with the issuance of the Bonds (which may be paid from the proceeds of the Bonds to the extent permitted by the Project Certificate) and the Issuer shall have no obligation with respect to such costs. (e) The Company agrees to indemnify and hold harmless the Issuer and any member, officer, official or employee of the Issuer against any and all losses, costs, charges, expenses, judgments and liabilities created by or arising out of this Agreement, the Indenture or the Tax Agreement or otherwise incurred in connection with the issuance of the Bonds. The Company agrees to pay the Issuer its closing fee in connection with the issuance of the Bonds in the amount of $50,000. The Issuer may submit to the Company periodic statements, not more frequently than monthly, for its Administrative Expenses and the Company shall make payment to the Issuer of the full amount of each such statement within 30 days after the Company receives such statement. (f) The Company agrees to pay to the Remarketing Agent, if any, the reasonable fees, charges and expenses of such Remarketing Agent, and the Issuer shall have no obligation or liability with respect to the payment of any such fees, charges or expenses. (g) In the event the Company shall fail to make any of the payments required by (a) or (b) of this Section 4.2, the payment so in default shall continue as an obligation of the Company until the amount in default shall have been fully paid and the Company will pay interest to the extent permitted by law, on any overdue amount at the rate of interest borne by the Bonds on the date on which such amount became due and payable until paid. In the event that the Company shall fail to make any of the payments required by (c), (d), (e) or (f) of this Section 4.2, the payment so in default shall continue as an obligation of the Company until the amount in default shall have been fully paid, and the Company agrees to pay the same with interest thereon to the extent permitted by law at a rate 1% above the rate of interest then charged by the Trustee on 90-day commercial loans to its prime commercial borrowers until paid. (h) To the extent that a Letter of Credit is in effect and moneys on deposit in the Bond Fund constitute Available Moneys or have been deposited in separate, segregated accounts in the Bond Fund for the purpose of becoming Available Moneys, such moneys shall not be available for transfer and shall not be transferred from the Bond Fund to the Rebate Fund to satisfy the requirements of the Tax Agreement (unless the Company fails to pay the amounts described below). In the event that moneys are not available for transfer from the Bond Fund to the Rebate Fund as required by the Tax Agreement, the Company agrees to pay any such amount required to be so transferred and not available for such purpose in the Bond Fund by paying such amount to the Trustee for deposit directly into the Rebate Fund. The obligation of the Company set forth in this Section 4.2(h) shall survive the termination of this Agreement. -13- SECTION 4.3. NO DEFENSE OR SET-OFF. The obligation of the Company to make the payments pursuant to this Agreement shall be absolute and unconditional without defense or set-off by reason of any default by the Issuer under this Agreement or under any other agreement between the Company and the Issuer or for any other reason, it being the intention of the parties that the payments required hereunder will be paid in full when due without any delay or diminution whatsoever. SECTION 4.4. PAYMENTS PLEDGED AND ASSIGNED. It is understood and agreed that all payments required to be made by the Company pursuant to Section 4.2 hereof (except payments made to the Trustee pursuant to Section 4.2(c) hereof, to any Remarketing Agent pursuant to Section 4.2(f) hereof, to the Issuer pursuant to Section 4.2(e) hereof and to any or all the Issuer and the Trustee and any Remarketing Agent pursuant to Section 4.2(g) hereof) and certain rights of the Issuer hereunder are pledged and assigned by the Indenture. The Company consents to such pledge and assignment. The Issuer hereby directs the Company and the Company hereby agrees to pay or cause to be paid to the Trustee all said amounts except payments to be made to any Remarketing Agent pursuant to Section 4.2(f) hereof and payments to be made to the Issuer pursuant to Sections 4.2(e) and (g) hereof. The Project will not constitute any part of the security for the Bonds. SECTION 4.5. LETTER OF CREDIT AND CREDIT FACILITY. (a) The Company has no obligation to provide a Letter of Credit or other Credit Facility hereunder. At any time the Company may, at its option, provide for the delivery to the Trustee of a Letter of Credit or a Credit Facility. (b) Any Letter of Credit delivered to the Trustee hereunder will comply with the provisions of Section 6.19(b) of the Indenture. Any Credit Facility (a) may consist, at the option of the Company, of (i) first mortgage bonds of the Company, (ii) a letter of credit, (iii) a standby bond purchase agreement, (iv) bond insurance or (v) such other security or credit support as the Company may elect to furnish, or any combination thereof. (c) As a condition to the exercise by the Company of its option set forth in Section 4.5(b) hereof to deliver a Letter of Credit or other Credit Facility, the Company shall provide to the Issuer and the Trustee a notice specifying (i) that a Letter of Credit or other Credit Facility will be delivered to the Trustee, (ii) the effective date of such delivery (which must be at least five Business Days prior to the date of delivery of such Letter of Credit or other Credit Facility and, if a Letter of Credit or other Credit Facility is then in effect, must also be at least five Business Days prior to the date such existing Letter of Credit or other Credit Facility is to expire by its terms), (iii) if applicable, the form and substance of the Letter of Credit or other Credit Facility then in effect, and (iv) the form and substance of the Letter of Credit or other Credit Facility to be in effect on the date specified in (ii) above. Such notice to the Trustee must be delivered by the Company at least ten Business Days prior to the effective date of such Letter of Credit or Credit Facility or, if a Letter of Credit or other Credit Facility is then in effect, at least 20 days prior to the fifth Business Day next preceding the effective date of such change, and must be accompanied by the opinion of Bond Counsel required by Section 6.19 or 6.20 of the Indenture, as the case may be, and (i) if a Letter of Credit or other Credit Facility is then in effect, a letter from -14- Moody's, if the Bonds should then be rated by Moody's, and from S&P, if the Bonds should then be rated by S&P, and from Fitch, if the Bonds are then rated by Fitch, to the effect that the substitution of the proposed Credit Facility for the Letter of Credit or other Credit Facility then in effect will not by itself result in a reduction, suspension or withdrawal of its ratings of the Bonds which then prevail (except that such rating evidence shall not be required if the Bonds are subject to mandatory tender for purchase pursuant to Section 4.02(a)(iii) of the Indenture), and (ii) the form of the substitute Letter of Credit or other Credit Facility to be in place on the effective date of such change, together with any documentation and opinions referred to by Moody's or S&P or Fitch, as the case may be, in any such letter. (d) The Issuer and the Company agree that the Issuer will in the Indenture authorize and direct the Trustee to accept and agree to conditions and provisions of any Letter of Credit or any other Credit Facility which may be provided in accordance with the provisions of this Section 4.5. SECTION 4.6. PAYMENT OF THE BONDS AND OTHER AMOUNTS. The Bonds and interest and premium, if any, thereon shall be payable solely from (i) payments made by the Company to the Trustee under Section 4.2(a) hereof, (ii) amounts realized under any Letter of Credit or Credit Facility then in effect and (iii) other moneys on deposit in the Bond Fund and available therefor. Payments of principal of, and premium, if any, or interest on, the Bonds with moneys in the Bond Fund or the Construction Fund constituting proceeds from the sale of the Bonds or earnings on investments made under the provisions of the Indenture shall be credited against the obligation to pay required by Section 4.2(a) hereof, and the obligation to pay required by Section 4.2(a) hereof shall be deemed to be satisfied and discharged to the extent of the corresponding payment made to the Trustee under any Letter of Credit or Credit Facility then in effect. Whenever any Bonds are redeemable in whole or in part at the option of the Company, the Trustee, on behalf of the Issuer, shall redeem the same upon the request of the Company and such redemption (unless conditional) shall be made from payments made by the Company to the Trustee under Section 4.2(a) hereof and amounts realized under any Letter of Credit or Credit Facility then in effect equal to the redemption price of such Bonds. Whenever payment or provision therefor has been made in respect of the principal of, or premium, if any, or interest on, all or any portion of the Bonds in accordance with the Indenture (whether at maturity or upon redemption or acceleration or upon provision for payment in accordance with Article VIII of the Indenture), payments shall be deemed paid to the extent such payment or provision therefor has been made and is considered to be a payment of principal of, or premium, if any, or interest on, such Bonds. If such Bonds are thereby deemed paid in full, the Trustee shall notify the Company and the Issuer that such payment requirement has been satisfied. Subject to the foregoing, or unless the Company is -15- entitled to a credit under this Agreement or the Indenture, all payments shall be in the full amount required by Section 4.2(a) hereof. ARTICLE V SPECIAL COVENANTS AND AGREEMENTS; SECTION 5.1. COMPANY TO MAINTAIN ITS CORPORATE EXISTENCE; CONDITIONS UNDER WHICH EXCEPTIONS PERMITTED. The Company agrees that during the term of this Agreement, it will maintain its corporate existence and its good standing in the State, will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another corporation unless (a) the acquirer of its assets or the corporation with which it shall consolidate or into which it shall merge shall (i) be a corporation organized under the laws of one of the states of the United States of America, (ii) be qualified to do business in the State, and (iii) assume in writing all of the obligations of the Company under this Agreement and the Tax Agreement. SECTION 5.2. ANNUAL STATEMENT. The Company agrees to have an annual audit made by its regular independent certified public accountants and to furnish the Trustee (within 30 days after receipt by the Company) with a balance sheet and statement of income and surplus showing the financial condition of the Company and its consolidated subsidiaries, if any, at the close of each fiscal year and the results of operations of the Company and its consolidated subsidiaries, if any, for each fiscal year, accompanied by a report of said accountants that such statements have been prepared in accordance with generally accepted accounting principles. The Company's obligations under this Section 5.2 may be satisfied by delivering a copy of the Company's Annual Report to the Trustee at the same time that it is mailed to stockholders. SECTION 5.3. MAINTENANCE AND REPAIR; INSURANCE; TAXES; ETC.. The Company shall maintain or cause to be maintained the Project in good repair and keep it properly insured and shall promptly pay or cause to be paid all costs thereof. The Company shall promptly pay or cause to be paid all installments of taxes, installments of special assessments, and all governmental, utility and other charges with respect to the Project, when due. The Company may, at its own expense and in its own name in good faith contest or appeal any such taxes, assessments or other charges, or installments thereof, but shall not permit any such taxes, assessments or other charges, or installments thereof, to remain unpaid if such nonpayment shall subject the Project or any part thereof to loss or forfeiture. SECTION 5.4. RECORDATION AND OTHER INSTRUMENTS. The Company shall cause such security agreements, financing statements and all supplements thereto and other instruments as may be required from time to time to be kept, to be recorded and filed in such manner and in such places as may be required by law in order to fully preserve, protect and perfect the security of the Owners of the Bonds and the rights of the Trustee and, after payment in full of the Bonds as provided in the Indenture, the rights of the Bank provided in the Indenture, and to perfect the security interest created by the Indenture. The Company -16- agrees to abide by the provisions of Section 5.04 of the Indenture to the extent applicable to the Company. SECTION 5.5. NO WARRANTY BY THE ISSUER. The Issuer makes no warranty, either express or implied, as to the Project or that it will be suitable for the purposes of the Company or needs of the Company. SECTION 5.6. AGREEMENT AS TO OWNERSHIP AND USE OF THE PROJECT. The Issuer and the Company agree that title to the Project shall be in and remain in the Company, and that the Project shall be the sole property of the Company in which the Issuer shall have no interest. SECTION 5.7. COMPANY TO FURNISH NOTICE OF ADJUSTMENTS OF INTEREST RATE PERIODS. The Company is hereby granted the option to designate from time to time changes in Rate Periods (and to rescind such changes) in the manner and to the extent set forth in Section 2.03 of the Indenture. In the event the Company elects to exercise any such option, the Company agrees that it shall cause notices of adjustments of Rate Periods (or rescissions thereof) to be given to the Issuer, the Trustee and the Remarketing Agent in accordance with Section 2.03(a), (b), (c), (d) or (f) of the Indenture. SECTION 5.8. INFORMATION REPORTING, ETC. The Issuer covenants and agrees that, upon the direction of the Company or Bond Counsel, it will mail or cause to be mailed to the Secretary of the Treasury (or his designee as prescribed by regulation, currently the Internal Revenue Service Center, Philadelphia, PA 19255) a statement setting forth the information required by Section 149(e) of the Code, which statement shall be in the form of the Information Return for Tax-Exempt Private Activity Bond Issues (Form 8038) of the Internal Revenue Service (or any successor form) and which shall be completed by the Company and Bond Counsel based in part upon information supplied by the Company and Bond Counsel. SECTION 5.9. LIMITED LIABILITY OF ISSUER. Any obligation or liability of the Issuer created by or arising out of this Agreement or otherwise incurred in connection with the issuance of the Bonds (including without limitation any liability created by or arising out of the representations, warranties or covenants set forth herein or otherwise) shall not impose a debt or pecuniary liability upon the Issuer or the State or any political subdivision thereof, or a charge upon the general credit or taxing powers of any of the foregoing, but shall be payable solely out of the Revenues or other amounts payable by the Company to the Issuer hereunder or otherwise (including without limitation any amounts derived from indemnifications given by the Company). Neither the issuance of the Bonds nor the delivery of this Agreement shall, directly or indirectly or contingently, obligate the Issuer or the State or any political subdivision thereof to levy any form of taxation therefor or to make any appropriation for their payment. Nothing in the Bonds or in the Indenture or this Agreement or the proceedings of the Issuer authorizing the Bonds or in the Act or in any other related document shall be construed to authorize the Issuer to create a debt of the Issuer or the State or any political subdivision -17- thereof within the meaning of any constitutional or statutory provision of the State. The principal of, and premium, if any, and interest on, the Bonds shall be payable solely from the funds pledged for their payment in accordance with the Indenture and available therefor under this Agreement and under any Letter of Credit or Credit Facility then in effect. Neither the State nor any political subdivision thereof shall in any event be liable for the payment of the principal of, premium, if any, or interest on, the Bonds or for the performance of any pledge, obligation or agreement of any kind whatsoever which may be undertaken by the Issuer. No breach of any such pledge, obligation or agreement may impose any pecuniary liability upon the Issuer or the State or any political subdivision thereof, or any charge upon the general credit or against the taxing power of the Issuer or the State or any political subdivision thereof. SECTION 5.10. INSPECTION OF PROJECT. The Company agrees that the Issuer and the Trustee and their duly authorized representatives shall have the right at all reasonable times to enter upon and examine and inspect the Project property and shall also be permitted, at all reasonable times, to examine the books and records of the Company insofar as they relate to the Project. SECTION 5.11. PURCHASES OF BONDS BY COMPANY OR ISSUER PROHIBITED; EXCEPTIONS. At any time while a Letter of Credit is in effect, the Company shall not and shall not allow any Insider of the Company to purchase any Bonds except (a) with Available Moneys or (b) as provided in Section 4.2(b) hereof. At any time while a Letter of Credit is in effect, the Issuer shall not and shall not allow any Insider of the Issuer to purchase any Bonds except with Available Moneys. ARTICLE VI EVENTS OF DEFAULT AND REMEDIES; SECTION 6.1. EVENTS OF DEFAULT DEFINED. The following shall be "events of default" under this Agreement and the terms "event of default" or "default" shall mean, whenever they are used in this Agreement, any one or more of the following events: (a) Failure by the Company to pay when due any amounts required to be paid under Section 4.2(a) hereof, which failure results in an event of default under subparagraph (a) or (b) of Section 9.01 of the Indenture; or (b) Failure by the Company to pay or cause to be paid any payment required to be paid under Section 4.2(b) hereof, which failure results in an event of default under subparagraph (c) of Section 9.01 of the Indenture; or (c) Failure by the Company to observe and perform any covenant, condition or agreement on its part to be observed or performed in this Agreement, other than as referred to in (a) and (b) above, for a period of 90 days after written notice, or in the case of failure by the Company to observe and perform any covenant, condition or -18- agreement on its part to be observed or performed in Section 4.2(h) hereof, for a period of 30 days after written notice, specifying such failure and requesting that it be remedied and stating that such notice is a "Notice of Default" hereunder, given to the Company by the Trustee or to the Company and the Trustee by the Issuer, unless the Issuer and the Trustee shall agree in writing to an extension of such time prior to its expiration; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Issuer and the Trustee will not unreasonably withhold their consent to an extension of such time if corrective action is instituted within the applicable period and diligently pursued until the failure is corrected and such corrective action or diligent pursuit is evidenced to the Trustee by a certificate of an Authorized Company Representative; or (d) A proceeding or case shall be commenced, without the application or consent of the Company, in any court of competent jurisdiction seeking (i) liquidation, reorganization, dissolution, winding-up or composition or adjustment of debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Company or of all or any substantial part of its assets, or (iii) similar relief under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, and such proceeding or cause shall continue undismissed, or an order, judgment, or decree approving or ordering any of the foregoing shall be entered and shall continue in effect for a period of 90 days; or an order for relief against the Company shall be entered against the Company in an involuntary case under the Bankruptcy Code (as now or hereafter in effect) or other applicable law; or (e) The Company shall admit in writing its inability to pay its debts generally as they become due or shall file a petition in voluntary bankruptcy or shall make any general assignment for the benefit of its creditors, or shall consent to the appointment of a receiver or trustee of all or substantially all of its property, or shall commence a voluntary case under the Bankruptcy Code (as now or hereafter in effect), or shall file in any court of competent jurisdiction a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, or shall fail to controvert in a timely or appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under such Bankruptcy Code or other applicable law; or (f) Dissolution or liquidation of the Company; provided that the term "dissolution or liquidation of the Company" shall not be construed to include the cessation of the corporate existence of the Company resulting either from a merger or consolidation of the Company into or with another corporation or a dissolution or liquidation of the Company following a transfer of all or substantially all of its assets as an entirety, under the conditions permitting such actions contained in Section 5.1 hereof; or (g) The occurrence of an "event of default" under the Indenture. -19- The foregoing provisions of Section 6.1(c) are subject to the following limitations: If by reason of Force Majeure the Company is unable in whole or in part to carry out its agreements on its part herein contained, other than the obligations on the part of the Company contained in Article IV and Sections 5.3 and 6.4 hereof, the Company shall not be deemed in default during the continuance of such inability. The Company agrees, however, to remedy with all reasonable dispatch the cause or causes preventing the Company from carrying out its agreements; provided that the settlement of strikes, lockouts and other industrial disturbances shall be entirely within the discretion of the Company and the Company shall not be required to make settlement of strikes, lockouts and other industrial disturbances by acceding to the demands of the opposing party or parties when such course is in the sole judgment of the Company unfavorable to the Company. SECTION 6.2. REMEDIES ON DEFAULT. Whenever any event of default referred to in Section 6.1 hereof shall have happened and be continuing, the Trustee, as assignee of the Issuer: (a) shall, by notice in writing to the Company, declare the unpaid indebtedness under Section 4.2(a) hereof to be due and payable immediately, if concurrently with or prior to such notice the unpaid principal amount of the Bonds shall have been declared to be due and payable, and upon any such declaration the same (being an amount sufficient, together with other moneys available therefor in the Bond Fund, to pay the unpaid principal of, premium, if any, and interest accrued on, the Bonds) shall become and shall be immediately due and payable as liquidated damages; and (b) may take whatever action at law or in equity as may appear necessary or desirable to collect the payments and other amounts then due and thereafter to become due hereunder or to enforce performance and observance of any obligation, agreement or covenant of the Company under this Agreement. Any amounts collected pursuant to action taken under this Section 6.2 shall be paid into the Bond Fund (unless otherwise provided in this Agreement) and applied in accordance with the provisions of the Indenture. No action taken pursuant to this Section 6.2 shall relieve the Company from the Company's obligations pursuant to Section 4.2 hereof. No recourse shall be had for any claim based on this Agreement against any officer, director or stockholder, past, present or future, of the Company as such, either directly or through the Company, under any constitutional provision, statute or rule of law, or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise. Nothing herein contained shall be construed to prevent the Issuer from enforcing directly any of its rights under the second paragraph of Section 3.1 hereof and under Sections 4.2(e), 4.2(g), 5.3 and 6.4 hereof. SECTION 6.3. NO REMEDY EXCLUSIVE. No remedy herein conferred upon or reserved to the Issuer is intended to be exclusive of any other available remedy or remedies, -20- but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer or the Trustee to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. Subject to the provisions of the Indenture and hereof, such rights and remedies as are given the Issuer hereunder shall also extend to the Trustee. The Owners of the Bonds, subject to the provisions of the Indenture, shall be entitled to the benefit of all covenants and agreements herein contained. SECTION 6.4. AGREEMENT TO PAY FEES AND EXPENSES OF COUNSEL. In the event the Company should default under any of the provisions of this Agreement and the Issuer or the Trustee should employ Counsel or incur other expenses for the collection of the indebtedness hereunder or the enforcement of performance or observance of any obligation or agreement on the part of the Company herein contained, the Company agrees that it will on demand therefor pay to the Trustee, the Issuer or, if so directed by the Issuer, to the Counsel for the Issuer, the reasonable fees of such Counsel and such other expenses so incurred by or on behalf of the Issuer or the Trustee. SECTION 6.5. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER; CONSENTS TO WAIVERS. In the event any agreement contained in this Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. No waiver shall be effective unless in writing and signed by the party making the waiver. The Issuer shall have no power to waive any default hereunder by the Company without both the consent of the Trustee and the Bank to such waiver. The Trustee and the Bank shall have the power to waive any default by the Company hereunder, except a default under the second paragraph of Section 3.1 hereof, or under Section 3.6, 4.2(e), 4.2(g), 5.3 or 6.4 hereof, in so far as it pertains to the Issuer, without the prior written concurrence of the Issuer. Notwithstanding the foregoing, if, after the acceleration of the maturity of the outstanding Bonds by the Trustee pursuant to Section 9.02 of the Indenture, (i) all arrears of principal of and interest on the outstanding Bonds and interest on overdue principal and (to the extent permitted by law) on overdue installments of interest at the rate of interest borne by the Bonds on the date on which such principal or interest became due and payable and the premium, if any, on all Bonds then Outstanding which have become due and payable otherwise than by acceleration, and all other sums payable under the Indenture, except the principal of and the interest on such Bonds which by such acceleration shall have become due and payable, shall have been paid, (ii) all other things shall have been performed in respect of which there was a default, (iii) there shall have been paid the reasonable fees and expenses of the Trustee and of the Owners of such Bonds, including reasonable attorneys' fees paid or incurred and (iv) such event of default under the Indenture shall be waived in accordance with Section 9.09 of the Indenture with the consequence that such acceleration under Section 9.02 of the Indenture is rescinded, then the Company's default hereunder shall be deemed to have been waived and its consequences rescinded and no further action or consent -21- by the Trustee or the Issuer or the Bank shall be required; provided that there has been furnished an opinion of Bond Counsel to the effect that such waiver will not adversely affect the exemption from federal income taxes of interest on the Bonds. ARTICLE VII OPTIONS AND OBLIGATIONS OF COMPANY; PREPAYMENTS; REDEMPTION OF BONDS SECTION 7.1. OPTION TO PREPAY. The Company shall have, and is hereby granted, the option to prepay the payments due hereunder in whole or in part at any time or from time to time (a) to provide for the redemption of Bonds pursuant to the provisions of Section 3.01(A) of the Indenture or (b) to provide for the defeasance of the Bonds pursuant to Article VIII of the Indenture. In the event the Company elects to provide for the redemption of Bonds as permitted by this Section, the Company shall notify and instruct the Trustee in accordance with Section 7.3 hereof to redeem all or any portion of the Bonds in advance of maturity. If the Company so elects, any redemption of Bonds pursuant to Section 3.01(A) of the Indenture may be made conditional. SECTION 7.2. OBLIGATION TO PREPAY. The Company covenants and agrees that if all or any part of the Bonds are unconditionally called for redemption in accordance with the Indenture or become subject to mandatory redemption, it will prepay the indebtedness hereunder in whole or in part, prior to the date on which notice of such redemption is given to the owners of such Bonds, in an amount sufficient to redeem such Bonds on the date fixed for the redemption of the Bonds. SECTION 7.3. NOTICE OF PREPAYMENT. Upon the exercise of the option granted to the Company in Section 7.1 hereof, or upon the Company having knowledge of the occurrence of any event requiring mandatory redemption of the Bonds in accordance with Section 3.01(B) of the Indenture, the Company shall give written notice to the Issuer, the Bank, the Remarketing Agent and the Trustee. The notice shall provide for the date of the application of the prepayment made by the Company hereunder to the retirement of the Bonds in whole or in part pursuant to call for redemption and shall be given by the Company not less than 45 days prior to the date of the redemption which is to occur as a result of such prepayment (or such later date as is acceptable to the Trustee and the Issuer), and in the case of a redemption of Bonds pursuant to Section 3.01(B) of the Indenture shall be given on a date which will permit the redemption of the Bonds within the time required by Section 3.01(B) of the Indenture. On the date fixed for redemption of the Bonds or portions thereof, there shall be deposited with the Trustee from drawings upon any Letter of Credit then in effect or payments by the Company or from amounts realized under any Credit Facility as required by Section 7.1 or 7.2, as appropriate, for payment into the Bond Fund. Any other provision of this Agreement or the Indenture to the contrary notwithstanding, any prepayment of moneys hereunder shall be made in such manner and at such time that any redemption of Bonds or portions thereof will be made with Available Moneys. -22- ARTICLE VIII MISCELLANEOUS; SECTION 8.1. NOTICES. Except as otherwise provided herein, all notices, certificates or other communications hereunder shall be sufficiently given if in writing and shall be deemed given when mailed by first class mail, postage prepaid, or by qualified overnight courier service, courier charges prepaid, or by facsimile (receipt of which is orally confirmed) addressed as follows: If to the Issuer, at 500 South Grand Central Parkway, 6th Floor, Las Vegas, Nevada 89155-1601, or to telecopy number (702) 455- 3558, Attention: County Manager; if to the Company, at P.O. Box 230, 6226 West Sahara Avenue, Las Vegas, Nevada 89151 (89102 for Federal Express), or to telecopy number (702) 367-5864, Attention: Treasurer; if to the Trustee, at 114 West 47th Street, New York, New York 10036-1532 or to telecopy number (212) 852- 1625, Attention: Corporate Trust Administration; if to the Remarketing Agent, at the address specified by the Remarketing Agent; and if to the Bank, at the address specified by the Bank. In case by reason of the suspension of regular mail service, it shall be impracticable to give notice by first class mail of any event to the Issuer, to the Company, to the Remarketing Agent or to the Bank when such notice is required to be given pursuant to any provisions of this Agreement, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be sufficient giving of such notice. The Issuer, the Company, the Trustee, the Remarketing Agent and the Bank may, by notice pursuant to this Section 8.1, designate any different addresses to which subsequent notices, certificates or other communications shall be sent. SECTION 8.2. ASSIGNMENTS.. This Agreement may not be assigned by either party without consent of the other and the Bank, except that the Issuer shall assign to the Trustee its rights under this Agreement (except under the second paragraph of Section 3.1 and under Sections 4.2(e), 4.2(g), 5.3, and 6.4 hereof) as provided by Section 4.4 hereof, and the Company may assign its rights under this Agreement to any transferee or any surviving or resulting corporation as provided by Section 5.1 hereof. SECTION 8.3. SEVERABILITY. If any provision of this Agreement shall be held or deemed to be or shall, in fact, be illegal, inoperative or unenforceable, the same shall not affect any other provision or provisions herein contained or render the same invalid, inoperative, or unenforceable to any extent whatever. SECTION. EXECUTION OF COUNTERPARTS. This Agreement may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. SECTION 8.5. AMOUNTS REMAINING IN BOND FUND. It is agreed by the parties hereto that after payment in full of (i) the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Indenture), (ii) the fees, charges and expenses of the Trustee in accordance with the Indenture, (iii) the Administrative Expenses, (iv) the fees and expenses of the Remarketing Agent and the Issuer and (v) all other amounts required to be paid under this Agreement and the Indenture, any amounts remaining in -23- the Bond Fund shall belong to and be paid to the Company by the Trustee; provided, however, that if there remain reimbursement or other obligations of the Company under any Reimbursement Agreement, such moneys remaining in the Bond Fund shall, subject to Section 13.10(b) of the Indenture, be paid by the Trustee to the Bank upon written direction of the Bank to such extent. SECTION 8.6. AMENDMENTS, CHANGES AND MODIFICATIONS. This Agreement may be amended, changed, modified, altered or terminated only by written instrument executed by the Issuer and the Company, and only if the written consent of the Trustee and the Bank thereto is obtained. Subject to the written consent of the Trustee and the Bank, the Issuer and the Company agree to enter into such amendments, changes and modifications to this Agreement (i) as may be required by the provisions of this Agreement or the Indenture, (ii) for the purpose of curing any ambiguity, formal defect or omission in this Agreement, (iii) so as to add additional rights acquired in accordance with the provisions of this Agreement, (iv) to preserve the exemption from federal income taxes of interest on the Bonds, or any of them, (v) to qualify the Bonds for an appropriate rating by Moody's or S&P or Fitch, as the case may be, or to maintain any such rating, or (vi) in connection with any other change herein which is not to the prejudice of the Trustee, the Bank or the Owners of the Bonds; provided, however, that the Issuer shall not thereby incur any monetary obligation or liability (except only to the extent that the same shall be payable solely and only out of funds provided or to be provided by the Company) or surrender or abdicate in whole or in part any of its essential governmental functions or powers or any of its discretion in exercising the same. SECTION 8.7. GOVERNING LAW. This Agreement shall be governed exclusively by and construed in accordance with the applicable laws of the State. SECTION 8.8. AUTHORIZED ISSUER AND COMPANY REPRESENTATIVES. Whenever under the provisions of this Agreement the approval of the Issuer or the Company is required to take some action at the request of the other, such approval of such request shall be given for the Issuer by the Authorized Issuer Representative and for the Company by the Authorized Company Representative, and the other party hereto and the Trustee shall be authorized to act on any such approval or request and neither party hereto shall have any complaint against the other or against the Trustee as a result of any such action taken. SECTION 8.9. TERM OF THE AGREEMENT. This Agreement shall be in full force and effect from its date to and including such date as all of the Bonds issued under the Indenture shall have been fully paid or retired (or provision for such payment shall have been made as provided in the Indenture), provided that all representations and certifications by the Company as to all matters affecting the tax-exempt status of the Bonds and the covenants of the Company in Sections 4.2(c), 4.2(d), 4.2(e), 4.2(f), 4.2(g) and 4.2(h) hereof shall survive the termination of this Agreement. SECTION 8.10. CANCELLATION AT EXPIRATION OF TERM. At the acceleration, termination or expiration of the term of this Agreement and following full payment of the Bonds or provision for payment thereof and of all other fees and charges having been made -24- in accordance with the provisions of this Agreement and the Indenture, the Issuer shall deliver to the Company any documents and take or cause the Trustee to take such actions as may be necessary to effectuate the cancellation and evidence the termination of this Agreement. SECTION 8.11. REFERENCES TO BANK AND PROVIDER. At any time that a Letter of Credit (and if at such time there shall be no Pledged Bonds) or any Credit Facility is not in effect and the Bank shall have been paid all amounts owed them under the Reimbursement Agreement (as evidenced by a written certificate of the Bank delivered to the Trustee to such effect), all references herein to the Bank or the Provider, as the case may be, shall be deemed ineffective. Any provisions hereof requiring the consent of the Bank or the Provider shall be deemed ineffective if the Bank or the Provider is at any such time in default in its obligations under the Letter of Credit or Credit Facility, as the case may be, to fund a drawing thereunder made in strict compliance with the terms of such Letter of Credit or Credit Facility. SECTION 8.12. SPECIFIC REQUEST FOR RATINGS REQUIRED. No reference herein to Moody's or S&P or Fitch shall be construed by any such rating agency as a request or permission to issue a rating on the Bonds. Any rating on the Bonds shall be issued by any rating agency only pursuant to specific written request therefor from the Company. -25- IN WITNESS WHEREOF, the Issuer and the Company have caused this Agreement to be executed in their respective corporate names and their respective corporate seals to be hereunto affixed and attested by their duly authorized officers, all as of the date first above written. CLARK COUNTY, NEVADA By Yvonne Atkinson Gates -------------------------- Chair Board of County Commissioners (SEAL) Attest: Loretta Bowman ____________________________________ County Clerk NEVADA POWER COMPANY By Steven W. Rigazio ---------------------------- President, Finance and Planning, Treasurer, Chief Financial Officer (SEAL) Attest: Richard L. Hinckley ____________________________________ Secretary -26- EXHIBIT A (Attached to Financing Agreement between Clark County, Nevada and Nevada Power Company, dated as of November_1, 1997). The Project consists of the following facilities, all as more particularly described in the Project Certificate and only to the extent provided in the Project Certificate: Additions and improvements to the Local Distribution System which consists of the low-voltage electric distribution facilities by which the Company furnishes electric energy to customers within its retail customer service area, together with additions and improvements to the Company's other plant, property and equipment for use in connection therewith for the same purpose, including but not limited to poles, conductors, transformers, circuit-breakers, meters, customer service connections, and related substations, switchyards, controls, communications equipment, and related land, land-rights, structures, improvements, equipment and other facilities necessary or useful for the operation, maintenance, control or protection of the following. -27- EX-27 4 FINANCIAL DATA SCHEDULE FOR 1997 FORM 10-K
UT THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF NEVADA POWER COMPANY AS OF DECEMBER 31, 1997 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME, CASH FLOWS AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 DEC-31-1997 PER-BOOK $1,960,709 13,571 168,535 196,607 0 2,339,422 53,604 662,987 117,032 833,623 118,872 3,463 805,941 0 0 0 15,250 200 89,498 4,487 468,088 2,339,422 799,148 43,478 618,474 661,952 137,196 3,019 140,215 56,999 83,216 1,125 82,091 79,176 50,791 110,372 1.65 0 INAPPLICABLE
EX-10.84 5 COCONINO BONDS FINANCING AGREEMENT =================================================================== FINANCING AGREEMENT Dated as of November 1, 1997 By and Between COCONINO COUNTY, ARIZONA POLLUTION CONTROL CORPORATION and NEVADA POWER COMPANY RELATING TO POLLUTION CONTROL REVENUE BONDS (NEVADA POWER COMPANY PROJECT) SERIES 1997B =================================================================== The amounts payable to the Issuer (except for amounts payable to, and certain rights and privileges of, the Issuer under Sections 3.1, 4.2(e), 4.2(g), 5.3 and 6.4 hereof and any rights of the Issuer to receive any notices, certificates, requests, requisitions or communications hereunder) and certain other rights of the Issuer under this Financing Agreement have been pledged and assigned under the Indenture of Trust dated as of November 1, 1997, between the Issuer and United States Trust Company of New York, as Trustee. FINANCING AGREEMENT TABLE OF CONTENTS (This Table of Contents is not a part of this Agreement and is only for convenience of reference) SECTION HEADING PAGE ARTICLE I DEFINITIONS........................................1 ARTICLE II REPRESENTATIONS....................................5 Section 2.1. Representations and Covenants by the Issuer......5 Section 2.2. Representations by the Company...................6 ARTICLE III COMPLETION OF THE PROJECT; ISSUANCE OF THE BONDS...7 Section 3.1. Agreement to Complete the Acquisition, Construction and Equipping of the Project........7 Section 3.2. Agreement to Issue Bonds; Application of Bond Proceeds.................................7 Section 3.3. Disbursements from the Construction Fund.........8 Section 3.4. Establishment of Completion Date.................9 Section 3.5. Investment of Moneys in the Bond Fund and Construction Fund............................9 Section 3.6. Tax Exempt Status of Bonds......................11 ARTICLE IV LOAN AND PROVISIONS FOR REPAYMENT.................11 Section 4.1. Loan of Bond Proceeds...........................11 Section 4.2. Loan Repayments and Other Amounts Payable.........................................11 Section 4.3. No Defense or Set-Off...........................13 Section 4.4. Payments Pledged and Assigned...................13 Section 4.5. Letter of Credit and Credit Facility............14 Section 4.6. Payment of the Bonds and Other Amounts..........15 ARTICLE V SPECIAL COVENANTS AND AGREEMENTS..................15 [Section 5.1. Company to Maintain Its Corporate Existence; Conditions under Which Exceptions Permitted.....15 Section 5.2. Annual Statement................................16 Section 5.3. Maintenance and Repair; Insurance; Taxes; Etc......................................16 Section 5.4. Recordation and Other Instruments...............16 Section 5.5. No Warranty by the Issuer.......................16 Section 5.6. Agreement as to Ownership and Use of the Project.....................................16 Section 5.7. Company to Furnish Notice of Adjustments of Interest Rate Periods........................16 Section 5.8. Information Reporting, Etc......................17 -i- Section 5.9. Limited Liability of Issuer.....................17 Section 5.10. Inspection of Project...........................17 Section 5.11. Purchases of Bonds by Company or Issuer Prohibited; Exceptions..........................17 ARTICLE VI EVENTS OF DEFAULT AND REMEDIES....................18 Section 6.1. Events of Default Defined.......................18 Section 6.2. Remedies on Default.............................19 Section 6.3. No Remedy Exclusive.............................20 Section 6.4. Agreement to Pay Fees and Expenses of Counsel.........................................20 Section 6.5. No Additional Waiver Implied by One Waiver; Consents to Waivers.....................20 ARTICLE VII OPTIONS AND OBLIGATIONS OF COMPANY; PREPAYMENTS; REDEMPTION OF BONDS..................21 Section 7.1. Option to Prepay................................21 Section 7.2. Obligation to Prepay............................21 Section 7.3. Notice of Prepayment............................21 ARTICLE VIII MISCELLANEOUS.....................................22 Section 8.1. Notices.........................................22 Section 8.2. Assignments.....................................22 Section 8.3. Severability....................................23 Section 8.4. Execution of Counterparts.......................23 Section 8.5. Amounts Remaining in Bond Fund..................23 Section 8.6. Amendments, Changes and Modifications...........23 Section 8.7. Governing Law...................................23 Section 8.8. Authorized Issuer and Company Representatives.................................23 Section 8.9. Term of the Agreement...........................24 Section 8.10. Cancellation at Expiration of Term..............24 Section 8.11. References to Bank and Provider.................24 Section 8.12. Specific Request for Ratings Required...........24 Section 8.13. Notice Regarding Cancellation of Contracts.......................................24 Signatures.......................................................26 EXHIBIT A - DESCRIPTION OF THE PROJECT -ii- THIS FINANCING AGREEMENT made and entered into as of November 1, 1997, by and between COCONINO COUNTY, ARIZONA POLLUTION CONTROL CORPORATION, an Arizona nonprofit corporation and political subdivision of the State of Arizona, party of the first part (hereinafter referred to as the "Issuer"), and NEVADA POWER COMPANY, a corporation duly organized and existing under the laws of the State of Nevada, party of the second part (hereinafter referred to as the "Company"), WITNESSETH: In consideration of the respective representations and agreements hereinafter contained, the parties hereto agree as follows (provided, that in the performance of the agreements of the Issuer herein contained, any obligation it may thereby incur shall not constitute or give rise to a pecuniary liability or a charge upon its general credit or against its taxing powers but shall be payable solely out of the Revenues (as hereinafter defined) derived from this Financing Agreement and the Bonds, as hereinafter defined): ARTICLE I DEFINITIONS; The following terms shall have the meanings specified in this Article unless the context clearly requires otherwise. The singular shall include the plural and the masculine shall include the feminine. "Act" means Title 35, Chapter 6, Arizona Revised Statutes, as amended. "Act of Bankruptcy" means the filing of a petition in bankruptcy by or against the Company or the Issuer under the Bankruptcy Code. "Administrative Expenses" means the reasonable and necessary expenses (including the reasonable value of employee services and fees of Counsel) incurred by the Issuer in connection with the Bonds, this Agreement, the Indenture and any transaction or event contemplated by this Agreement or the Indenture. "Agreement" means this Financing Agreement by and between the Issuer and the Company, as from time to time amended and supplemented. "Authorized Company Representative" means any person who, at the time, shall have been designated to act on behalf of the Company by a written certificate furnished to the Issuer, the Remarketing Agent and the Trustee containing the specimen signature of such person and signed on behalf of the Company by any officer of the Company. Such certificate may designate an alternate or alternates. "Authorized Issuer Representative" means any person at the time designated to act on behalf of the Issuer by a written certificate furnished to the Company and the Trustee -1- containing the specimen signature of such person and signed on behalf of the Issuer by its President, Vice President or Secretary. Such certificate may designate an alternate or alternates. "Bank" means the Provider of any Letter of Credit delivered in accordance with Section 4.5 of this Agreement, in its capacity as issuer of such Letter of Credit, its successors in such capacity, and its assigns. "Bankruptcy Code" means the United States Bankruptcy Reform Act of 1978, as amended from time to time, or any substitute or replacement legislation. "Bond" or "Bonds" means any one or more of the bonds authorized, authenticated and delivered under the Indenture. "Bond Counsel" means the Counsel who renders the opinion as to the tax-exempt status of interest on the Bonds or other nationally recognized municipal bond counsel mutually acceptable to the Issuer, the Trustee, the Bank and the Company. "Bond Fund" means the fund created by Section 6.02 of the Indenture. "Business Day" means a day on which banks located in the city in which the Principal Office of the Trustee is located and in the city or cities in which any office at which any action must be instituted or taken in order to realize upon any Letter of Credit or Credit Facility then in effect is or are located, are not required or authorized to remain closed and on which the New York Stock Exchange is not closed. "Code" means the United States Internal Revenue Code of 1986, as amended, and regulations promulgated or proposed thereunder. "Company" means Nevada Power Company, a Nevada corporation, and its successors and assigns and any surviving, resulting or transferee corporation as permitted in Section 5.1 hereof. "Completion Date" means the date of completion of the acquisition and construction of the Project as that date shall be certified as provided in Section 3.4 hereof. "Construction Fund" means the fund created by Section 6.07 of the Indenture. "Construction Period" means the period between the beginning of construction and equipping of the Project or the date on which the Bonds are first delivered to the purchasers thereof, whichever is earlier, and the Completion Date. "Cost" or "Cost of the Project" means the items authorized to be paid from the Construction Fund pursuant to the provisions of paragraphs (a) to (i), inclusive, of Section 3.3 hereof. -2- "Counsel" means an attorney at law or a firm of attorneys (who may be an employee of or counsel to the Issuer or the Company or the Trustee) duly admitted to the practice of law before the highest court of any state of the United States of America or of the District of Columbia. "Credit Facility" means any credit facility, including any instruments accompanying or relating to such Credit Facility delivered to the Trustee in connection therewith, provided in accordance with Section 4.5 of this Agreement. "Exempt Facilities" means pollution facilities within the meaning of Section 103(b)(4)(F) of the Internal Revenue Code of 1954, as amended, and regulations promulgated or proposed thereunder. "Extraordinary Services" and "Extraordinary Expenses" means all services rendered and all expenses (including fees of Counsel) incurred under the Indenture and the Tax Agreement other than Ordinary Services and Ordinary Expenses. "Fitch" means Fitch Investors Service, L.P., a limited partnership organized and existing under the laws of the State of New York, its successors and their assigns, and, if such limited partnership shall be dissolved or liquidated or is no longer performing the functions of a securities rating agency, "Fitch" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Company and acceptable to the Bank, with notice to the Trustee. "Force Majeure" means acts of God, strikes, lockouts or other industrial disturbances; acts of public enemies; orders or restraints of any kind of the governments of the United States or of the State, or any of their departments, agencies or officials, or any civil or military authority; insurrections; riots; landslides; lightning; earthquakes; fires; tornadoes; volcanoes; storms; droughts; floods; explosions, breakage, or malfunction or accident to machinery, transmission lines, pipes or canals, even if resulting from negligence; civil disturbances; or any other cause not reasonably within the control of the Company. "Governing Body" means the Board of Directors of the Issuer. "Hereof," "herein," "hereunder" and other words of similar import refer to this Agreement as a whole. "Indenture" means the Indenture of Trust relating to this Agreement between the Issuer and United States Trust Company of New York, as Trustee, of even date herewith, pursuant to which the Bonds are authorized to be issued, including any indentures supplemental thereto or amendatory thereof. "Insider" shall have the meaning set forth in the Bankruptcy Code. "Issuer" means Coconino County, Arizona Pollution Control Corporation, and any successor body to the duties or functions of the Issuer. -3- "Letter of Credit" means any irrevocable direct-pay Letter of Credit issued by a Bank to the Trustee, including any extensions thereof, delivered in accordance with Section 4.5 of this Agreement. "Moody's" means Moody's Investors Service, Inc. a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Company and acceptable to the Bank, with notice to the Trustee. "Ordinary Services" and "Ordinary Expenses" means those services normally rendered and those expenses, including fees of Counsel, normally incurred by a trustee or paying agent under instruments similar to the Indenture and the Tax Agreement. "Original Purchaser" means Bear, Stearns & Co. Inc., acting on behalf of itself and others. "Owner" or "owner of Bonds" means the Person or Persons in whose name or names a Bond shall be registered on books of the Issuer kept by the Registrar for that purpose in accordance with the terms of the Indenture. "Person" means natural persons, firms, partnerships, associations, corporations, trusts and public bodies. "Project" means the facilities described in Exhibit A to this Agreement, as it may be amended and supplemented from time to time. "Project Certificate" means the Company's Project Certificate, delivered concurrently with the issuance of the Bonds, with respect to certain facts which are within the knowledge of the Company and certain reasonable assumptions of the Company, to enable Chapman and Cutler, as Bond Counsel, to determine that interest on the Bonds is not includable in the gross income of the Owners of the Bonds for federal income taxes purposes. "Rebate Fund" means the Rebate Fund, if any, created and established pursuant to the Tax Agreement and Section 6.21 of the Indenture. "Reimbursement Agreement" means any reimbursement agreement between the Company and a Bank pursuant to which a Letter of Credit is issued by such Bank and delivered to the Trustee, and in each case any and all modifications, amendments and supplements thereto. "Remarketing Agent" means the remarketing agent, if any, appointed in accordance with Section 4.11 of the Indenture and any permitted successor thereto. "Revenues" means the amounts pledged under the Indenture to the payment of principal of, premium, if any, and interest on the Bonds, consisting of the following: (i) all amounts -4- payable from time to time by the Company under Section 4.2(a) of this Agreement, and all receipts of the Trustee credited under the provisions of the Indenture against said amounts payable, including all moneys drawn by the Trustee under a Letter of Credit to pay the principal of and premium, if any, and interest on the Bonds and all amounts realized by the Trustee from any Credit Facility to pay the principal of and premium, if any, and interest on the Bonds, all of which amounts are to be deposited in the Bond Fund, (ii) any portion of the net proceeds of the Bonds deposited with the Trustee in the Bond Fund under Section 6.03 of the Indenture and (iii) any amounts paid into the Bond Fund from the Construction Fund, including income on investments. "S&P" means Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, its successors and their assigns, and, if such division or corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Company and acceptable to the Bank, with notice to the Trustee. "State" means the State of Arizona. "Tax Agreement" means the Tax Exemption Certificate and Agreement with respect to the Bonds, dated the date of the delivery of the Bonds, among the Company, the Issuer and the Trustee, as from time to time amended and supplemented. "Trust Estate" means the property conveyed to the Trustee pursuant to the Granting Clauses of the Indenture. "Trustee" means United States Trust Company of New York, as trustee under the Indenture and any successor trustee appointed pursuant to Section 10.06 or 10.09 of the Indenture at the time serving as successor Trustee thereunder, and any separate or co- trustee serving as such thereunder. All other terms used herein which are defined in the Indenture shall have the same meanings assigned them in the Indenture unless the context otherwise requires. ARTICLE II REPRESENTATIONS; SECTION 2.1. REPRESENTATIONS AND COVENANTS BY THE SSUER. The Issuer makes the following representations and covenants as the basis for the undertakings on its part herein contained: (a) The Issuer is a duly organized and existing political subdivision of the State. Under the provisions of the Act, the Issuer is authorized to enter into the transactions contemplated by this Agreement, the Indenture and the Tax Agreement and -5- to carry out its obligations hereunder and thereunder. The Issuer has duly authorized the execution and delivery of this Agreement, the Indenture and the Tax Agreement. (b) The Bonds are to be issued under and secured by the Indenture, pursuant to which certain of the Issuer's interests in this Agreement and the Revenues derived by the Issuer pursuant to this Agreement will be pledged and assigned as security for payment of the principal of, premium, if any, and interest on, the Bonds. (c) The Governing Body of the Issuer has found that the issuance of the Bonds will further the public purposes of the Act. (d) The Issuer has not assigned and will not assign any of its interests in this Agreement other than pursuant to the Indenture. (e) No member of the Governing Body of the Issuer, nor any other officer of the Issuer, has any interest, financial, employment or other, in the Company or in the transactions contemplated hereby. SECTION 2.2. REPRESENTAITONS BY THE COMPANY. The Company makes the following representations as the basis for the undertakings on its part herein contained: (a) The Company is a corporation duly incorporated under the laws of the State and is in good standing in the State, is qualified to do business as a foreign corporation in all other states and jurisdictions wherein the nature of the business transacted by the Company or the nature of the property owned or leased by it makes such licensing or qualification necessary, has power to enter into and by proper corporate action has been duly authorized to execute and deliver this Agreement and the Tax Agreement. (b) Neither the execution and delivery of this Agreement or the Tax Agreement, the consummation of the transactions contemplated hereby and thereby, nor the fulfillment of or compliance with the terms and conditions of this Agreement and the Tax Agreement, conflicts with or results in a breach of any of the terms, conditions or provisions of any corporate restriction or any agreement or instrument to which the Company is now a party or by which it is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the Company under the terms of any instrument or agreement other than the Indenture. (c) The statements, information and descriptions contained in the Project Certificate and the Tax Agreement, as of the date hereof and at the time of the delivery of the Bonds to the Original Purchaser, are and will be true, correct and complete, do not and will not contain any untrue statement or misleading statement of a material fact, and do not and will not omit to state a material fact required to be stated therein or necessary to make the statements, information and descriptions contained therein, in the light of the circumstances under which they were made, not misleading, and the estimates and the assumptions contained in the Project Certificate and the Tax -6- Agreement, as of the date hereof and as of the date of issuance and delivery of the Bonds, are and will be reasonable and based on the best information available to the Company. ARTICLE III COMPLETION OF THE PROJECT; ISSUANCE OF THE BONDS SECTION 3.1. AGREEMENT TO COMPLETE THE ACQUISITION, CONSTRUCTION AND EQUIPPING OF THE PROJECT.. The Company agrees that it will complete or cause to be completed the acquisition, construction and equipping of the Project with such reasonable dispatch as it shall deem prudent in the conduct of its affairs, and that the Project, while operated by the Company, as herein provided, will at all times be a "project" within the meaning of the Act and be Exempt Facilities. Exhibit A hereto may be amended or supplemented by the Company from time to time, to add to or remove from the Project any item or interest therein or to change the nature of all or any part of the facilities constituting the Project, provided that there shall be delivered by the Company to the Issuer and the Trustee in connection with any such amendment or supplement: (i) a certificate of the Authorized Company Representative describing the proposed changes and stating that they will not have the effect of disqualifying the Project as a "project" within the meaning of the Act or as Exempt Facilities; (ii) a copy of the amendment or supplement to Exhibit A hereto and such other documents, certificates and showings as may be required by Counsel rendering the opinion in clause (iii) of this paragraph; and (iii) an opinion of Bond Counsel to the effect that such amendment complies with the requirements of this Section 3.1 and is in proper form for execution and delivery by the Issuer and that the exemption from federal income taxes of interest on the Bonds is not adversely affected by reason of such amendment and the changes in the Project contemplated thereby. SECTION 3.2. AGREEMENT TO ISSUE BONDS; APPLICATION OF BOND PROCEEDS. In order to provide funds to lend to the Company to finance the Cost of the Project as provided in Section 4.1 hereof, the Issuer agrees that it will issue under the Indenture, sell and cause to be delivered to the Original Purchaser thereof, its Bonds in the aggregate principal amount of $20,000,000, bearing interest and maturing as set forth in the Indenture. The Issuer will thereupon deposit the proceeds received from the sale of the Bonds as follows: (1) in the Bond Fund, a sum equal to any accrued interest paid by the Original Purchaser of the Bonds; and (2) in the Construction Fund, the balance of the proceeds (net of underwriting discount) from the sale of the Bonds. -7- SECTION 3.3. DISBURSEMENTS FROM THE CONSTRUCTION FUND. The Issuer will in the Indenture authorize and direct the Trustee to disburse the moneys in the Construction Fund to or on behalf of the Company, upon compliance with Section 6.07 of the Indenture, for the following purposes (but, subject to the provisions of Section 3.5 hereof, for no other purpose): (a) Payment to the Company of such amounts, if any, as shall be necessary to reimburse the Company in full for all advances and payments made by it at any time prior to or after the delivery of the Bonds for expenditures in connection with the preparation of plans and specifications for the Project (including any preliminary study or planning of the Project or any aspect thereof) and the acquisition, construction and equipping of the Project. (b) Payment of the initial or acceptance fees, if any, of the Trustee, the Administrative Expenses of the Issuer, bond insurance premium, legal and accounting fees and expenses and printing and engraving costs incurred in connection with the authorization, sale and issuance of the Bonds and the preparation of this Agreement, the Indenture, the Tax Agreement, the Bonds and all other documents in connection with the authorization, sale and issuance of the Bonds. (c) Payment for labor, services, materials and supplies used or furnished in site improvement and in the construction and equipping of the Project and miscellaneous expenditures incidental to any of the foregoing items. (d) Payment of the fees, if any, for architectural, engineering, legal, underwriting and supervisory services with respect to the Project. (e) Payment of the premiums on all insurance required to be taken out and maintained in connection with the Project during the Construction Period. (f) Payment of the taxes, assessments and other charges, if any, that may become payable during the Construction Period with respect to the Project. (g) Payment of expenses incurred in seeking to enforce any remedy against any contractor or subcontractor or any other third party in respect of any default under a contract relating to the Project. (h) Interest on the Bonds and any Letter of Credit fees during the construction of the Project, but only to the extent provided by the Project Certificate. (i) Payment of any other costs which constitute a part of the Cost of the Project in accordance with generally accepted applicable accounting principles, which are permitted by the Act and which will not adversely affect the exemption from federal income taxes of interest on any of the Bonds. The Company covenants and agrees that it will not take any action or authorize or permit, to the extent such action is within its control, any action to be taken which would -8- cause the interest on the Bonds to become includable in the federal gross income of the Owners of the Bonds, provided that the Company shall not have violated this covenant if the interest on any of the Bonds becomes includable in the federal gross income of an Owner or a beneficial owner who is a "substantial user" of the Project or a "related person" within the meaning of Section 147(a) of the Code. The Company further covenants and agrees to comply with all of the requirements and restrictions of the Project Certificate. SECTION 3.4. ESTABLISHMENT OF COMPLETION DATE.. As soon as practicable after the completion of construction of the Project, and in any event not more than ninety (90) days thereafter, the Company shall furnish to the Trustee a certificate signed by an Authorized Company Representative stating (i) that construction of the Project has been completed substantially in accordance with the plans and specifications, (ii) the Completion Date, (iii) the Cost of the Project, (iv) the portion of the Cost of the Project which has then been paid and (v) the portion of the Cost of the Project which has not yet then been paid. Such certificate may state that it is given without prejudice to any rights against third parties which exist at the date of such certificate or which may subsequently come into being. Moneys (including investment proceeds) remaining in the Construction Fund on the date of such certificate may be used, at the direction of an Authorized Company Representative, to the extent indicated, for the payment, in accordance with the provisions of this Agreement, of any Cost of the Project not then paid as specified in the above-mentioned certificate. Any moneys (including investment proceeds) remaining in the Construction Fund on the date of the aforesaid certificate and not so set aside for the payment of such Cost of the Project shall be transferred or disbursed in accordance with Section 1.142-2 of the Regulations (as defined in the Tax Agreement) or any successor thereto. The Company acknowledges that these provisions generally require that a portion of the Bonds be redeemed, or defeased to the first call date (with appropriate notice to the Internal Revenue Service), within 90 days of the earlier of (i) the date on which the Company determines that the Project will not be completed or (ii) the date on which the Project is Placed-in-Service (as defined in the Tax Agreement). In the event the moneys in the Construction Fund available for payment of the Cost of the Project should not be sufficient to pay the costs thereof in full, the Company agrees to pay directly, or to deposit in the Construction Fund moneys sufficient to pay, the costs of completing the Project as may be in excess of the moneys available therefor in the Construction Fund. The Issuer does not make any warranty, either express or implied, that the moneys which will be paid into the Construction Fund and which, under the provisions of this Agreement, will be available for payment of the Cost of the Project, will be sufficient to pay all the costs which will be incurred in that connection. The Company agrees that if after exhaustion of the moneys in the Construction Fund the Company should pay, or deposit moneys in the Construction Fund for the payment of, any portion of the Cost of the Project pursuant to the provisions of this Section, it shall not be entitled to any reimbursement therefor from the Issuer or from the Trustee or from the owners of any of the Bonds, nor shall it be entitled to any diminution of the loan repayment installments or other amounts payable under Section 4.2 hereof. SECTION 3.5. INVESTMENT OF MONEYS IN THE BOND FUND AND CONSTRUCITON FUND. Except as otherwise herein provided, any moneys held as a part of the Bond Fund or -9- the Construction Fund shall be invested or reinvested by the Trustee at the written direction, or the oral direction promptly confirmed in writing, of an Authorized Company Representative as to specific investments, to the extent permitted by law, in: (a) bonds or other obligations of the United States of America; (b) bonds or other obligations, the payment of the principal of and interest on which is unconditionally guaranteed by the United States of America; (c) obligations issued or guaranteed as to principal and interest by any agency or person controlled or supervised by and acting as an instrumentality of the United States of America pursuant to authority granted by the Congress of the United States of America; (d) obligations issued or guaranteed by any state of the United States of America, or any political subdivision of any such state, or in funds consisting of such obligations to the extent described in Treasury Regulation 1.148-8(e)(3)(iii); (e) prime commercial paper; (f) prime finance company paper; (g) bankers' acceptances drawn on and accepted by commercial banks; (h) repurchase agreements fully secured by obligations issued or guaranteed as to principal and interest by the United States of America or by any person controlled or supervised by and acting as an instrumentality of the United States of America pursuant to authority granted by the Congress of the United States of America; (i) certificates of deposit issued by commercial banks, including banks domiciled outside of the United States of America; and (j) units of taxable government money market portfolios composed of obligations guaranteed as to principal and interest by the United States of America or repurchase agreements fully collateralized by such obligations. The investments so purchased shall be held by the Trustee and shall be deemed at all times a part of the Bond Fund or Construction Fund, as the case may be, and the interest accruing thereon and any profit realized therefrom shall be credited to such fund, subject to the provisions of the Tax Agreement. The Company agrees that to the extent any moneys in the Bond Fund represent moneys realized under a Letter of Credit or any Credit Facility or moneys held for the payment of Bonds pursuant to Sections 6.12 and 6.18 of the Indenture or moneys held for the payment of the purchase price of Bonds pursuant to Article IV of the Indenture, such moneys shall not be invested. In addition, the Company agrees that to the extent that any moneys in the Bond Fund represent moneys to be used to pay the premium portion of the redemption price of Bonds pursuant to Section 3.01(A)(3) or (4) of the -10- Indenture, such moneys shall be invested only in Governmental Obligations maturing on or before the applicable redemption date or dates. SECTION 3.6. TAX EXEMPT STATUS OF BONDS. The Company covenants and agrees that it has not taken or permitted and will not take or permit any action which results in interest paid on the Bonds being included in gross income of the holders or beneficial owners of the Bonds for purposes of federal income taxation (other than a holder or beneficial owner who is a "substantial user" of the Project or a "related person" within the meaning of Section 147(a) of the Code). The Company covenants that none of the proceeds of the Bonds or the payments to be made under this Agreement, or any other funds which may be deemed to be proceeds of the Bonds pursuant to Section 148(a) of the Code, will be invested or used in such a way, and that no actions will be taken or not taken, as to cause the Bonds to be treated as "arbitrage bonds" within the meaning of Section 148(a) of the Code. Without limiting the generality of the foregoing, the Company covenants and agrees that it will comply with the provisions of the Tax Agreement and the Project Certificate. ARTICLE IV LOAN AND PROVISIONS FOR REPAYMENT; SECTION 4.1. LOAN OF BOND PROCEEDS. (a) The Issuer agrees, upon the terms and conditions in this Agreement, to lend to the Company the proceeds (exclusive of accrued interest, if any) received by the Issuer from the sale of the Bonds in order to pay the Cost of the Project and the Company agrees to apply the gross proceeds of such loan to pay the Cost of the Project or as otherwise permitted in Section 3.4 hereof. (b) The Issuer and the Company expressly reserve the right to enter into, to the extent permitted by law, an agreement or agreements other than this Agreement, with respect to the issuance by the Issuer, under an indenture or indentures other than the Indenture, of obligations to provide additional funds to pay the Cost of the Project or to refund all or any principal amount of the Bonds, or any combination thereof. SECTION 4.2. LOAN REPAYMENTS AND OTHER AMOUNTS PAYABLE. (a) On each date provided in or pursuant to the Indenture for the payment (whether at maturity or upon redemption or acceleration) of principal of, and premium, if any, and interest on, the Bonds, until the principal of, and premium, if any, and interest on, the Bonds shall have been fully paid or provision for the payment thereof shall have been made in accordance with the Indenture, the Company shall pay to the Trustee in immediately available funds, for deposit in the Bond Fund, as a repayment installment of the loan of the proceeds of the Bonds pursuant to Section 4.1(a) hereof, a sum equal to the amount payable on such date (whether at maturity or upon redemption or acceleration) as principal of, and premium, if any, and interest on, the Bonds as provided in the Indenture; provided, however, that the obligation of the Company to make any such payment shall be deemed to be satisfied and discharged to the extent of the corresponding payment realized by the Trustee under any Letter of Credit or Credit Facility; and provided further, that the obligation of the Company to make any such repayment -11- installment shall be reduced by the amount of any moneys then on deposit in the Bond Fund and available for such payment. (b) The Company shall pay to the Trustee amounts equal to the amounts to be paid by the Trustee for the purchase of Bonds pursuant to Article IV of the Indenture. Such amounts shall be paid by the Company to the Trustee in immediately available funds on the date such payments pursuant to Section 4.05 of the Indenture are to be made; provided, however, that the obligation of the Company to make any such payment shall be deemed to be satisfied and discharged to the extent of the corresponding payment realized by the Trustee under any Letter of Credit or Credit Facility or to the extent moneys are available from the sources described in clauses (i) and (ii) of Section 4.05(a) of the Indenture. (c) The Company agrees to pay to the Trustee (i) the fees of the Trustee for the Ordinary Services rendered by it and an amount equal to the Ordinary Expenses incurred by it under the Indenture and the Tax Agreement, as and when the same become due, and (ii) the reasonable fees, charges and expenses of the Trustee for reasonable Extraordinary Services and Extraordinary Expenses, as and when the same become due, incurred under the Indenture and the Tax Agreement. The Company agrees that the Trustee, its officers, agents, servants and employees, shall not be liable for, and agrees that it will at all times indemnify and hold harmless the Trustee, its officers, agents, servants and employees against, and pay all expenses of the Trustee, its officers, agents, servants and employees, relating to any lawsuit, proceeding or claim and resulting from any action or omission taken or made by or on behalf of the Trustee, its officers, agents, servants and employees pursuant to this Agreement, the Indenture or the Tax Agreement, that may be occasioned by any cause (other than the negligence or willful misconduct of the Trustee, its officers, agents, servants and employees). In case any action shall be brought against the Trustee in respect of which indemnity may be sought against the Company, the Trustee shall promptly notify the Company in writing and the Company shall be entitled to assume control of the defense thereof, including the employment of Counsel and the payment of all expenses. The Trustee shall have the right to employ separate Counsel in any such action and participate in the defense thereof, but the fees and expenses of such Counsel shall be paid by the Trustee unless the employment of such Counsel has been authorized by the Company. The Company shall not be liable for any settlement of any such action without its consent, but if any such action is settled with the consent of the Company or if there be final judgment for the plaintiff in any such action, the Company agrees to indemnify and hold harmless the Trustee from and against any loss or liability by reason of such settlement or final judgment. The Company agrees that the indemnification provided herein shall survive the termination of this Agreement or the Indenture or the resignation of the Trustee. (d) The Company agrees to pay all costs incurred in connection with the issuance of the Bonds (which may be paid from the proceeds of the Bonds to the extent permitted by the Project Certificate) and the Issuer shall have no obligation with respect to such costs. (e) The Company agrees to indemnify and hold harmless the Issuer and any member, officer, official or employee of the Issuer against any and all losses, costs, charges, expenses, judgments and liabilities created by or arising out of this Agreement, the Indenture or the Tax Agreement or otherwise incurred in connection with the issuance of the Bonds. The Issuer -12- may submit to the Company periodic statements, not more frequently than monthly, for its Administrative Expenses and the Company shall make payment to the Issuer of the full amount of each such statement within 30 days after the Company receives such statement. (f) The Company agrees to pay to the Remarketing Agent, if any, the reasonable fees, charges and expenses of such Remarketing Agent, and the Issuer shall have no obligation or liability with respect to the payment of any such fees, charges or expenses. (g) In the event the Company shall fail to make any of the payments required by (a) or (b) of this Section 4.2, the payment so in default shall continue as an obligation of the Company until the amount in default shall have been fully paid and the Company will pay interest to the extent permitted by law, on any overdue amount at the rate of interest borne by the Bonds on the date on which such amount became due and payable until paid. In the event that the Company shall fail to make any of the payments required by (c), (d), (e) or (f) of this Section 4.2, the payment so in default shall continue as an obligation of the Company until the amount in default shall have been fully paid, and the Company agrees to pay the same with interest thereon to the extent permitted by law at a rate 1% above the rate of interest then charged by the Trustee on 90-day commercial loans to its prime commercial borrowers until paid. (h) To the extent that a Letter of Credit is in effect and moneys on deposit in the Bond Fund constitute Available Moneys or have been deposited in separate, segregated accounts in the Bond Fund for the purpose of becoming Available Moneys, such moneys shall not be available for transfer and shall not be transferred from the Bond Fund to the Rebate Fund to satisfy the requirements of the Tax Agreement (unless the Company fails to pay the amounts described below). In the event that moneys are not available for transfer from the Bond Fund to the Rebate Fund as required by the Tax Agreement, the Company agrees to pay any such amount required to be so transferred and not available for such purpose in the Bond Fund by paying such amount to the Trustee for deposit directly into the Rebate Fund. The obligation of the Company set forth in this Section 4.2(h) shall survive the termination of this Agreement. SECTION 4.3. NO DEFENSE OR SET-OFF. The obligation of the Company to make the payments pursuant to this Agreement shall be absolute and unconditional without defense or set-off by reason of any default by the Issuer under this Agreement or under any other agreement between the Company and the Issuer or for any other reason, it being the intention of the parties that the payments required hereunder will be paid in full when due without any delay or diminution whatsoever. SECTION 4.4. PAYMENTS PLEDGED AND ASSIGNED. It is understood and agreed that all payments required to be made by the Company pursuant to Section 4.2 hereof (except payments made to the Trustee pursuant to Section 4.2(c) hereof, to any Remarketing Agent pursuant to Section 4.2(f) hereof, to the Issuer pursuant to Section 4.2(e) hereof and to any or all the Issuer and the Trustee and any Remarketing Agent pursuant to Section 4.2(g) hereof) and certain rights of the Issuer hereunder are pledged and assigned by the Indenture. The Company consents to such pledge and assignment. The Issuer hereby directs the Company and the Company hereby agrees to pay or cause to be paid to the Trustee all said amounts except -13 payments to be made to any Remarketing Agent pursuant to Section 4.2(f) hereof and payments to be made to the Issuer pursuant to Sections 4.2(e) and (g) hereof. The Project will not constitute any part of the security for the Bonds. SECTION 4.5. LETTER OF CREDIT AND CREDIT FACILITY. (a) The Company has no obligation to provide a Letter of Credit or other Credit Facility hereunder. At any time the Company may, at its option, provide for the delivery to the Trustee of a Letter of Credit or a Credit Facility. (b) Any Letter of Credit delivered to the Trustee hereunder will comply with the provisions of Section 6.19(b) of the Indenture. Any Credit Facility (a) may consist, at the option of the Company, of (i) first mortgage bonds of the Company, (ii) a letter of credit, (iii) a standby bond purchase agreement, (iv) bond insurance or (v) such other security or credit support as the Company may elect to furnish, or any combination thereof. (c) As a condition to the exercise by the Company of its option set forth in Section 4.5(b) hereof to deliver a Letter of Credit or other Credit Facility, the Company shall provide to the Issuer and the Trustee a notice specifying (i) that a Letter of Credit or other Credit Facility will be delivered to the Trustee, (ii) the effective date of such delivery (which must be at least five Business Days prior to the date of delivery of such Letter of Credit or other Credit Facility and, if a Letter of Credit or other Credit Facility is then in effect, must also be at least five Business Days prior to the date such existing Letter of Credit or other Credit Facility is to expire by its terms), (iii) if applicable, the form and substance of the Letter of Credit or other Credit Facility then in effect, and (iv) the form and substance of the Letter of Credit or other Credit Facility to be in effect on the date specified in (ii) above. Such notice to the Trustee must be delivered by the Company at least ten Business Days prior to the effective date of such Letter of Credit or Credit Facility or, if a Letter of Credit or other Credit Facility is then in effect, at least 20 days prior to the fifth Business Day next preceding the effective date of such delivery, and must be accompanied by the opinion of Bond Counsel required by Section 6.19 or 6.20 of the Indenture, as the case may be, and (i) if a Letter of Credit or other Credit Facility is then in effect, a letter from Moody's, if the Bonds should then be rated by Moody's, and from S&P, if the Bonds should then be rated by S&P, and from Fitch, if the Bonds are then rated by Fitch, to the effect that the substitution of the proposed Letter of Credit or other Credit Facility for the Letter of Credit or other Credit Facility then in effect will not by itself result in a reduction, suspension or withdrawal of its ratings of the Bonds which then prevail (except that such rating evidence shall not be required if the Bonds are subject to mandatory tender for purchase pursuant to Section 4.02(a)(iii) of the Indenture), and (ii) the form of the substitute Letter of Credit or other Credit Facility to be in place on the effective date of such change, together with any documentation and opinions referred to by Moody's or S&P or Fitch, as the case may be, in any such letter. (d) The Issuer and the Company agree that the Issuer will in the Indenture authorize and direct the Trustee to accept and agree to conditions and provisions of any Letter of Credit or any other Credit Facility which may be provided in accordance with the provisions of this Section 4.5. -14- SECTION . PAYMENT OF THE BONDS AND OTHER AMOUNTS. The Bonds and interest and premium, if any, thereon shall be payable solely from (i) payments made by the Company to the Trustee under Section 4.2(a) hereof, (ii) amounts realized under any Letter of Credit or Credit Facility then in effect and (iii) other moneys on deposit in the Bond Fund and available therefor. Payments of principal of, and premium, if any, or interest on, the Bonds with moneys in the Bond Fund or the Construction Fund constituting proceeds from the sale of the Bonds or earnings on investments made under the provisions of the Indenture shall be credited against the obligation to pay required by Section 4.2(a) hereof, and the obligation to pay required by Section 4.2(a) hereof shall be deemed to be satisfied and discharged to the extent of the corresponding payment made to the Trustee under any Letter of Credit or Credit Facility then in effect. Whenever any Bonds are redeemable in whole or in part at the option of the Company, the Trustee, on behalf of the Issuer, shall redeem the same upon the request of the Company and such redemption (unless conditional) shall be made from payments made by the Company to the Trustee under Section 4.2(a) hereof and amounts realized under any Letter of Credit or Credit Facility then in effect equal to the redemption price of such Bonds. Whenever payment or provision therefor has been made in respect of the principal of, or premium, if any, or interest on, all or any portion of the Bonds in accordance with the Indenture (whether at maturity or upon redemption or acceleration or upon provision for payment in accordance with Article VIII of the Indenture), payments shall be deemed paid to the extent such payment or provision therefor has been made and is considered to be a payment of principal of, or premium, if any, or interest on, such Bonds. If such Bonds are thereby deemed paid in full, the Trustee shall notify the Company and the Issuer that such payment requirement has been satisfied. Subject to the foregoing, or unless the Company is entitled to a credit under this Agreement or the Indenture, all payments shall be in the full amount required by Section 4.2(a) hereof. ARTICLE V SPECIAL COVENANTS AND AGREEMENTS; SECTION 5.1. COMPANY TO MAINTAIN ITS CORPORATE EXISTENCE; CONDITIONS UNDER WHICH EXCEPTIONS PERMITTED. The Company agrees that during the term of this Agreement, it will maintain its corporate existence and its good standing in the State, will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another corporation unless (a) the acquirer of its assets or the corporation with which it shall consolidate or into which it shall merge shall (i) be a corporation organized under the laws of one of the states of the United States of America, (ii) be qualified to do business in the State, and (iii) assume in writing all of the obligations of the Company under this Agreement and the Tax Agreement. -15- SECTION 5.2. ANNUAL STATEMENT. The Company agrees to have an annual audit made by its regular independent certified public accountants and to furnish the Trustee (within 30 days after receipt by the Company) with a balance sheet and statement of income and surplus showing the financial condition of the Company and its consolidated subsidiaries, if any, at the close of each fiscal year and the results of operations of the Company and its consolidated subsidiaries, if any, for each fiscal year, accompanied by a report of said accountants that such statements have been prepared in accordance with generally accepted accounting principles. The Company's obligations under this Section 5.2 may be satisfied by delivering a copy of the Company's Annual Report to the Trustee at the same time that it is mailed to stockholders. SECTION 5.3. MAINTENANCE AND REPAIR; INSURANCE; TAXES; ETC. The Company shall maintain or cause to be maintained the Project in good repair and keep it properly insured and shall promptly pay or cause to be paid all costs thereof. The Company shall promptly pay or cause to be paid all installments of taxes, installments of special assessments, and all governmental, utility and other charges with respect to the Project, when due. The Company may, at its own expense and in its own name in good faith contest or appeal any such taxes, assessments or other charges, or installments thereof, but shall not permit any such taxes, assessments or other charges, or installments thereof, to remain unpaid if such nonpayment shall subject the Project or any part thereof to loss or forfeiture. SECTION 5.4. RECORDATION AND OTHER INSTRUMENTS. The Company shall cause such security agreements, financing statements and all supplements thereto and other instruments as may be required from time to time to be kept, to be recorded and filed in such manner and in such places as may be required by law in order to fully preserve, protect and perfect the security of the Owners of the Bonds and the rights of the Trustee and, after payment in full of the Bonds as provided in the Indenture, the rights of the Bank provided in the Indenture, and to perfect the security interest created by the Indenture. The Company agrees to abide by the provisions of Section 5.04 of the Indenture to the extent applicable to the Company. SECTION 5.5. NO WARRANTY BY THE ISSUER. The Issuer makes no warranty, either express or implied, as to the Project or that it will be suitable for the purposes of the Company or needs of the Company. SECTION 5.6. AGREEMENT AS TO OWNERSHIP AND USE OF THE PROJECT. The Issuer and the Company agree that title to the Project shall be in and remain in the Company, and that the Project shall be the sole property of the Company in which the Issuer shall have no interest. SECTION 5.7. COMPANY TO FURNISH NOTICE OF ADJUSTMENTS OF INTEREST RATE PERIODS. The Company is hereby granted the option to designate from time to time changes in Rate Periods (and to rescind such changes) in the manner and to the extent set forth in Section 2.03 of the Indenture. In the event the Company elects to exercise any such option, the Company agrees that it shall cause notices of adjustments of Rate Periods (or rescissions thereof) to be given to the Issuer, the Trustee and the Remarketing Agent in accordance with Section 2.03(a), (b), (c), (d) or (f) of the Indenture. -16- SECTION 5.8. INFORMATION REPORTING, ETC. The Issuer covenants and agrees that, upon the direction of the Company or Bond Counsel, it will mail or cause to be mailed to the Secretary of the Treasury (or his designee as prescribed by regulation, currently the Internal Revenue Service Center, Philadelphia, PA 19255) a statement setting forth the information required by Section 149(e) of the Code, which statement shall be in the form of the Information Return for Tax-Exempt Private Activity Bond Issues (Form 8038) of the Internal Revenue Service (or any successor form) and which shall be completed by the Company and Bond Counsel based in part upon information supplied by the Company and Bond Counsel. SECTION 5.9. LIMITED LIABILITY OF ISSUER. Any obligation or liability of the Issuer created by or arising out of this Agreement or otherwise incurred in connection with the issuance of the Bonds (including without limitation any liability created by or arising out of the representations, warranties or covenants set forth herein or otherwise) shall not impose a debt or pecuniary liability upon the Issuer or the State or any political subdivision thereof, or a charge upon the general credit or taxing powers of any of the foregoing, but shall be payable solely out of the Revenues or other amounts payable by the Company to the Issuer hereunder or otherwise. Neither the issuance of the Bonds nor the delivery of this Agreement shall, directly or indirectly or contingently, obligate the Issuer or the State or any political subdivision thereof to levy any form of taxation therefor or to make any appropriation for their payment. Nothing in the Bonds or in the Indenture or this Agreement or the proceedings of the Issuer authorizing the Bonds or in the Act or in any other related document shall be construed to authorize the Issuer to create a debt of the Issuer or the State or any political subdivision thereof within the meaning of any constitutional or statutory provision of the State. The principal of, and premium, if any, and interest on, the Bonds shall be payable solely from the funds pledged for their payment in accordance with the Indenture and available therefor under this Agreement and under any Letter of Credit or Credit Facility then in effect. Neither the State nor any political subdivision thereof shall in any event be liable for the payment of the principal of, premium, if any, or interest on, the Bonds or for the performance of any pledge, obligation or agreement of any kind whatsoever which may be undertaken by the Issuer. No breach of any such pledge, obligation or agreement may impose any pecuniary liability upon the Issuer or the State or any political subdivision thereof, or any charge upon the general credit or against the taxing power of Coconino County, Arizona or the State or any political subdivision thereof. The Issuer has no taxing power. SECTION 5.10. INSPECTION OF PROJECT. The Company agrees that the Issuer and the Trustee and their duly authorized representatives shall have the right at all reasonable times to enter upon and examine and inspect the Project property and shall also be permitted, at all reasonable times, to examine the books and records of the Company insofar as they relate to the Project. SECTION 5.11. PURCHASES OF BONDS BY COMPANY OR ISSUER PROHIBITED; EXCEPTIONS. At any time while a Letter of Credit is in effect, the Company shall not and shall not allow any Insider of the Company to purchase any Bonds except (a) with Available Moneys or (b) as provided in Section 4.2(b) hereof. At any time while a Letter of Credit is -17- in effect, the Issuer shall not and shall not allow any Insider of the Issuer to purchase any Bonds except with Available Moneys. ARTICLE VI EVENTS OF DEFAULT AND REMEDIES; SECTION 6.1. EVENTS OF DEFAULT DEFINED. The following shall be "events of default" under this Agreement and the terms "event of default" or "default" shall mean, whenever they are used in this Agreement, any one or more of the following events: (a) Failure by the Company to pay when due any amounts required to be paid under Section 4.2(a) hereof, which failure results in an event of default under subparagraph (a) or (b) of Section 9.01 of the Indenture; or (b) Failure by the Company to pay or cause to be paid any payment required to be paid under Section 4.2(b) hereof, which failure results in an event of default under subparagraph (c) of Section 9.01 of the Indenture; or (c) Failure by the Company to observe and perform any covenant, condition or agreement on its part to be observed or performed in this Agreement, other than as referred to in (a) and (b) above, for a period of 90 days after written notice, or in the case of failure by the Company to observe and perform any covenant, condition or agreement on its part to be observed or performed in Section 4.2(h) hereof, for a period of 30 days after written notice, specifying such failure and requesting that it be remedied and stating that such notice is a "Notice of Default" hereunder, given to the Company by the Trustee or to the Company and the Trustee by the Issuer, unless the Issuer and the Trustee shall agree in writing to an extension of such time prior to its expiration; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Issuer and the Trustee will not unreasonably withhold their consent to an extension of such time if corrective action is instituted within the applicable period and diligently pursued until the failure is corrected and such corrective action or diligent pursuit is evidenced to the Trustee by a certificate of an Authorized Company Representative; or (d) A proceeding or case shall be commenced, without the application or consent of the Company, in any court of competent jurisdiction seeking (i) liquidation, reorganization, dissolution, winding-up or composition or adjustment of debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Company or of all or any substantial part of its assets, or (iii) similar relief under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, and such proceeding or cause shall continue undismissed, or an order, judgment, or decree approving or ordering any of the foregoing shall be entered and shall continue in effect for a period of 90 days; or an order for relief against the Company shall be entered against the Company in an involuntary case under the Bankruptcy Code (as now or hereafter in effect) or other applicable law; or -18- (e) The Company shall admit in writing its inability to pay its debts generally as they become due or shall file a petition in voluntary bankruptcy or shall make any general assignment for the benefit of its creditors, or shall consent to the appointment of a receiver or trustee of all or substantially all of its property, or shall commence a voluntary case under the Bankruptcy Code (as now or hereafter in effect), or shall file in any court of competent jurisdiction a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, or shall fail to controvert in a timely or appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under such Bankruptcy Code or other applicable law; or (f) Dissolution or liquidation of the Company; provided that the term "dissolution or liquidation of the Company" shall not be construed to include the cessation of the corporate existence of the Company resulting either from a merger or consolidation of the Company into or with another corporation or a dissolution or liquidation of the Company following a transfer of all or substantially all of its assets as an entirety, under the conditions permitting such actions contained in Section 5.1 hereof; or (g) The occurrence of an "event of default" under the Indenture. The foregoing provisions of Section 6.1(c) are subject to the following limitations: If by reason of Force Majeure the Company is unable in whole or in part to carry out its agreements on its part herein contained, other than the obligations on the part of the Company contained in Article IV and Sections 5.3 and 6.4 hereof, the Company shall not be deemed in default during the continuance of such inability. The Company agrees, however, to remedy with all reasonable dispatch the cause or causes preventing the Company from carrying out its agreements; provided that the settlement of strikes, lockouts and other industrial disturbances shall be entirely within the discretion of the Company and the Company shall not be required to make settlement of strikes, lockouts and other industrial disturbances by acceding to the demands of the opposing party or parties when such course is in the sole judgment of the Company unfavorable to the Company. SECTION 6.2. REMEDIES ON DEFAULT. Whenever any event of default referred to in Section 6.1 hereof shall have happened and be continuing, the Trustee, as assignee of the Issuer: (a) shall, by notice in writing to the Company, declare the unpaid indebtedness under Section 4.2(a) hereof to be due and payable immediately, if concurrently with or prior to such notice the unpaid principal amount of the Bonds shall have been declared to be due and payable, and upon any such declaration the same (being an amount sufficient, together with other moneys available therefor in the Bond Fund, to pay the unpaid principal of, premium, if any, and interest accrued on, the Bonds) shall become and shall be immediately due and payable as liquidated damages; and (b) may take whatever action at law or in equity as may appear necessary or desirable to collect the payments and other amounts then due and thereafter to become -19- due hereunder or to enforce performance and observance of any obligation, agreement or covenant of the Company under this Agreement. Any amounts collected pursuant to action taken under this Section 6.2 shall be paid into the Bond Fund (unless otherwise provided in this Agreement) and applied in accordance with the provisions of the Indenture. No action taken pursuant to this Section 6.2 shall relieve the Company from the Company's obligations pursuant to Section 4.2 hereof. No recourse shall be had for any claim based on this Agreement against any officer, director or stockholder, past, present or future, of the Company as such, either directly or through the Company, under any constitutional provision, statute or rule of law, or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise. Nothing herein contained shall be construed to prevent the Issuer from enforcing directly any of its rights under the second paragraph of Section 3.1 hereof and under Sections 4.2(e), 4.2(g), 5.3 and 6.4 hereof. SECTION 6.3. NO REMEDY EXCLUSIVE. No remedy herein conferred upon or reserved to the Issuer is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer or the Trustee to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. Subject to the provisions of the Indenture and hereof, such rights and remedies as are given the Issuer hereunder shall also extend to the Trustee. The Owners of the Bonds, subject to the provisions of the Indenture, shall be entitled to the benefit of all covenants and agreements herein contained. SECTION 6.4. AGREEMENT TO PAY FEES AND EXPENSES OF COUNSEL. In the event the Company should default under any of the provisions of this Agreement and the Issuer or the Trustee should employ Counsel or incur other expenses for the collection of the indebtedness hereunder or the enforcement of performance or observance of any obligation or agreement on the part of the Company herein contained, the Company agrees that it will on demand therefor pay to the Trustee, the Issuer or, if so directed by the Issuer, to the Counsel for the Issuer, the reasonable fees of such Counsel and such other expenses so incurred by or on behalf of the Issuer or the Trustee. SECTION 6.5. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER; CONSENTS TO WAIVERS. In the event any agreement contained in this Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. No waiver shall be effective unless in writing and signed by the party making the waiver. The Issuer shall have no power to waive any default hereunder by the Company without both the consent of the Trustee and the Bank to such waiver. The Trustee and the Bank shall have the -20- power to waive any default by the Company hereunder, except a default under the second paragraph of Section 3.1 hereof, or under Section 3.6, 4.2(e), 4.2(g), 5.3 or 6.4 hereof, in so far as it pertains to the Issuer, without the prior written concurrence of the Issuer. Notwithstanding the foregoing, if, after the acceleration of the maturity of the outstanding Bonds by the Trustee pursuant to Section 9.02 of the Indenture, (i) all arrears of principal of and interest on the outstanding Bonds and interest on overdue principal and (to the extent permitted by law) on overdue installments of interest at the rate of interest borne by the Bonds on the date on which such principal or interest became due and payable and the premium, if any, on all Bonds then Outstanding which have become due and payable otherwise than by acceleration, and all other sums payable under the Indenture, except the principal of and the interest on such Bonds which by such acceleration shall have become due and payable, shall have been paid, (ii) all other things shall have been performed in respect of which there was a default, (iii) there shall have been paid the reasonable fees and expenses of the Trustee and of the Owners of such Bonds, including reasonable attorneys' fees paid or incurred and (iv) such event of default under the Indenture shall be waived in accordance with Section 9.09 of the Indenture with the consequence that such acceleration under Section 9.02 of the Indenture is rescinded, then the Company's default hereunder shall be deemed to have been waived and its consequences rescinded and no further action or consent by the Trustee or the Issuer or the Bank shall be required; provided that there has been furnished an opinion of Bond Counsel to the effect that such waiver will not adversely affect the exemption from federal income taxes of interest on the Bonds. ARTICLE VII OPTIONS AND OBLIGATIONS OF COMPANY; PREPAYMENTS; REDEMPTION OF BONDS SECTION 7.1. OPTION TO PREPAY. The Company shall have, and is hereby granted, the option to prepay the payments due hereunder in whole or in part at any time or from time to time (a) to provide for the redemption of Bonds pursuant to the provisions of Section 3.01(A) of the Indenture or (b) to provide for the defeasance of the Bonds pursuant to Article VIII of the Indenture. In the event the Company elects to provide for the redemption of Bonds as permitted by this Section, the Company shall notify and instruct the Trustee in accordance with Section 7.3 hereof to redeem all or any portion of the Bonds in advance of maturity. If the Company so elects, any redemption of Bonds pursuant to Section 3.01(A) of the Indenture may be made conditional. SECTION 7.2. OBLIGATION TO PREPAY. The Company covenants and agrees that if all or any part of the Bonds are unconditionally called for redemption in accordance with the Indenture or become subject to mandatory redemption, it will prepay the indebtedness hereunder in whole or in part, prior to the date on which notice of such redemption is given to the owners of such Bonds, in an amount sufficient to redeem such Bonds on the date fixed for the redemption of the Bonds. SECTION 7.3. NOTICE OF PREPAYMENT. Upon the exercise of the option granted to the Company in Section 7.1 hereof, or upon the Company having knowledge of the -21- occurrence of any event requiring mandatory redemption of the Bonds in accordance with Section 3.01(B) of the Indenture, the Company shall give written notice to the Issuer, the Bank, the Remarketing Agent and the Trustee. The notice shall provide for the date of the application of the prepayment made by the Company hereunder to the retirement of the Bonds in whole or in part pursuant to call for redemption and shall be given by the Company not less than 45 days prior to the date of the redemption which is to occur as a result of such prepayment (or such later date as is acceptable to the Trustee and the Issuer), and in the case of a redemption of Bonds pursuant to Section 3.01(B) of the Indenture shall be given on a date which will permit the redemption of the Bonds within the time required by Section 3.01(B) of the Indenture. On the date fixed for redemption of the Bonds or portions thereof, there shall be deposited with the Trustee from drawings upon any Letter of Credit then in effect or payments by the Company or from amounts realized under any Credit Facility then in effect as required by Section 7.1 or 7.2, as appropriate, for payment into the Bond Fund. Any other provision of this Agreement or the Indenture to the contrary notwithstanding, any prepayment of moneys hereunder shall be made in such manner and at such time that any redemption of Bonds or portions thereof will be made with Available Moneys. ARTICLE VIII MISCELLANEOUS SECTION 8.1. NOTICES. Except as otherwise provided herein, all notices, certificates or other communications hereunder shall be sufficiently given if in writing and shall be deemed given when mailed by first class mail, postage prepaid, or by qualified overnight courier service, courier charges prepaid, or by facsimile (receipt of which is orally confirmed) addressed as follows: If to the Issuer, at c/o Mangum, Wall, Stoops & Warden, P.L.L.C., 222 East Birch Avenue, Flagstaff, Arizona 86001, or to telecopy number (520) 773-1312; if to the Company, at P.O. Box 230, 6226 West Sahara Avenue, Las Vegas, Nevada 89151 (89102 for Federal Express), or to telecopy number (702) 367-5864, Attention: Treasurer; if to the Trustee, at 114 West 47th Street, New York, New York 10036-1532 or to telecopy number (212) 852-1625, Attention: Corporate Trust Administration; if to the Remarketing Agent, at the address specified by the Remarketing Agent; and if to the Bank, at the address specified by the Bank. In case by reason of the suspension of regular mail service, it shall be impracticable to give notice by first class mail of any event to the Issuer, to the Company, to the Remarketing Agent or to the Bank when such notice is required to be given pursuant to any provisions of this Agreement, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be sufficient giving of such notice. The Issuer, the Company, the Trustee, the Remarketing Agent and the Bank may, by notice pursuant to this Section 8.1, designate any different addresses to which subsequent notices, certificates or other communications shall be sent. SECTION 8.2. ASSIGNMENTS. This Agreement may not be assigned by either party without consent of the other and the Bank, except that the Issuer shall assign to the Trustee its rights under this Agreement (except under the second paragraph of Section 3.1 and under Sections 4.2(e), 4.2(g), 5.3, and 6.4 hereof) as provided by Section 4.4 hereof, and the -22- Company may assign its rights under this Agreement to any transferee or any surviving or resulting corporation as provided by Section 5.1 hereof. SECTION 8.3. SEVERABILITY. If any provision of this Agreement shall be held or deemed to be or shall, in fact, be illegal, inoperative or unenforceable, the same shall not affect any other provision or provisions herein contained or render the same invalid, inoperative, or unenforceable to any extent whatever. SECTION 8.4. EXECUTION OF COUNTERPARTS. This Agreement may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. SECTION 8.5. AMOUNTS REMAINING IN BOND FUND. It is agreed by the parties hereto that after payment in full of (i) the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Indenture), (ii) the fees, charges and expenses of the Trustee in accordance with the Indenture, (iii) the Administrative Expenses, (iv) the fees and expenses of the Remarketing Agent and the Issuer and (v) all other amounts required to be paid under this Agreement and the Indenture, any amounts remaining in the Bond Fund shall belong to and be paid to the Company by the Trustee; provided, however, that if there remain reimbursement or other obligations of the Company under any Reimbursement Agreement, such moneys remaining in the Bond Fund shall, subject to Section 13.10(b) of the Indenture, be paid by the Trustee to the Bank upon written direction of the Bank to such extent. SECTION 8.6. AMENDMENTS, CHANGES AND MODIFICATIONS. This Agreement may be amended, changed, modified, altered or terminated only by written instrument executed by the Issuer and the Company, and only if the written consent of the Trustee and the Bank thereto is obtained. Subject to the written consent of the Trustee and the Bank, the Issuer and the Company agree to enter into such amendments, changes and modifications to this Agreement (i) as may be required by the provisions of this Agreement or the Indenture, (ii) for the purpose of curing any ambiguity, formal defect or omission in this Agreement, (iii) so as to add additional rights acquired in accordance with the provisions of this Agreement, (iv) to preserve the exemption from federal income taxes of interest on the Bonds, or any of them, or (v) to qualify the Bonds for an appropriate rating by Moody's or S&P or Fitch, as the case may be, or to maintain any such rating, or (vi) in connection with any other change herein which is not to the prejudice of the Trustee, the Bank or the Owners of the Bonds; provided, however, that the Issuer shall not thereby incur any monetary obligation or liability (except only to the extent that the same shall be payable solely and only out of funds provided or to be provided by the Company) or surrender or abdicate in whole or in part any of its essential governmental functions or powers or any of its discretion in exercising the same. SECTION 8.7. GOVERNING LAW. This Agreement shall be governed exclusively by and construed in accordance with the applicable laws of the State. SECTION 8.8. AUTHORIZED ISSUER AND COMPANY REPRESENTATIVES. Whenever under the provisions of this Agreement the approval of the Issuer or the Company is required to take some action at the request of the other, such approval of such request shall be given -23- for the Issuer by the Authorized Issuer Representative and for the Company by the Authorized Company Representative, and the other party hereto and the Trustee shall be authorized to act on any such approval or request and neither party hereto shall have any complaint against the other or against the Trustee as a result of any such action taken. SECTION 8.9. TERM OF THE AGREEMENT. This Agreement shall be in full force and effect from its date to and including such date as all of the Bonds issued under the Indenture shall have been fully paid or retired (or provision for such payment shall have been made as provided in the Indenture), provided that all representations and certifications by the Company as to all matters affecting the tax-exempt status of the Bonds and the covenants of the Company in Sections 4.2(c), 4.2(d), 4.2(e), 4.2(f), 4.2(g) and 4.2(h) hereof shall survive the termination of this Agreement. SECTION 8.10. CANCELLATION AT EXPIRATION OF TERM. At the acceleration, termination or expiration of the term of this Agreement and following full payment of the Bonds or provision for payment thereof and of all other fees and charges having been made in accordance with the provisions of this Agreement and the Indenture, the Issuer shall deliver to the Company any documents and take or cause the Trustee to take such actions as may be necessary to effectuate the cancellation and evidence the termination of this Agreement. SECTION 8.11. REFERENCES TO BANK AND PROVIDER. At any time that a Letter of Credit (and if at such time there shall be no Pledged Bonds) or any Credit Facility is not in effect and the Bank shall have been paid all amounts owed them under the Reimbursement Agreement (as evidenced by a written certificate of the Bank delivered to the Trustee to such effect), all references herein to the Bank or the Provider, as the case may be, shall be deemed ineffective. Any provisions hereof requiring the consent of the Bank or the Provider shall be deemed ineffective if the Bank or the Provider is at any such time in default in its obligations under the Letter of Credit or Credit Facility, as the case may be, to fund a drawing thereunder made in strict compliance with the terms of such Letter of Credit or Credit Facility. SECTION 8.12. SPECIFIC REQUEST FOR RATINGS REQUIRED. No reference herein to Moody's or S&P or Fitch shall be construed by any such rating agency as a request or permission to issue a rating on the Bonds. Any rating on the Bonds shall be issued by any rating agency only pursuant to specific written request therefor from the Company. SECTION 8.13. NOTICE REGARDING CANCELLATION OF CONTRACTS. As required by the provisions of Section 38-511, Arizona Revised Statutes, as amended, notice is hereby given that political subdivisions of the State of Arizona or any of their departments or agencies may, within three (3) years of its execution, cancel any contract, without penalty or further obligation, made by the political subdivisions or any of their departments or agencies on or after September 30, 1988, if any person significantly involved in initiating, negotiating, securing, drafting or creating the contract on behalf of the political subdivisions or any of their departments or agencies is, at any time while the contract or any extension of the contract is in effect, an employee or agent of any other party to the contract in any capacity or a consultant to any other party of the contract with respect to the subject matter of the contract. The cancellation shall be effective when written notice from the chief executive -24- officer or governing body of the political subdivision is received by all other parties to the contract unless the notice specifies a later time. The Trustee covenants and agrees not to employ as an employee, agent or, with respect to the subject matter of this Agreement, a consultant, any person significantly involved in initiating, negotiating, securing, drafting or creating this Agreement on behalf of the Issuer within three (3) years from the execution hereof, unless a waiver is provided by the Issuer. -25- IN WITNESS WHEREOF, the Issuer and the Company have caused this Agreement to be executed in their respective corporate names and their respective corporate seals to be hereunto affixed and attested by their duly authorized officers, all as of the date first above written..c.:::Signatures; COCONINO COUNTY, ARIZONA POLLUTION CONTROL CORPORATION Joseph R. Gee By ---------------------------- President Board of Directors (SEAL) Attest: Terrence J. Rice ____________________________________ Secretary NEVADA POWER COMPANY Steven W. Rigazio By --------------------------------- Vice President, Finance and Planning, Treasurer, Chief Financial Officer (SEAL) Attest: Richard L. Hinckley ____________________________________ Secretary -26- EXHIBIT A (Attached to Financing Agreement between Coconino County, Arizona Pollution Control Corporation and Nevada Power Company, dated as of November 1, 1997). The Project consists of the undivided interest of Nevada Power Company in the flue gas desulfurization system, including functionally related and subordinate facilities, being installed for the removal of sulfur dioxide from combustion gases prior to discharge into the atmosphere, at the Navajo Generation Station owned by Nevada Power Company and others and located in Coconino County, Arizona. EX-10.85 6 LOAN AGREEMENT-SHORT-TERM - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- LOAN AGREEMENT Dated as of November 21, 1997 among NEVADA POWER COMPANY The Lenders herein named NATIONSBANK OF TEXAS, N.A. as Documentation Agent and WELLS FARGO BANK, NATIONAL ASSOCIATION as Arranger and Administrative Agent. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS ----------------- Page ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS 1 1.1 Defined Terms 1 1.2 Use of Defined Terms 24 1.3 Accounting Terms 24 1.4 Rounding 24 1.5 Exhibits and Schedules 24 1.6 References to "Borrower and its Subsidiaries" 25 1.7 Miscellaneous Terms 25 ARTICLE 2 LOANS AND LETTERS OF CREDIT 26 2.1 Committed Loans and Swing Line Loans - General 26 2.2 Competitive Advances 28 2.3 Swing Line Loans 31 2.4 Base Rate Loans 31 2.5 Eurodollar Rate Loans 31 2.6 Letters of Credit 32 2.7 Voluntary Reduction of the Commitment 36 2.8 Administrative Agent's Right to Assume Funds Available for Advances 37 ARTICLE 3 PAYMENTS AND FEES 38 3.1 Principal and Interest 38 3.2 Facility Fees 40 3.3 Arrangement Fee 40 3.4 Agency Fee 41 3.5 Letter of Credit Fees 41 3.6 Increased Commitment Costs 41 3.7 Eurodollar Fees and Costs 42 3.8 Default Rate 45 3.9 Computation of Interest and Fees 45 3.10 Non-Banking Days 45 -i- 3.11 Manner and Treatment of Payments 46 3.12 Funding Sources 47 3.13 Failure to Charge Not Subsequent Waiver 47 3.14 Administrative Agent's Right to Assume Payments Will be Made by Borrower 48 3.15 Fee Determination Detail 48 3.16 Survivability 48 ARTICLE 4 REPRESENTATIONS AND WARRANTIES 49 4.1 Existence and Qualification; Power; Compliance With Law 49 4.2 Authority; Compliance With Other Agreements and Instruments and Government Regulations 49 4.3 No Governmental Approvals Required 50 4.4 Subsidiaries 50 4.5 Financial Statements 50 4.6 No Other Liabilities; No Material Adverse Effect 51 4.7 Title to and Location of Property 51 4.8 Intangible Assets 51 4.9 Governmental Regulation 51 4.10 Litigation 51 4.11 Binding Obligations 52 4.12 No Default 52 4.13 Pension Plans 52 4.14 Regulations G, U and X 52 4.15 Disclosure 53 4.16 Tax Liability 53 4.17 Pari Passu Status 53 4.18 Hazardous Materials 53 ARTICLE 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING REQUIREMENTS) 55 5.1 Payment of Taxes and Other Potential Liens 55 5.2 Preservation of Existence 55 5.3 Maintenance of Properties 55 5.4 Maintenance of Insurance 56 5.5 Compliance With Laws 56 5.6 Inspection Rights 56 -ii- 5.7 Keeping of Records and Books of Account 56 5.8 Compliance With Agreements 56 5.9 Use of Proceeds 57 5.10 Hazardous Materials Laws 57 ARTICLE 6 NEGATIVE COVENANTS 58 6.1 Disposition of Property 58 6.2 Mergers 58 6.3 Investments and Acquisitions 58 6.4 Hostile Tender Offers 59 6.5 Distributions 59 6.6 ERISA Compliance 59 6.7 Change in Nature of Business 59 6.8 Indebtedness and Contingent Obligations 59 6.9 Transactions with Affiliates 60 6.10 Adjusted Stockholders' Equity 60 6.11 Total Debt to Total Capitalization 60 6.12 Amendments to Certain Agreements 60 6.13 Investments in Subsidiaries 60 ARTICLE 7 INFORMATION AND REPORTING REQUIREMENTS 61 7.1 Financial and Business Information 61 ARTICLE 8 CONDITIONS 63 8.1 Initial Advances, Swing Line Loans and Letters of Credit 63 8.2 Any Advance, etc. 65 ARTICLE 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT 66 9.1 Events of Default 66 9.2 Remedies Upon Event of Default 68 ARTICLE 10 THE ADMINISTRATIVE AGENT 71 10.1 Appointment and Authorization 71 -iii- 10.2 Administrative Agent and Affiliates 71 10.3 Proportionate Interest of the Lenders in any Collateral 71 10.4 Lenders' Credit Decisions 72 10.5 Action by Administrative Agent; Etc. 72 10.6 Liability of Administrative Agent and Arranger 73 10.7 Indemnification 75 10.8 Successor Administrative Agent 75 10.9 No Obligations of Borrower 76 10.10 The Swing Line 76 ARTICLE 11 MISCELLANEOUS 78 11.1 Cumulative Remedies; No Waiver 78 11.2 Amendments; Consents 78 11.3 Costs, Expenses and Taxes 79 11.4 Nature of Lenders' Obligations 80 11.5 Survival of Representations and Warranties 80 11.6 Notices 80 11.7 Execution of Loan Documents; Counterparts 80 11.8 Binding Effect; Assignment 81 11.9 Setoff Rights 83 11.10 Sharing of Setoffs 84 11.11 Indemnity by Borrower 84 11.12 Nonliability of the Lenders 85 11.13 No Third Parties Benefited 86 11.14 Termination of Existing Loan Documents 87 11.15 Further Assurances 87 11.16 Integration 87 11.17 Governing Law 87 11.18 Severability of Provisions 87 11.19 Independent Covenants 88 11.20 Headings 88 11.21 Time of the Essence 88 11.22 Purported Oral Amendments 88 11.23 Jury Trial Waiver 88 -iv- Exhibits - -------- A - Commitment Assignment and Acceptance B - Committed Advance Note C - Competitive Advance Note D - Competitive Bid E - Competitive Bid Request F - Compliance Certificate G - Opinion of Counsel H - Request for Letter of Credit I - Request for Loan J - Swing Line Note Schedules - --------- 1.1 Pro Rata Shares of the Main Commitment 4.4 Subsidiaries and other Investments 4.10 Litigation 4.13 ERISA 4.17 Existing Liens and Rights of Others 4.18 Hazardous Materials 6.8 Existing Indebtedness and Contingent Obligations -iv- LOAN AGREEMENT -------------- Dated as of November 21, 1997 This LOAN AGREEMENT ("Agreement") is entered into by and between Nevada Power Company, a Nevada corporation ("Borrower"), and each lender whose name is set forth on the signature pages hereof or which may hereafter execute and deliver a Commitment Assignment and Acceptance with respect to this Agreement pursuant to Section 11.8 (collectively, the "Lenders" ---- and individually, a "Lender"), NationsBank of Texas, N.A., as Documentation Agent and Wells Fargo Bank, National Association, as Arranger and Administrative Agent. In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS -------------------------------- 1.1 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below: "Acquisition" means any transaction, or any series of related ----------- transactions, by which Borrower and/or any of its Subsidiaries directly or indirectly (a) acquires any going business or all or substantially all of the assets of any firm, partnership, joint venture, corporation or division thereof, whether through purchase of assets, merger or otherwise, (b) acquires (in one transaction or as the most recent transaction in a series of transactions) control of at least a majority in ordinary voting power of the securities of a corporation which have ordinary voting power for the election of directors or (c) acquires control of more than 50% of the ownership interests in any partnership, joint venture, limited liability company or other business entity which does not have outstanding voting securities. "Adjusted Stockholders' Equity" means, as of any date of determination, ----------------------------- the Stockholders' Equity of Borrower and its Subsidiaries on that date minus (a) the book value of any capital stock of Borrower held in the treasury of Borrower, (b) any current sinking fund requirement with respect to any preferred stock of Borrower, (c) any unamortized capital stock expense and -1- (d) any accounts or loans receivable due to Borrower or any of its Subsidiaries from stockholders, directors, officer, employees and Affiliates of Borrower. "Administrative Agent" means Wells Fargo Bank, National Association, when -------------------- acting in its capacity as the Administrative Agent under any of the Loan Documents, and any successor Administrative Agent. "Administrative Agent's Office" means the Administrative Agent's address ----------------------------- as set forth on the signature pages of this Agreement, or such other address as the Administrative Agent hereafter may designate by written notice to Borrower and the Lenders. "Advance" means any Advance made or to be made by any Lender to Borrower ------- as provided in Article 2, and includes each Base Rate Advance, each Eurodollar Rate Advance and each Competitive Advance. "Affiliate" means, as to any Person, any other Person which directly or --------- indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, "control" (and the correlative terms, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise); provided that, in any event, any Person that owns, directly or indirectly, 5% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation having 100 or more record owners of such securities (other than securities having such power only by reason of the happening of a contingency), or 5% or more of the partnership or other ownership interests of any other Person having 100 or more owners of such partnership or other ownership interests (other than as a limited partner of such other Person), will be deemed to control such corporation or other Person. "Agreement" means this Loan Agreement, either as originally executed or as --------- it may from time to time be supplemented, modified, amended, restated or extended. "Arranger" means Wells Fargo Bank, National Association. -------- -2- "Aggregate Effective Amount" means, as of any date of determination and -------------------------- with respect to all Letters of Credit then outstanding, the sum of (a) the aggregate effective face amounts of all such Letters of Credit not then paid by the Issuing Lender plus (b) the aggregate amounts paid by the Issuing Lender under such Letters of Credit not then reimbursed to the Issuing Lender by Borrower pursuant to Section 2.6(d) and not the subject of Advances made pursuant to Section 2.6(e). "Banking Day" means any Monday, Tuesday, Wednesday, Thursday or Friday, ----------- other than a day on which banks are authorized or required to be closed in Nevada, California or New York. "Base Rate" means, as of any date of determination, the higher of (a) the --------- Prime Rate or (b) the Federal Funds Rate plus one half of one percent per annum. "Base Rate Advance" means a Committed Advance made hereunder and ----------------- designated as a Base Rate Advance in accordance with Article 2. "Base Rate Loan" means a Committed Loan made hereunder and designated as a -------------- Base Rate Loan in accordance with Article 2. "Borrower" means Nevada Power Company, a Nevada corporation, and its -------- successors and permitted assigns. "Capital Lease" means, as to any Person, a lease of any Property by that ------------- Person as lessee that is, or should be in accordance with Financial Accounting Standards Board Statement No. 13, recorded as a "capital lease" on the balance sheet of that Person prepared in accordance with GAAP. "Cash" means, when used in connection with any Person, all monetary and ---- non-monetary items owned by that Person that are treated as cash in accordance with GAAP, consistently applied. "Cash Equivalents" means, when used in connection with any Person, that ---------------- Person's Investments in: (a) Government Securities due within one year after the date of the making of the Investment; -3- (b) readily marketable direct obligations of any State of the United States of America or any political subdivision of any such State given on the date of such investment a credit rating of at least Aa by Moody's Investors Service, Inc. or AA by Standard & Poor's Rating Group (a division of McGraw-Hill, Inc.), in each case due within one year after the date of the making of the Investment; (c) certificates of deposit issued by, bank deposits in, eurodollar deposits through, bankers' acceptances of, and reverse repurchase agreements covering Government Securities executed by, any Lender or any bank, savings and loan or savings bank doing business in and incorporated under the Laws of the United States of America or any State thereof and having on the date of such Investment combined capital, surplus and undivided profits of at least $250,000,000, in each case due within one year after the date of the making of the Investment; (d) certificates of deposit issued by, bank deposits in, eurodollar deposits through, bankers' acceptances of, and reverse repurchase agreements covering Government Securities executed by, any branch or office located in the United States of America of a bank incorporated under the Laws of any jurisdiction outside the United States of America having on the date of such Investment combined capital, surplus and undivided profits of at least $500,000,000, in each case due within one year after the date of the making of the Investment; and (e) readily marketable commercial paper of corporations doing business in and incorporated under the Laws of the United States of America or any State thereof given on the date of such Investment the highest credit rating by Moody's Investors Service, Inc. and Standard & Poor's Rating Group (a division of McGraw-Hill, Inc.), in each case due within 270 days after the date of the making of the Investment. "Certificate of a Responsible Official" means a certificate signed ------------------------------------- by a Responsible Official of the Person providing the certificate. -4- "Closing Date" means the time and Banking Day on which the conditions set ------------ forth in Section 8.1 are satisfied. "Code" means the Internal Revenue Code of 1986, as amended or replaced ---- and as in effect from time to time. "Commitment" means the sum of (a) the Main Commitment plus (b) the Swing ----------- Line Commitment. "Commitment Assignment and Acceptance" means a Commitment Assignment and ------------------------------------ Acceptance executed by a Lender and an Eligible Assignee substantially in the form of Exhibit A and registered with the Administrative Agent pursuant to Section 11.8. "Committed Advance" means an Advance made to Borrower by any Lender in ----------------- accordance with its Pro Rata Share of the Main Commitment pursuant to Section 2.1. "Committed Advance Note" means any of the promissory notes made by ---------------------- Borrower in favor of a Lender evidencing Committed Advances under that Lender's Pro Rata Share of the Main Commitment, substantially in the form of Exhibit B, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or supplanted. "Committed Loans" means Loans that are comprised of Committed Advances. --------------- "Common Stock" means the $1.00 par value common stock of Borrower. ------------ "Competitive Advance" means an Advance made to Borrower by any Lender ------------------- pursuant to a Competitive Bid under Section 2.2 (and not in accordance with that Lender's Pro Rata Share of the Main Commitment). "Competitive Advance Note" means any of the promissory notes made by ------------------------ Borrower in favor of a Lender to evidence Competitive Advances made by that Lender substantially in the form of Exhibit C, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or supplanted. -5- "Competitive Bid" means (a) a written bid to provide a Competitive Advance --------------- submitted to the Administrative Agent substantially in the form of Exhibit D, and properly completed to provide all information required to be included therein or (b), at the election of any Lender, a bid to provide a Competitive Advance submitted to the Administrative Agent by that Lender by telephone which, if so made, shall be made by a Responsible Official of that Lender and deemed to have been made incorporating the substance of Exhibit D. "Competitive Bid Request" means (a) a written request submitted by ----------------------- Borrower to the Administrative Agent to provide a Competitive Bid, substantially in the form of Exhibit E, signed by a Responsible Official of Borrower and properly completed to provide all information required to be included therein or (b), at the election of Borrower, a telephonic request by Borrower to the Administrative Agent to provide a Competitive Bid which, if so made, shall be made by a Responsible Official of Borrower and deemed to have been made incorporating the substance of Exhibit E. "Compliance Certificate" means a certificate in the form of Exhibit F, ---------------------- properly completed and signed by a Senior Officer of Borrower. "Contingent Obligation" means, as to any Person, any (a) direct or --------------------- indirect guarantee of Indebtedness of, or other obligation performable by, any other Person, including any endorsement (other than for collection or deposit in the ordinary course of business), co-making or sale with recourse of the obligations of any other Person, or (b) assurance given to an obligee with respect to the performance of an obligation by, or the financial condition of, any other Person, whether direct, indirect or contingent, including any purchase or repurchase agreement covering such obligation or any collateral security therefor, any agreement to provide funds (by means of loans, capital contributions or otherwise) to such other Person, any agreement to support the solvency or level of any balance sheet item to such other Person, or any "keep- well", "take-or-pay", "through put" or other arrangement of whatever nature having the effect of assuring or holding harmless any obligee against loss with respect to any obligation of such other Person, or (c) any obligation of a partnership or joint venture of which such Person is a partner or joint venturer. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation (unless the Contingent Obligation is limited by its terms to a lesser amount, in -6- which case to the extent of such amount) or, if not stated or determin- able, the maximum reasonably anticipated liability in respect thereof as determined by the Person in good faith. "Contractual Obligation" means, as to any Person, any provision of any ---------------------- outstanding Securities issued by that Person or of any material agreement, instrument or undertaking to which that Person is a party or by which it or any of its Property is bound. "Debtor Relief Laws" means the Bankruptcy Code of the United States of ------------------ America, as amended from time to time, and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws from time to time in effect affecting the rights of creditors generally. "Default" means any Event of Default or any event that, with the giving of ------- any applicable notice or passage of time specified in Section 9.1, or both, would be an Event of Default. "Default Rate" means the interest rate described in Section 3.8. ------------ "Designated Deposit Account" means a demand deposit account to be -------------------------- maintained by Borrower with the Administrative Agent, as from time to time designated by Borrower by written notification to the Administrative Agent. "Designated Employee" means any natural Person designated by Borrower as an ------------------- employee of Borrower authorized to make requests for Loans under this Agreement on behalf of Borrower pursuant to a written notice thereof signed by a Responsible Official of Borrower delivered to Administrative Agent. "Designated Eurodollar Market" means, with respect to any Eurodollar Rate ---------------------------- Loan, the London interbank market. "Disposition" means the sale, transfer or other disposition in any single ----------- transaction or series of related transactions of any asset, or group of related assets, of Borrower or any of its Subsidiaries (including a sale, transfer or other disposition by Borrower to one or more of its Subsidiaries or by a -7- Subsidiary of Borrower to another Subsidiary of Borrower) that has or have at the date of the Disposition either a book value or fair market value (which shall be deemed to be equal to the sales price for such asset or assets upon a sale to a Person that is not an Affiliate of Borrower) equal to or greater than $50,000,000, other than (a) the sale or other disposition of inventory ---------- in the ordinary course of business, (b) the sale or other disposition of equipment that is replaced by equip-ment performing substantially the same function not later than thirty (30) days after such sale or disposition and (c) the sale or other disposition of Cash Equivalents in the ordinary course of business. "Distribution" means, with respect to any shares of capital stock ------------ or any warrant or right to acquire shares of capital stock or any other equity security issued by a Person, (a) the retirement, redemption, purchase, or other acquisition for value (other than for common stock of such Person) by such Person of any such security, (b) the declaration or (without duplication) payment by such Person of any dividend in Cash or in Property (other than in ---------- common stock of such Person) on or with respect to any such security, (c) any Investment by such Person in the holder of any such security where such Investment is made in lieu of, or to avoid characterization as, a Distribution described in clauses (a) or (b) above --- --- and (d) any other payment by such Person constituting a distribution under applicable Laws with respect to such security. "Documentation Agent" means NationsBank of Texas, N.A. The ------------------- Documentation Agent shall have no rights, duties or responsibilities under the Loan Documents beyond those of a Lender. "dollars" or "$" means United States dollars. ------- - "Eligible Assignee" means (a) with respect to any Lender, any ----------------- Affiliate of that Lender, (b) any other Person (including any Lender) approved --------- in writing by Borrower, which approval shall not be unreasonably withheld or delayed. "ERISA" means the Employee Retirement Income Security Act of 1974, ----- and any regulations issued pursuant thereto, as amended or replaced and as in effect from time to time. "ERISA Affiliate" means, with respect to any Person, any other --------------- Person (or any trade or business, whether or not incorporated) that is under -8- common control with that Person within the meaning of Section 414 of the Code. "Eurodollar Banking Day" means any Banking Day on which dealings ---------------------- in dollar deposits are conducted by and among banks in the Designated Eurodollar Market. "Eurodollar Base Rate" means, with respect to any Eurodollar Rate Loan, -------------------- the interest rate per annum (determined solely by the Administrative Agent and rounded upward to the next 1/100 of 1%) at which deposits in dollars are offered to prime banks by major banks in the Designated Eurodollar Market at or about 11:00 a.m. local time in the Designated Eurodollar Market, two (2) Eurodollar Banking Days before the first day of the applicable Eurodollar Period in an aggregate amount approximately equal to the amount of such Eurodollar Rate Loan and for a period of time comparable to the number of days in the applicable Eurodollar Period. The determination of the Eurodollar Rate by the Administrative Agent shall be conclusive in the absence of manifest error. "Eurodollar Lending Office" means, as to each Lender, its office or branch ------------------------- so designated by written notice to Borrower and the Administrative Agent as its Eurodollar Lending Office. If no Eurodollar Lending Office is designated by a Lender, its Eurodollar Lending Office shall be its office at its address for purposes of notices hereunder. "Eurodollar Obligations" means eurocurrency liabilities, as defined in ---------------------- Regulation D. "Eurodollar Period" means, as to each Eurodollar Rate Loan, the period ----------------- commencing on the date specified by Borrower pursuant to Section 2.1(c) and ------ ending 1, 2, 3 or 6 months thereafter, as specified by Borrower in the applicable Request for Loan; provided that: -------- (a) The first day of any Eurodollar Period shall be a Eurodollar Banking Day; (b) Any Eurodollar Period that would otherwise end on a day that is not a Eurodollar Banking Day shall be extended to the next succeeding Eurodollar Banking Day unless such Eurodollar -9- Banking Day falls in another calendar month, in which case such Eurodollar Period shall end on the next preceding Eurodollar Banking Day; and (c) No Eurodollar Period shall extend beyond the Maturity Date. "Eurodollar Rate" means, with respect to any Eurodollar Rate --------------- Loan, the interest rate (rounded upward to the next 1/100 of 1%) determined to be equal to the Eurodollar Base Rate divided by [1 minus ---------- ----- the Eurodollar Reserve Percentage]. "Eurodollar Rate Advance" means an Advance made hereunder and ----------------------- designated as a Eurodollar Rate Advance in accordance with Article 2. --------- "Eurodollar Rate Loan" means a Committed Loan made hereunder and -------------------- designated as a Eurodollar Rate Loan in accordance with Article 2. --------- "Eurodollar Rate Spread" means an additional component of ---------------------- interest (which may vary over the term of any Eurodollar Rate Loan) to be added to the Eurodollar Rate in determining the interest rate payable with respect to Eurodollar Rate Loans. As of each date of determination, the Eurodollar Rate Spread equals the interest rate per annum set forth below opposite the credit rating then assigned to the Senior Unsecured Debt by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Group (a division of McGraw-Hill, Inc.) ("S&P") on that date: Credit Rating Eurodollar Rate Spread ------------- ---------------------- S&P Moody's --- ------- A- or A3 (or higher) .1600% BBB+ or Baa1 .2000% BBB or Baa2 .2250% BBB- or Baa3 .2500% BB+ or Ba1 (or lower) .5000% ; provided that (a) if the credit ratings assigned by Moody's and S&P -------- differ by one "notch" (e.g., BBB+ versus Baa2) then the higher (BBB+) --- of the two credit ratings shall be used, (b) if the credit ratings assigned by Moody's and S&P -10- differ by more than one "notch" (e.g. BBB+ versus Baa3), then the average --- (BBB/Baa2) of the two credit ratings shall be used and (c) if the Senior Unsecured Debt is at any time not rated by Moody's or S&P then the credit rating that is one "notch" below the credit rating then assigned to the First Mortgage Bonds by Moody's or S&P (as applicable) shall be deemed to be the credit rating assigned by such rating agency to the Senior Unsecured Debt. "Eurodollar Reserve Percentage" means, with respect to any ----------------------------- Eurodollar Rate Loan, the percentage applicable as of the date of determination of the Eurodollar Base Rate representing the aggregate reserve requirements of the Administrative Agent (disregarding any offsetting amounts that may be available to the Administrative Agent to decrease such requirements to the extent that such offsetting amounts arose out of transactions other than those contemplated by this Agreement) under Regulation D and any other applicable Laws with respect to Eurodollar Obligations in an aggregate amount equal to the amount of such Eurodollar Rate Loan and for a time period comparable to the number of months in the applicable Eurodollar Period. The determination by the Administrative Agent of any applicable Eurodollar Reserve Percentage shall be presumed correct in the absence of manifest error. "Event of Default" shall have the meaning provided in Section ---------------- 9.1. - --- "Existing Loan Documents" means the loan documents executed in ----------------------- connection with that certain Loan Agreement dated as of November 21, 1994 among Borrower, the Banks (as therein defined) therein named and Wells Fargo Bank, National Association (successor by merger to First Interstate Bank of Nevada, N.A.), as Administrative Agent, as amended. "Facility Fee Rate" means, as of each date of determination, the ----------------- rate per annum set forth below opposite the credit rating then assigned to the Senior Unsecured Debt by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Rating Group (a division of McGraw-Hill, Inc.) ("S&P") on that date: -11- Credit Rating Facility Fee Rate ------------- ----------------- S&P's Moody's ----- ------- A- or A3 (or higher) .0900% BBB+ or Baa1 .1000% BBB or Baa2 .1150% BBB- or Baa3 .1500% BB+ or Ba1 (or lower) .2500% ; provided that (a) if the credit ratings assigned by Moody's and S&P ------------- differ by one "notch" (e.g., BBB+ versus Baa2) then the higher (BBB+) of the --- two credit ratings shall be used, (b) if the credit ratings assigned by Moody's and S&P differ by more than one "notch" (e.g. BBB+ versus Baa3), then the --- average (BBB/Baa2) of the two credit ratings shall be used and (c) if the Senior Unsecured Debt is at any time not rated by Moody's or S&P then the credit rating that is one "notch" below the credit rating then assigned to the First Mortgage Bonds by Moody's or S&P (as applicable) shall be deemed to be the credit rating assigned by such rating agency to the Senior Unsecured Debt. "Federal Funds Rate" means, as of any date of determination, the ------------------ interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Banking Day, for the next preceding Banking Day) by the Federal Reserve Bank of New York in its statistical release H-15 or, if such rate is not so published for any day which is a Banking Day, the average of the quotations for such day on such transactions, as received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "First Mortgage Bonds" means those certain First Mortgage Bonds -------------------- of Borrower issued pursuant to the Indenture. "Fiscal Quarter" means the fiscal quarter of Borrower consisting -------------- of a three month fiscal period ending on each March 31, June 30, September 30 and December 31. "Fiscal Year" means the fiscal year of Borrower consisting of a ----------- twelve month fiscal period ending on each December 31. -12- "GAAP" means, as of any date of determination, accounting ---- principles set forth as "generally accepted" in then currently effective Statements of the Auditing Standards Board of the American Institute of Certified Public Accountants, or, if no such Statements are then in effect, that are then approved by such other entity as may be approved by a significant segment of the accounting profession in the United States of America. The term "consistently applied," as used in connection therewith, means that the -------------------- accounting principles applied are consistent in all material respects to those applied at prior dates or for prior periods. "Government Securities" means readily marketable direct full --------------------- faith and credit obligations of the United States of America or obligations unconditionally guaranteed by the full faith and credit of the United States of America. "Governmental Agency" means (a) any foreign, federal, state, ------------------- county or municipal government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body, (c) any court or administrative tribunal or (d) with respect to any Person, any arbitration tribunal or other non-governmental authority to whose jurisdiction that Person has consented. "Hazardous Materials" means substances defined as hazardous ------------------- substances pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. 9601 et seq., or as hazardous, toxic or pollutant pursuant to the Hazardous Materials Transportation Act, 49 U.S.C. 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. 6901, et seq., or any other applicable Law governing environmental health and hygiene, in each case as such Laws are amended from time to time. "Hazardous Materials Laws" means all federal, state or local ------------------------ laws, ordinances, rules or regulations governing the disposal of Hazardous Materials applicable to any of the Property. "Indebtedness" means, as to any Person, (a) all indebtedness of ------------ such Person for borrowed money, (b) that portion of the obligations of such Person under Capital Leases which is properly recorded as a liability on a -13- balance sheet of that Person prepared in accordance with Generally Accepted Accounting Principles, (c) any obligation of such Person that is evidenced by a promissory note or other instrument representing an extension of credit to such Person, whether or not for borrowed money, (d) any obligation of such Person for the deferred purchase price of Property or services (other than trade or other accounts payable in the ---------- ordinary course of business in accordance with customary terms), (e) any obligation of such Person that is secured by a Lien on assets of such Person, whether or not that Person has assumed such obligation or whether or not such obligation is non-recourse to the credit of such Person, but only to the extent of the fair market value of the assets so subject to the Lien, (f) obligations of such Person arising under acceptance facilities or under facilities for the discount of accounts receivable of such Person and (g) obligations of such Person for unreimbursed draws under letters of credit issued for the account of such Person. The obligations of Borrower with respect to "mandatorily redeemable preferred securities" of Borrower's trust Subsidiary shall not in any event be deemed "Indebtedness." "Indenture" means that certain Indenture of Mortgage and Deed of --------- Trust dated October 1, 1953 between Borrower (under its prior name, Southern Nevada Power Co.) and Wells Fargo Bank, National Association (successor by merger to First Interstate Bank of Nevada, N.A., formerly known as First National Bank of Nevada, Reno, Nevada), as Trustee, as amended as of the Closing Date. "Insignificant Subsidiary" means, as of any date of ------------------------ determination, any Subsidiary of Borrower that holds assets that are less than 3% of the total consolidated assets of Borrower and its Subsidiaries as of the last day of the Fiscal Quarter then most recently ended; provided that if at -------- any date the aggregate assets held by all such Subsidiaries exceeds 15% of the total consolidated assets of Borrower and its Subsidiaries as of the last day of the Fiscal Quarter than most recently ended, then none of such Subsidiaries shall thereafter be deemed an Insignificant Subsidiary absent the express written approval of the Majority Lenders. "Intangible Assets" means assets that are considered intangible ----------------- assets under GAAP, including (a) any write-up in book value of any asset --------- subsequent to its acquisition and (b) customer lists, goodwill, computer -14- software, copyrights, trade names, trademarks, patents, unamortized deferred charges, unamortized debt discount, capitalized research and development costs and other intangible assets. "Interest Differential" means, with respect to any prepayment of --------------------- a Eurodollar Rate Loan on a day other than the last day of the applicable Eurodollar Period and with respect to the failure to borrow a Eurodollar Rate Loan on the date or in the amount specified in a Request for Loan, (a) the per annum interest rate payable with respect to that Eurodollar Rate Loan as of the date of the prepayment or failure to borrow, minus (b) ----- the Euro-dollar Rate, as applicable, on or as near as practicable to, the date of the prepayment or failure to borrow for a Eurodollar Rate Loan com-mencing on such date and ending on the last day of the applicable Eurodollar Period. The determination of the Interest Differential by the Administrative Agent shall be conclusive in the absence of manifest error. "Investment" means, when used in connection with any Person, any ---------- investment by or of that Person, whether by means of purchase or other acquisition of capital stock or other Securities of any other Person or by means of loan, advance, capital contribution, guaranty or other debt or equity participation or interest, or otherwise, in any other Person, including any partnership and joint --------- venture interests of such Person in any other Person. The amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment. "Issuing Lender" means Wells Fargo Bank, National Association. -------------- "Laws" means, collectively, all foreign, federal, state and local ---- statutes, treaties, rules, regulations, ordinances, codes and administrative or controlling precedents of any Governmental Agency. "Lender" means any of the lenders signatory to this Agreement, ------ their successors and, upon the effective date after registration with the Administrative Agent pursuant to Section 11.8 of a Commitment Assignment ---- and Acceptance executed by an Eligible Assignee, such Eligible Assignee. "Letters of Credit" means any of the standby letters of credit ----------------- issued by the Issuing Lender under the Main Commitment pursuant to -15- Section 2.6, either as originally issued or as the same may be --- supplemented, modified, amended, renewed, extended or supplanted. "Letter of Credit Fee Rate" means, as of any date of ------------------------- determination, a rate per annum equal to the Eurodollar Rate Spread in effect as of that date. "Lien" means any mortgage, deed of trust, pledge, hypothecation, ---- assignment for security, security interest, encumbrance, lien or charge of any kind, whether voluntarily incurred or arising by operation of Law or otherwise, affecting any Property, including any agreement to grant any of the --------- foregoing, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and/or the filing of or agreement to give any financing statement under the Uniform Commercial Code or comparable Law of any jurisdiction with respect to any Property. "Loan" means any group of Advances made at any one time by the ---- Lenders under the Main Commitment pursuant to Article 2. --------- "Loan Documents" means, collectively, this Agreement, the Notes, -------------- any Request for Loan, any Competitive Bid Request and any other certificates, documents or agreements of any type or nature heretofore or hereafter executed and delivered by Borrower to the Administrative Agent or to any Lender in furtherance of this Agreement, in each case either as originally executed or as the same may from time to time be supplemented, modified, amended, restated, extended or supplanted. "Main Commitment" means, subject to Section 2.7, $105,000,000, --------------- --- provided, that the amount of the Main Commitment shall automatically -------- increase on the date of any Event of Default by the amount of the Swing Line Commitment concurrently with the elimination of the Swing Line Commitment. The respective Pro Rata Shares of the Lenders with respect to the Main Commitment as of the date hereof are set forth in Schedule 1.1. "Majority Lenders" means, as of any date of determination, ---------------- Lenders whose aggregate Pro Rata Share or Swing Line Commitment is at least 66 2/3% of the Commitment then in effect or, if the Commitment is then suspended or terminated, Lenders holding Notes evidencing at least 66 2/3% of the aggregate Indebtedness evidenced by the Notes. -16- "Material Adverse Effect" means any set of circumstances or ----------------------- events which (a) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of any Loan Document, (b) is or could reasonably be expected to be material and adverse to the condition (financial or otherwise) or business operations of Borrower and its Subsidiaries, taken as a whole, or to the prospects of Borrower and its Subsidiaries, taken as a whole, (c) materially impairs or could reasonably be expected to materially impair the ability of Borrower and its Subsidiaries, taken as a whole, to perform its Obligations or (d) materially impairs or could reasonably be expected to materially impair the ability of any of the Lenders to enforce any of its legal remedies pursuant to the Loan Documents. "Maturity Date" means November 24, 2002. ------------- "Maximum Competitive Advance" means, with respect to any --------------------------- Competitive Bid made by a Lender, the amount set forth therein as the maximum Competitive Advance which that Lender is willing to make in response to the related Competitive Bid Request. "Multiemployer Plan" means any employee benefit plan of a type ------------------ described in Section 4001(a)(3) of ERISA. "Negative Pledge" means any covenant binding on Borrower that --------------- prohibits the creation of Liens on any Property of Borrower. "Notes" means, collectively, the Competitive Advance Notes, the ----- Committed Advance Notes and the Swing Line Note. "Obligations" means all present and future obligations of every ----------- kind or nature of Borrower at any time and from time to time owed to the Administrative Agent or the Lenders or any one or more of them under any one or more of the Loan Documents, whether due or to become due, matured or unmatured, liquidated or unliquidated, or contingent or noncontingent, including obligations of performance as well as --------- obligations of payment, and including interest that accrues after the --------- commencement of any proceeding under any Debtor Relief Law by or against Borrower or any Subsidiary of Borrower. "Opinion of Counsel" means the favorable written legal opinion of ------------------ Richard L. Hinckley, general counsel to Borrower, substantially in the form of -17- Exhibit G, together with copies of any officer's certificate or legal --------- opinion of another counsel or law firm relied upon by such counsel in its opinion. "Party" means any Person other than the Administrative Agent and ----- the Lenders, which now or hereafter is a party to any of the Loan Documents. "PBGC" means the Pension Benefit Guaranty Corporation or any ---- successor thereto established under ERISA. "Pension Plan" means any "employee pension benefit plan" that is ------------ subject to Title IV of ERISA and which is maintained for employees of Borrower or any of its ERISA Affiliates. "Permitted Encumbrances" means: ---------------------- (a) inchoate Liens incident to construction or maintenance of real property, or Liens incident to construction or maintenance of real property, now or hereafter filed of record for which adequate reserves have been set aside and which are being contested in good faith by appropriate proceedings and have not proceeded to judgment; (b) Liens for taxes and assessments on real property which are not yet past due, or Liens for taxes and assessments on real property for which adequate reserves have been set aside and are being contested in good faith by appropriate proceedings and have not proceeded to judgment; (c) easements, exceptions, reservations, or other agreements granted or entered into after the date hereof for the purpose of pipelines, conduits, cables, wire communication lines, power lines and substations, streets, trails, walkways, drainage, irrigation, water, and sewerage purposes, dikes, canals, ditches, the removal of oil, gas, coal, or other minerals, and other like purposes affecting real property which in the aggregate do not materially burden or impair the fair market value or use of such real property for the purposes for which it is or may reasonably be expected to be held; (d) rights reserved to or vested in any Governmental Agency by Law to control or regulate, or obligations or duties under Law to any Governmental Agency with respect to, the use of any real property; -18- (e) rights reserved to or vested in any Governmental Agency by Law to control or regulate, or obligations or duties under Law to any Governmental Agency with respect to, any right, power, franchise, grant, license, or permit; (f) present or future zoning laws and ordinances or other laws and ordinances restricting the occupancy, use, or enjoyment of real property; (g) statutory Liens, other than those described in clauses (a) or (b) above, arising in the ordinary course of business with respect to obligations which are not delinquent or are being contested in good faith by appropriate proceedings, provided that, if delinquent, adequate -------- reserves have been set aside with respect thereto and, by reason of nonpayment, no Property is subject to a material risk of loss or forfeiture; (h) Liens consisting of pledges or deposits to secure obligations under workers' compensation laws or similar legislation, including Liens of judgments thereunder which are not currently dischargeable; (i) Liens consisting of pledges or deposits of Property to secure performance in connection with operating leases made in the ordinary course of business to which Borrower or a Subsidiary is a party as lessee, provided the aggregate value of all such pledges and deposits -------- in connection with any such lease does not at any time exceed 16-2/3% of the annual fixed rentals payable under such lease; (j) Liens consisting of deposits of Property to secure statutory obligations of Borrower or a Subsidiary of Borrower in the ordinary course of its business; and (k) Liens consisting of deposits of Property to secure (or in lieu of) surety, appeal or customs bonds in proceedings to which Borrower or a Subsidiary of Borrower is a party in the ordinary course of its business "Permitted Right of Others" means a Right of Others consisting of ------------------------- (a) an interest (other than a legal or equitable co-ownership interest, an option or right to acquire a legal or equitable co-ownership interest and any interest of a ground lessor under a ground lease) that does not materially impair the value or use of Property for the purposes for which it is or may reasonably be expected -19- to be held, (b) an option or right to acquire a Lien that would be a Permitted Encumbrance, and (c) the reversionary interest of a landlord under a lease of Property. "Person" means any entity, whether an individual, trustee, ------ corporation, general partnership, limited partnership, joint stock company, trust, estate, unincorporated organization, business association, tribe, firm,joint venture, Governmental Agency, or otherwise. "Prime Rate" means the rate of interest most recently announced ---------- by Wells Fargo Bank, National Association at its principal office in San Francisco as its Prime Rate, with the understanding that the Prime Rate is one of several base rates used by Wells Fargo Bank and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Wells Fargo Bank may designate. Each change in the Prime Rate will be effective on the day the change is announced within Wells Fargo Bank. "Property" means any interest in any kind of property or asset, -------- whether real, personal or mixed, or tangible or intangible. "Pro Rata Share" means, with respect to each Lender, the -------------- percentage of the Main Commitment set forth opposite the name of that Lender on Schedule 1.1. Upon the occurrence of an Event of Default and ------------- automatic increase in the amount of the Main Commitment by the amount of the former Swing Line Commitment, (a) the Pro Rata Share of the Lender which is the Swing Line Lender shall automatically ratably increase so that it includes the former Swing Line Commitment, and (b) the Pro Rata Share of each other Lender shall automatically ratably decrease. "Quarterly Payment Date" means December 31, 1997 and each ---------------------- subsequent March 31, June 30, September 30 and December 31, through the Maturity Date. "Regulations G, U and X" mean, respectively, Regulations G, U and ---------------------- X, as at any time amended, of the Board of Governors of the Federal Reserve System, or any other regulation in substance substituted therefor. -20- "Request for Letter of Credit" means a written request for a ---------------------------- Letter of Credit substantially in the form of Exhibit H, signed by a Responsible Official --------- of Borrower and properly completed to provide all information required to be included therein. "Request for Loan" means a written request for a Loan or a Swing ---------------- Line Loan substantially in the form of Exhibit I, signed by a --------- Responsible Official of Borrower and properly completed to provide all information required to be included therein. "Requirement of Law" means, as to any Person, the articles or ------------------ certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any Law, or judgment, award, decree, writ or determination of a Governmental Agency, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject. "Responsible Official" means (a) when used with reference to a -------------------- Person other than an individual, any corporate officer of such Person, general partner of such Person, corporate officer of a corporate general partner of such Person, or corporate officer of a corporate general partner of a partnership that is a general partner of such Person, or any other responsible official thereof duly acting on behalf thereof, and (b) when used with reference to a Person who is an individual, such Person or his authorized agent acting through a power of attorney. Any document or certificate hereunder that is signed or executed by a Responsible Official of a Person shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of that Person. "Right of Others" means, as to any Property in which a Person has --------------- an interest, (a) any legal or equitable right, title or other interest (other than a Lien) held by any other Person in or with respect to that Property, and (b) any option or right (including any option or right to --------- acquire a Lien) held by any other Person to acquire any such right, title or other interest in or with respect to that Property. "Securities" means any capital stock, share, voting trust ---------- certificate, bond, debenture, note or other evidence of indebtedness, limited -21- partnership interest, or any warrant, option or other right to purchase or acquire any of the foregoing. "Senior Officer" means the (a) chief executive officer, (b) chief -------------- operating officer, (c) chief financial officer, (d) vice president, or (e) treasurer, in each case whatever the title nomenclature may be, of the Person designated. "Senior Unsecured Debt" means (a) if there is then outstanding --------------------- any publicly-held issue of senior long-term unsecured debt of Borrower that is not benefitted by any third party credit enhancement, such issue and (b) if there is not then outstanding any such publicly-held issue, the hypothetical senior long-term unsecured debt of Borrower not benefitted by any third party credit enhancement and issued pursuant to governing documents containing customary covenants for senior long-term unsecured debt of issuers comparable to Borrower. "Special Eurodollar Circumstance" means (a) the adoption of any ------------------------------- Law by any Governmental Agency, central branch or comparable authority with respect to activities in the Designated Eurodollar Market, or (b) any change in the interpretation or administration of any existing Law by any Govern- mental Agency, central bank or comparable authority charged with the interpretation or administration thereof, or (c) compliance by any Lender or its Eurodollar Lending Office with any request or directive (whether or not having the force of Law) of any such Governmental Agency, central bank or comparable authority, or (d) the existence or occurrence of circumstances affecting the Designated Eurodollar Market generally that are beyond the reasonable control of the Lenders. "Stockholders' Equity" means, as of any date of determination and -------------------- with respect to any Person, the consolidated stockholders' equity of the Person as of that date determined in accordance with GAAP; provided that (i) there shall be excluded from Stockholders' Equity any amount attributable to capital stock that is, directly or indirectly, required to be redeemed or repurchased by such Person at a specified date or upon the occurrence of specified events or at the election of the holder thereof and (ii) the Stockholders' Equity of Borrower shall in any event include amounts attributable to "mandatorily redeemable preferred securities" of Borrower's trust Subsidiary for which Borrower is obligated. -22- "Subsidiary" means, as of any date of determination and with ---------- respect to any Person, any corporation, partnership, joint venture, limited liability company or other business entity, whether now existing or hereafter organized or acquired: (a) in the case of a corporation, of which a majority of the securities having ordinary voting power for the election of directors or other governing body (other than securities having such power only by reason of the happening of a contingency) are at the time beneficially owned by such Person and/or one or more Subsidiaries of such Person, or (b) in the case of a partnership, joint venture, limited liability company or other business entity, of which such Person or a Subsidiary of such Person is a general partner or joint venturer or of which a majority of the partnership or other ownership interests are at the time beneficially owned by such Person and/or one or more of its Subsidiaries. "Swing Line Lender" means Wells Fargo Bank, National Association. ----------------- "Swing Line Commitment" means (a) prior to the occurrence of an --------------------- Event of Default, a $20,000,000 lending commitment extended by the Swing Line Lender pursuant to this Agreement in which each of the Lenders shall have a partial unfunded pro rata participation in accordance with Section 10.10, and (b) thereafter, $0. ----- "Swing Line Note" means a promissory note in the form of Exhibit --------------- ------- J made by Borrower in favor of the Swing Line Lender to evidence the - Swing Line Loans, either as originally executed or as it may from time to time be supplemented, modified, amended, restated or extended. "Swing Line Loan" means a loan made by the Swing Line Lender --------------- hereunder in accordance with Section 2.3. --- "Termination Event" means (a) a "reportable event" as defined in ----------------- Section 4043 of ERISA (other than a "reportable event" that is not ---------- subject to the provision for 30 day notice to the PBGC), (b) the withdrawal of Borrower or any of its ERISA Affiliates from a Pension Plan during any plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a Pension Plan or the treatment of an amendment to a Pension Plan as a termination thereof pursuant to Section 4041 of ERISA, (d) the institution of proceedings to terminate a Pension Plan by the PBGC or (e) any other event or condition which might -23- reasonably be expected to constitute grounds under ERISA for the termination of, or the apportionment of a trustee to administer, any Pension Plan. "Total Capitalization" means, as of any date of determination, -------------------- the sum of (a) Adjusted Stockholders' Equity as of that date plus (b) ---- the principal amount as of that date of Indebtedness of Borrower and its Subsidiaries for borrowed money having an initial maturity in excess of one year from the date of its incurrence. "Total Debt" means, as of any date of determination, all ---------- Indebtedness of Borrower and its Subsidiaries for borrowed money on that date minus the amount of all cash and securities deposited in trust as security for such Indebtedness with the lenders thereof on that date. "type", when used with respect to any Loan or Advance, means the ---- designation of whether such Loan or Advance is a Base Rate Loan or Advance or a Eurodollar Rate Loan or Advance. 1.2 Use of Defined Terms. Any defined term used in the plural shall refer -------------------- to all members of the relevant class, and any defined term used in the singular shall refer to any one or more of the members of the relevant class. 1.3 Accounting Terms. All accounting terms not specifically defined in ---------------- this Agreement shall be construed in conformity with, and all financial data required to be submitted by this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, except as otherwise specifically ------ prescribed herein. In the event that GAAP changes during the term of this Agreement such that the financial covenants contained in Sections 6.10 through ---- 6.11 would then be calculated in a different manner or with different - ---- components, a) Borrower and the Lenders agree to promptly amend this Agreement in such respects as are necessary to conform those covenants as criteria for evaluating Borrower's financial condition to substantially the same criteria as were effective prior to such change in GAAP and (b) unless and until such an amendment to the Loan Documents is effected, Borrower shall report its performance with respect to the affected covenants in accordance with GAAP as in effect prior to such changes. 1.4 Rounding. Any financial ratios required to be maintained by Borrower -------- pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed in this Agreement and rounding the result up or -24- down to the nearest number (with a round-up if there is no nearest number) to the number of places by which such ratio is expressed in this Agreement. 1.5 Exhibits and Schedules. All Exhibits and Schedules to this Agreement, ---------------------- either as originally existing or as the same may from time to time be supplemented, modified or amended, are incorporated herein by this reference. A matter disclosed on any Schedule shall be deemed disclosed on all Schedules. 1.6 References to "Borrower and its Subsidiaries". Any reference herein -------------------------------------------- to "Borrower and its Subsidiaries" or the like shall refer solely to Borrower during such times, if any, as Borrower shall have no Subsidiaries. 1.7 Miscellaneous Terms The term "or" is disjunctive; the term "and" is ------------------- conjunctive. The term "shall" is mandatory; the term "may" is permissive. Masculine terms also apply to females; feminine terms also apply to males. The term "including" is by way of example and not limitation. Each reference to an hour or time of the day set forth in any Loan Document shall be deemed to be a reference to the hour or time of the day in Las Vegas, Nevada. -25- ARTICLE 2 LOANS AND LETTERS OF CREDIT 2.1 Committed Loans and Swing Line Loans - General. ---------------------------------------------- (a) Subject to the terms and conditions set forth in this Agreement, at any time and from time to time from the Closing Date through the Maturity Date, each Lender shall, pro rata according to its Pro Rata Share of the then applicable Main Commitment, make Committed Advances to Borrower under the Main Commitment in such amounts as Borrower may request that do not exceed in the aggregate at any one time outstanding the amount of that Lender's Pro Rata Share of the then applicable Main Commitment; provided that giving effect to the Committed -------- Loan of which such Advance is a part, the sum of (i) the outstanding ------ principal amount of the Committed Loans plus (ii) the Aggregate ---- Effective Amount of all outstanding Letters of Credit, plus (iii) the ---- outstanding principal amount of the Competitive Advances shall not exceed the Main Commitment. Subject to the limitations set forth herein, Borrower may borrow, repay and reborrow under the Main Commitment without premium or penalty. (b) Subject to the terms and conditions set forth in this Agreement, at any time and from time to time from the Closing Date through the Maturity Date, the Swing Line Lender shall make Swing Line Loans to Borrower under the Swing Line Commitment in such amounts as Borrower may request that do not exceed in the aggregate at any one time outstanding the amount of the Swing Line Commitment; provided that (i) giving -------- effect to the requested Swing Line Loan, the outstanding principal amount of the Swing Line Loans shall not exceed the Swing Line Commitment and (ii) Borrower may not request a Swing Line Loan during the existence of any Event of Default. Subject to the limitations set forth herein, Borrower may borrow, repay and reborrow under the Swing Line Commitment without premium or penalty. (c) Subject to the next sentence, each Committed Loan and each Swing Line Loan shall be made pursuant to a Request for Loan which shall specify the requested (i) date of such Loan or Swing Line Loan, (ii) type of Loan, (iii) amount of such Loan or Swing Line Loan and (iv) if a Eurodollar Rate Loan is requested, the Eurodollar Period for such Loan. Unless the Administrative Agent has notified, in its sole and absolute discretion, Borrower to the contrary, a Committed Loan or Swing Line Loan may be requested by -26- telephone, telecopier or telex by a Responsible Official of Borrower or by any Designated Employee, in which case Borrower shall promptly confirm such request by transmitting a telecopy of, or at Administrative Agent's request by mailing, a Request for Loan conforming to the preceding sentence to Administrative Agent. (d) Promptly following receipt of a Request for Loan, the Administrative Agent shall notify each Lender (or, in the case of a Request for Loan specifying a Swing Line Loan, the Swing Line Lender) by telephone, telecopier or telex of the date and type of the Committed Loan or Swing Line Loan, any applicable Eurodollar Period, and that Lender's Pro Rata Share of the Loan. Not later than 11:00 a.m. (California time), on the date specified for any Committed Loan, each Lender shall make its Pro Rata Share of the Committed Loan available to the Administrative Agent at the Administrative Agent's Office in immediately available funds. Upon fulfillment of the applicable conditions set forth in Article 8, all Committed Advances and Swing Line Loans shall be credited --------- in immediately available funds to the Designated Deposit Account. (e) Unless the Majority Lenders otherwise consent, each Committed Loan that is a Base Rate Loan shall be an integral multiple of $100,000 but not less than $1,000,000 and each Committed Loan that is a Eurodollar Rate Loan shall be an integral multiple of $1,000,000 but not less than $5,000,000. Unless the Swing Line Lender objects, each Swing Line Loan shall be in such amount as may be requested by Borrower. (f) The Committed Advances made by each Lender under its Pro Rata Share of the Main Commitment shall be evidenced by that Lender's Committed Advance Note. The Swing Line Loans shall be evidenced by the Swing Line Note. (g) A Request for Loan shall be irrevocable upon the Administrative Agent's first notification thereof. (h) If no Request for Loan (or telephonic or other request for a Committed Loan or Swing Line Loan referred to in the second sentence of Section 2.1(c), if applicable) has been made within the requisite notice ------ periods set forth in Sections 2.3 and 2.4 in connection with a Committed --- --- Loan which, if made, would not increase the outstanding principal Indebtedness outstanding under the Main Commitment, then Borrower shall be deemed to have requested -27- a Base Rate Loan in an amount equal to the amount necessary to cause such outstanding principal Indebtedness to remain the same and, subject to Section 8.2 the Lenders shall make the Advances necessary to make such --- Committed Loan notwithstanding Sections 2.1(c) and 2.4. ------ --- (i) If a Committed Loan is to be made on the same date that another Committed Loan is due and payable, Borrower or the Lenders, as the case may be, shall make available to the Administrative Agent the net amount of funds giving effect to both such Committed Loans and the effect for purposes of this Agreement shall be the same as if separate transfers of funds had been made with respect to each such Committed Loan. 2.2 Competitive Advances. -------------------- (a) Subject to the terms and conditions hereof, at any time and from time to time from the Closing Date through the Maturity Date, each Lender may in its sole and absolute discretion make Competitive Advances to Borrower in such principal amounts as Borrower may request pursuant to a Competitive Bid Request, provided that giving effect to the requested -------- Competitive Advance, the sum of (i) the outstanding principal amount of ------ the Committed Loans plus (ii) the Aggregate Effective Amount of all ---- outstanding Letters of Credit, plus (iii) the outstanding principal ---- amount of the Competitive Advances shall not exceed the Main Commitment. (b) Borrower shall request Competitive Advances by submitting a Competitive Bid Request to the Administrative Agent, which Competitive Bid Request shall specify the relevant date, amount and maturity for the proposed Competitive Advance and shall state that a Competitive Bid is requested on the basis of either an absolute, all-in rate (an "All-In Bid") or the basis of a margin over the Eurodollar Rate (a "Eurodollar Bid"). Any Competitive Bid Request made by telephone shall promptly be confirmed by the delivery to Administrative Agent in person or by telecopier of a written Competitive Bid Request. The Competitive Bid Request must be received by the Administrative Agent not later than 11:00 a.m. on a Banking Day that is (i) in the case of each All-In Bid, at least two (2) Banking Days prior, and (ii) in the case of each Eurodollar Bid, at least four (4) Banking Days prior, to the date of the proposed Competitive Advance. -28 (c) Unless the Administrative Agent otherwise agrees, in its sole and absolute discretion, no Competitive Bid Request shall be made by Borrower if Borrower has, within the immediately preceding five (5) Banking Days, submitted another Competitive Bid Request. (d) Each Competitive Bid Request must be made for a Competitive Advance of at least $5,000,000 and shall be in an integral multiple of $1,000,000. (e) No Competitive Bid Request shall be made for a Competitive Advance with a maturity of less than 14 days or more than 180 days, or with a maturity date subsequent to the Maturity Date. (f) The Administrative Agent shall, promptly after receipt of a Competitive Bid Request, notify the Lenders thereof by telephone and provide the Lenders a copy thereof by telecopier. Any Lender may, by written notice to the Administrative Agent, advise the Administrative Agent that it elects not to be so notified of Competitive Bid Requests, in which case the Administrative Agent shall not notify such Lender of the Competitive Bid Request. (g) Each Lender receiving a Competitive Bid Request may, in its sole and absolute discretion, make or not make a Competitive Bid responsive to the Competitive Bid Request. Each Competitive Bid shall be submitted to the Administrative Agent not later than 8:00 a.m. (California time) (i) in the case of each Absolute Bid on the Business Day of the proposed Competitive Advance and (ii) in the case of each Eurodollar Bid, on the date which is three Business Days prior to the date of the requested Competitive Advance. Any Competitive Bid received by the Administrative Agent after 8:00 a.m. on such dates shall be disregarded for purposes of this Agreement. Any Competitive Bid made by telephone shall promptly be confirmed by the delivery to the Administrative Agent in person or by telecopier of a written Competitive Bid. (h) Each Competitive Bid shall specify the All-In Bid or the Eurodollar Bid as requested in the Competitive Bid Request for the offered Maximum Competitive Advance set forth in the Competitive Bid. The Maximum Competitive Advance offered by a Lender in a Competitive Bid may be less than the Competitive Advance requested by Borrower in the Competitive Bid Request, but shall be an integral multiple of $1,000,000. Any Competitive Bid which offers an interest rate other than an All-In Bid or ---------- Eurodollar Bid (as -29- requested in the Competitive Bid Request), is in a form other than set forth in Exhibit D or which otherwise contains any term, condition or --------- provision not contained in the Competitive Bid Request shall be disregarded for purposes of this Agreement. A Competitive Bid once submitted to the Administrative Agent shall be irrevocable until 9:00 a.m. (California time) on the date upon which Borrower must accept or reject such Competitive Bid (as set forth in (j) below), and shall expire by its terms at such time unless accepted by Borrower prior thereto. (i) Promptly after 9:00 a.m. on the date upon which it receives Competitive Bids, the Administrative Agent shall notify Borrower of the names of any Lenders which have made Competitive Bids at or before 8:00 a.m. (California time) on that date, provided that if the Lender -------- which serves as the Administrative Agent intends to make a Competitive Bid, it shall do so by notifying Borrower prior to 7:45 a.m. on that date. In each case, the Administrative Agent shall inform Borrower of the Maximum Competitive Advance and All-In Bid or Eurodollar Bid (as applicable) set forth by each Lender in its Competitive Bid. The Administrative Agent shall promptly confirm such notifications in writing delivered in person or by telecopier to Borrower. (j) Borrower may, in its sole and absolute discretion, reject any or all of the Competitive Bids. If Borrower accepts any Competitive Bid, the following shall apply: (a) Borrower must accept all Competitive Bids at all lower interest rates before accepting any portion of a Competitive Bid at a higher interest rate, (b) if two or more Lenders have submitted a Competitive Bid at the same interest rate, then Borrower must accept either all of such Competitive Bids or accept such Competitive Bids in the same proportion as the Maximum Competitive Advance of each Lender bears to the aggregate Maximum Competitive Advances of all such Lenders and (c) Borrower may not accept Competitive Bids for an aggregate amount in excess of the requested Competitive Advance set forth in the Competitive Bid Request. Acceptance of a Competitive Bid by Borrower shall be irrevocable upon communication thereof to the Administrative Agent. The Administrative Agent shall promptly notify each of the Lenders whose Competitive Bid has been accepted by Borrower by telephone, which notification shall promptly be confirmed in writing delivered in person or by telecopier to such Lenders. Any Competitive Bid not accepted by Borrower by 9:00 a.m. (California time) on the date of the proposed Competitive Bid shall be deemed rejected. -30- (k) A Lender whose Competitive Bid has been accepted by Borrower shall make the Competitive Advance in accordance with the Competitive Bid Request and with its Competitive Bid, subject to the applicable conditions set forth in this Agreement by making funds immediately available to the Administrative Agent at the Administrative Agent's Office in the amount of such Competitive Advance not later than 11:00 a.m. (California time) on the date of such acceptance. The Administrative Agent shall then promptly credit the Competitive Advance in immediately available funds to the Designated Deposit Account. (l) The Administrative Agent shall notify Borrower and the Lenders promptly after any Competitive Advance is made of the amounts and maturity of such Competitive Advances and the identity of the Lenders making such Competitive Advances. (m) The Competitive Advances made by a Lender shall be evidenced by that Lender's Competitive Advance Note. (n) Borrower shall pay to the Administrative Agent a fee with respect to each Competitive Bid Request submitted to the Administrative Agent, in the amounts and at the times set forth in a letter agreement between Borrower and Administrative Agent. 2.3 Swing Line Loans. Each request by Borrower for a Swing Line Loan ---------------- shall Be made pursuant to a Request for Loan (or telephonic or other request for a Loan referred to in the second sentence of Section 2.1(c), if applicable) ----- received by the Administrative Agent, at the Administrative Agent's Office, not later than 2:00 p.m. on the day of the requested Swing Line Loan. 2.4 Base Rate Loans. Each request by Borrower for a Base Rate Loan shall --------------- be made pursuant to a Request for Loan (or telephonic or other request for a Loan referred to in the second sentence of Section 2.1(c), if applicable) ----- received by the Administrative Agent, at the Administrative Agent's Office, not later than 11:00 a.m. (California time) on the day prior to the date of the requested Base Rate Loan. All Loans shall constitute Base Rate Loans unless properly designated as Eurodollar Rate Loans. -31- 2.5 Eurodollar Rate Loans --------------------- (a) Each request by Borrower for a Eurodollar Rate Loan shall be made pursuant to a Request for Loan (or telephonic or other request for a Loan referred to in the second sentence of Section 2.1(c), if applicable) received by ----- the Administrative Agent, at the Administrative Agent's Office, not later than 11:00 a.m. (California time) at least three (3) Eurodollar Banking Days before the first day of the applicable Eurodollar Period. (b) Prior to the first day of the applicable Eurodollar Period, the Administrative Agent shall determine the applicable Eurodollar Rate (which determination shall be conclusive in the absence of manifest error) and promptly shall give notice of the same to Borrower and the Lenders by telephone, telecopier or telex. (c) Unless all of the Lenders otherwise consent, no Eurodollar Rate Loan may be requested during the continuance of a Default or Event of Default. (d) Unless the Majority Lenders otherwise consent, no more than six (6) Eurodollar Loans shall be outstanding at any one time. (e) Nothing contained herein shall require any Lender to fund any Eurodollar Rate Advance in the Designated Eurodollar Market. 2.6 Letters of Credit. ----------------- (a) Subject to the terms and conditions hereof, at any time and from time to time from the Closing Date through the Maturity Date, the Issuing Lender shall issue such Letters of Credit under the Main Commit- ment as Borrower may request by a Request for Letter of Credit; provided -------- that (i) giving effect to all such Letters of Credit, the sum of (A) the --- aggregate principal amount outstanding of the Committed Loans, plus (B) ---- the Aggregate Effective Amount of all outstanding Letters of Credit, plus (C) the outstanding principal amount of the Competitive Advances ---- shall not exceed the Main Commitment and (ii) the Aggregate Effective Amount under all outstanding Letters of Credit shall not exceed $5,000,000. Each Letter of Credit shall be in a form and for a purpose acceptable to the Issuing Lender. Unless all the Lenders otherwise consent in a writing delivered to the Administrative Agent, the term of any -32- Letter of Credit shall not exceed one (1) year or extend beyond the Maturity Date. (b) Each Request for Letter of Credit shall be submitted to the Issuing Lender, with a copy to the Administrative Agent, at least three (3) Banking Days prior to the date upon which the related Letter of Credit is proposed to be issued. The Administrative Agent shall promptly notify the Issuing Lender whether such Request for Letter of Credit, and the issuance of a Letter of Credit pursuant thereto, conforms to the requirements of this Agreement. Upon issuance of a Letter of Credit, the Issuing Lender shall promptly notify the Administrative Agent, and the Administrative Agent shall promptly notify the Lenders, of the amount and terms thereof. (c) Upon the issuance of a Letter of Credit, each Lender shall be deemed to have purchased a pro rata participation in such Letter of Credit from the Issuing Lender in an amount equal to that Lender's Pro Rata Share of the Main Commitment. Without limiting the scope and nature of each Lender's participation in any Letter of Credit, to the extent that the Issuing Lender has not been reimbursed by Borrower for any payment required to be made by the Issuing Lender under any Letter of Credit, each Lender shall, pro rata according to its Pro Rata Share, reimburse the Issuing Lender through the Administrative Agent promptly upon demand for the amount of such payment. The obligation of each Lender to so reimburse the Issuing Lender shall be absolute and unconditional and shall not be affected by the occurrence of an Event of Default or any other occurrence or event. Any such reimbursement shall not relieve or otherwise impair the obligation of Borrower to reimburse the Issuing Lender for the amount of any payment made by the Issuing Lender under any Letter of Credit together with interest as hereinafter provided. (d) Borrower agrees to pay to the Issuing Lender through the Administrative Agent an amount equal to any payment made by the Issuing Lender with respect to each Letter of Credit within one (1) Banking Day after demand made by the Issuing Lender therefor, together with interest on such amount from the date of any payment made by the Issuing Lender at the rate applicable to Alternate Base Rate Loans for three Business Days and thereafter at the Default Rate. The principal amount of any such payment shall be used to reimburse the Issuing Lender for the payment made by it under the Letter of Credit and, to the extent that the Lenders have not reimbursed the Issuing Lender pursuant to Section 2.6(c), the ----- interest amount of any such payment --33- shall be for the account of the Issuing Lender. Each Lender that has reimbursed the Issuing Lender pursuant to Section 2.6(c) for its Pro Rata ------ Share of any payment made by the Issuing Lender under a Letter of Credit shall thereupon acquire a pro rata participation, to the extent of such reimbursement, in the claim of the Issuing Lender against Borrower for reimbursement of principal and interest under this Section 2.6(d) and shall share, in accordance with ----- that pro rata participation, in any principal payment made by Borrower with respect to such claim and in any interest payment made by Borrower (but only with respect to periods subsequent to the date such Lender reimbursed the Issuing Lender) with respect to such claim. (e) Borrower may, pursuant to a Request for Loan, request that Advances be made pursuant to Section 2.1(a) to provide funds for the ----- payment required by Section 2.6(d) and, for this purpose, the conditions ----- precedent set forth in Article 8 --------- shall not apply. The proceeds of such Advances shall be paid directly to the Issuing Lender to reimburse it for the payment made by it under the Letter of Credit. (f) If Borrower fails to make the payment required by Section 2.6(d) within the time period therein set forth, in lieu of the ------ reimbursement to the Issuing Lender under Section 2.4(c) the Issuing ------ Lender may (but is not required to), without notice to or the consent of Borrower, instruct the Administrative Agent to cause Advances to be made by the Lenders under the Commitment in an aggregate amount equal to the amount paid by the Issuing Lender with respect to that Letter of Credit and, for this purpose, the conditions precedent set forth in Article 8 shall not apply. The proceeds of such --------- Advances shall be paid directly to the Issuing Lender to reimburse it for the payment made by it under the Letter of Credit. (g) The issuance of any supplement, modification, amendment, renewal, or extension to or of any Letter of Credit shall be treated in all respects the same as the issuance of a new Letter of Credit. (h) The obligation of Borrower to pay to the Issuing Lender the amount of any payment made by the Issuing Lender under any Letter of Credit shall be absolute, unconditional, and irrevocable, subject only to performance by the Issuing Lender of its obligations to Borrower under Uniform Commercial Code Section 5109. Without limiting the foregoing, -34- Borrower's obligations shall not be affected by any of the following circumstances: (i) any lack of validity or enforceability of the Letter of Credit, this Agreement, or any other agreement or instrument relating thereto; (ii) any amendment or waiver of or any consent to departure from the Letter of Credit, this Agreement, or any other agreement or instrument relating thereto, with the consent of Borrower; (iii) the existence of any claim, setoff, defense, or other rights which Borrower may have at any time against the Issuing Lender, the Administrative Agent or any Lender, any beneficiary of the Letter of Credit (or any persons or entities for whom any such beneficiary may be acting) or any other Person, whether in connection with the Letter of Credit, this Agreement, or any other agreement or instrument relating thereto, or any unrelated transactions; (iv) any demand, statement, or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever so long as any such document appeared substantially to comply with the terms of the Letter of Credit; (v) payment by the Issuing Lender in good faith under the Letter of Credit against presentation of a draft or any accompanying document which does not strictly comply with the terms of the Letter of Credit; (vi) the existence, character, quality, quantity, condition, packing, value or delivery of any Property purported to be represented by documents presented in connection with any Letter of Credit or any difference between any such Property and the character, quality, quantity, condition, or value of such Property as described in such documents; -35- (vii) the time, place, manner, order or contents of shipments or deliveries of Property as described in documents presented in connection with any Letter of Credit or the existence, nature and extent of any insurance relative thereto; (viii) the solvency or financial responsibility of any party issuing any documents in connection with a Letter of Credit; (ix) any failure or delay in notice of shipments or arrival of any Property; (x) any error in the transmission of any message relating to a Letter of Credit not caused by the Issuing Lender, or any delay or interruption in any such message; (xi) any error, neglect or default of any correspondent of the Issuing Lender in connection with a Letter of Credit; (xii) any consequence arising from acts of God, war, insurrection, civil unrest, disturbances, labor disputes, emergency conditions or other causes beyond the control of the Issuing Lender; (xiii) so long as the Issuing Lender in good faith determines that the contract or document appears substantially to comply with the terms of the Letter of Credit, the form, accuracy, genuineness or legal effect of any contract or document referred to in any document submitted to the Issuing Lender in connection with a Letter of Credit; and (xiv) where the Issuing Lender has acted in good faith and observed general banking usage, any other circumstances whatsoever. (i) The Issuing Lender shall be entitled to the protection accorded to the Administrative Agent pursuant to Section 10.6, mutatis ---- ------- mutandis. -------- (j) The Uniform Customs and Practice for Documentary Credits, as published in its most current version by the International Chamber of -36- Commerce, shall be deemed a part of this Section and shall apply to all Letters of Credit to the extent not inconsistent with applicable Law. 2.7 Voluntary Reduction of the Commitment. Borrower shall have the right, ------------------------------------- at any time and from time to time, without penalty or charge, upon at least five (5) Banking Days' prior written notice to the Administrative Agent, voluntarily to reduce, permanently and irrevocably, in aggregate principal amounts in an integral multiple of $1,000,000 which are not less than $5,000,000, all or a portion of the then undisbursed portion of the Commitment; provided that any such reduction -------- shall be accompanied by payment of all accrued and unpaid facility fees with respect to the portion of the Commitment being reduced. Any such reduction may be allocated between the Main Commitment and the Swing Line Commitment by Borrower in amounts which are integral multiples of $1,000,000. 2.8 Administrative Agent's Right to Assume Funds Available for Advances. ------------------------------------------------------------------- Unless the Administrative Agent shall have been notified by any Lender no later than the Banking Day prior to the funding by the Administrative Agent of any Loan that such Lender does not intend to make available to the Administrative Agent such Lender's Pro Rata Share of the total amount of such Loan (and provided that the -------- Administrative Agent has given such Lender notice of such Loan in accordance with Section 2.1(d)), the Administrative Agent may assume that such Lender has made - ------ such amount available to the Administrative Agent on the date of the Loan and the Administrative Agent may, in reliance upon such assumption, make available to Borrower a corresponding amount. If the Administrative Agent has made funds available to Borrower based on such assumption and such corresponding amount is not in fact made available to the Administrative Agent by such Lender, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Adminis-trative Agent's demand therefor, the Administrative Agent promptly shall notify Borrower and Borrower shall pay such corresponding amount to the Administrative Agent. The Administrative Agent also shall be entitled to recover from such Lender interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to Borrower to the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to the Federal Funds Rate. -37- ARTICLE 3 PAYMENTS AND FEES ----------------- 3.1 Principal and Interest. ---------------------- (a) Interest shall be payable on the outstanding daily unpaid principal amount of each Advance and each Swing Line Loan from the date thereof until payment in full is made and shall accrue and be payable at the rates set forth herein before and after default, before and after maturity, before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law, with interest on overdue interest to bear interest at the Default Rate to the fullest extent permitted by applicable Laws. (b) Interest accrued on each Base Rate Loan through the last day of each calendar month shall be due and payable on the fifth Banking Day following that day. Interest accrued on each Swing Line Loan through the last day of each calendar month shall be due and payable on that day. Except as otherwise provided in Section 3.8, the unpaid principal amount ------ --- of each Base Rate Loan and each Swing Line Loan shall bear interest at a fluctuating rate per annum equal to the Base Rate. Each change in the interest rate applicable to Base Rate Loans and Swing Line Loans shall take effect simultaneously with the corresponding changes in the Base Rate. Each change in the Base Rate shall be effective as of 12:01 a.m. on the Banking Day on which such change the Base Rate is announced, unless otherwise specified in such announcement, in which case the change shall be effective as so specified. (c) Interest accrued on each Eurodollar Rate Loan which is for a term of three months or less shall be due and payable on the last day of the related Eurodollar Period. Interest accrued on each other Eurodollar Rate Loan shall be due and payable on each Quarterly Payment Date and on the last day of the related Eurodollar Period. Except as otherwise ------ provided in Section 3.8, the unpaid principal amount of any Eurodollar --- Rate Loan shall bear interest at a rate per annum equal to the Eurodollar Rate for that Eurodollar Rate Loan plus the applicable Eurodollar Rate ---- Spread. (d) Interest accrued on each Competitive Advance shall be due and payable on the maturity date of the Competitive Advance. Except as otherwise provided in Section 3.8, the unpaid principal amount of each --- -38- Competitive Advance shall bear interest at the interest rate specified in the related Competitive Bid. (e) If not sooner paid, the principal Indebtedness evidenced by the Notes shall be payable as follows: (i) the principal amount of each Eurodollar Rate Loan shall be payable immediately on the last day of the Eurodollar Period for such Loan; (ii) the principal amount of each Competitive Advance shall be payable immediately on the maturity date specified in the related Competitive Bid; (iii) the principal Indebtedness evidenced by the Notes shall be payable immediately in immediately available funds, to the extent that the sum of (A) the outstanding principal amount of the --- Loans plus (B) the Aggregate Effective Amount of all outstanding ---- Letters of Credit at any time exceeds the Commitment; (iv) the principal Indebtedness evidenced by the Committed Notes shall be payable immediately in immediately available funds, to the extent that the sum of (A) the principal amount of the Committed ------ Loans made under the Main Commitment plus (B) the principal amount of any outstanding ---- Competitive Advances plus (C) the Aggregate Effective Amount of all outstanding ---- Letters of Credit at any time exceeds the Main Commitment; (v) the principal Indebtedness evidenced by the Swing Line Note shall be payable immediately in immediately available funds, to the extent that the principal amount of the outstanding Swing Line Loans at any time exceeds the Swing Line Commitment; and (vi) the principal Indebtedness evidenced by the Notes shall in any event be payable immediately in immediately available funds on the Maturity Date. (f) The principal Indebtedness evidenced by the Notes shall be prepaid on the second anniversary of the Closing Date unless on or before that ------ -39- date Borrower furnishes to the Administrative Agent a written opinion of its legal counsel, in form and substance acceptable to the Administrative Agent, to the effect that all regulatory approvals from Governmental Agencies necessary to permit the maturity date of the credit facilities under this Agreement to extend to the Maturity Date have been obtained and are in full force and effect, attaching a copy of such regulatory approvals. (g) Subject to clause (h) of this Section, the Notes may, at any time and from time to time, voluntarily be paid or prepaid in whole or in part without premium or penalty, except that with respect to any voluntary ------ prepayment under this subsection, (i) any partial prepayment of Loans under the Main Commitment shall be in an integral multiple of $1,000,000, but not less than $5,000,000, (ii) the Administrative Agent shall have received written notice of any prepayment at least one (1) Banking Day, in the case of a Base Rate Loan, and three (3) Banking Days, in the case of a Eurodollar Rate Loan, before the date of prepayment, which notice shall identify the date and amount of the prepayment and the Loan(s) being prepaid, (iii) each prepayment of principal in respect of a Eurodollar Rate Loan shall be accompanied by payment of interest accrued through the date of payment on the amount of principal paid and (iv) in any event, any payment or prepayment of all or any part of any Eurodollar Rate Loan on a day other than the last day of the applicable Eurodollar Period shall be subject to Section 3.7(d). ------ (h) No Competitive Advance Note may be prepaid without the prior written consent of the Lender making such Competitive Advance. 3.2 Facility Fees. On each Quarterly Payment Date and on the earlier of ------------- the Maturity Date and the date upon which the Obligations are paid in full and the Commitment terminated, Borrower shall pay to the Administrative Agent (a) for the account of each Lender according to its Pro Rata Share of the Main Commitment, a facility fee equal to the then applicable Facility Fee Rate times the Main Commitment for the period since the last Quarterly Payment Date and (b) for the account of the Swing Line Lender, a facility fee equal to the then applicable Facility Fee Rate times the Swing Line Commitment for the period since the last Quarterly Payment Date. 3.3 Arrangement Fee. On the Closing Date, Borrower shall pay to the --------------- Arranger the arrangement fee as heretofore agreed upon by letter agreement dated November 21, 1997 between Borrower and the Arranger. The arrangement fee paid to the Arranger is solely for its own account and is nonrefundable. -40- 3.4 Agency Fee Borrower shall pay to the Administrative Agent an agency ---------- fee in such amounts and at such times as heretofore agreed upon by letter agreement dated November 21, 1997 between Borrower and the Administrative Agent. The agency fee paid to the Administrative Agent is solely for its own account and is nonrefundable. 3.5 Letter of Credit Fees. Concurrently with the issuance of each Letter --------------------- of Credit, Borrower shall pay a letter of credit issuance fee to the Issuing Lender, for the sole account of the Issuing Lender, in an amount set forth in a letter agreement dated November 21, 1997 between Borrower and the Issuing Lender. The letter of credit issuance fee is nonrefundable. Borrower shall also concurrently pay to the Administrative Agent, for the ratable account of the Lenders in accordance with their Pro Rata Share of the Main Commitment, standby letter of credit fees in an amount equal to the Letter of Credit Fee Rate times the amount of the ----- Letter of Credit for the period commencing on the earlier of (a) the maturity date of such ---------- Letter of Credit or (b) the first anniversary of the issuance date of such Letter of Credit, and shall further pay such an issuance fee on each anniversary of the issuance date of such Letter of Credit. Borrower shall also pay customary amendment, transfer, negotiation and other fees to the Issuing Lender, for the sole account of the Issuing Lender. 3.6 Increased Commitment Costs. If any Lender determines in good faith -------------------------- that compliance with any Law or regulation enacted or promulgated after the Closing Date, or with any guideline or request from any central bank or other Governmental Agency issued or made after the Closing Date (whether or not having the force of Law) has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's portion of the Commitment or its making or maintaining of Advances or Swing Line Loans, below the rate which the Lender or such other corporation could have achieved but for such compliance (taking into account the policies of such Lender or corporation with regard to capital), then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), immediately pay to such Lender additional amounts sufficient to compensate such Lender or other corporation for such reduction. A certificate as to such amounts, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error. Each Lender agrees promptly to notify the Borrower and the Administrative Agent of any circumstances that would cause the Borrower to pay additional amounts pursuant to this Section, provided that the -------- failure to give such notice shall not affect the Borrower's obligation to pay such additional amounts hereunder. -41- 3.7 Eurodollar Fees and Costs. ------------------------- (a) If, after the date hereof, the existence or occurrence of any Special Eurodollar Circumstance: (1) shall subject any Lender or its Eurodollar Lending Office to any tax, duty or other charge or cost with respect to any Eurodollar Rate Advance, its Notes or its obligation to make Eurodollar Rate Advances, or shall change the basis of taxation of payments to any Lender of the principal of or interest on any Eurodollar Rate Advance or any other amounts due under this Agreement in respect of any Eurodollar Rate Advance, its Notes or its obligation to make Eurodollar Rate Advances (except for changes in ------ any tax on the overall net income, gross income or gross receipts of such Lender or its Eurodollar Lending Office); (2) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Board of --------- Governors of the Federal Reserve System), special deposit or similar requirements against assets of, deposits with or for the account of, or credit extended by, any Lender or its Eurodollar Lending Office; or (3) shall impose on any Lender or its Eurodollar Lending Office or the Designated Eurodollar Market any other condition affecting any Eurodollar Rate Advance, its Notes, its obligation to make Eurodollar Rate Advances or this Agreement, or shall otherwise affect any of the same; and the result of any of the foregoing, as determined by such Lender, increases the cost to such Lender or its Eurodollar Lending Office of making or maintaining any Eurodollar Rate Advance or in respect of any Eurodollar Rate Advance, its Notes or its obligation to make Eurodollar Rate Advances or reduces the amount of any sum received or receivable by such Lender or its Eurodollar Lending Office with respect to any Eurodollar Rate Advance, its Notes or its obligation to make Eurodollar Rate Advances (assuming such Lender's Eurodollar Lending Office had funded 100% of its Eurodollar Rate Advance in the Designated Eurodollar Market), then, upon demand by such Lender (with a copy to the Administrative Agent), Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for -42- such increased cost or reduction (determined as though such Lender's Eurodollar Lending Office had funded 100% of its Eurodollar Rate Advance in the Designated Eurodollar Market). A statement of any Lender claiming compensation under this subsection shall be conclusive in the absence of manifest error. Each Lender agrees to endeavor promptly to notify Borrower of any event of which it has actual knowledge, occurring after the Closing Date, which will entitle such Lender to compensation pursuant to this Section, and agrees to designate a different Eurodollar Lending Office if such designation will avoid the need for or reduce the amount of such compensation and will not, in the judgment of such Lender, otherwise be disadvantageous to such Lender. If any Lender claims compensation under this Section, Borrower may at any time, upon at least four (4) Eurodollar Banking Days' prior notice to the Administrative Agent and Lenders and upon payment in full of the amounts provided for in this Section through the date of such payment plus any prepayment fee required by Section 3.7(d), pay in full all Eurodollar Rate Advances or request ----- that all Eurodollar Rate Advances be converted to Base Rate Advances. (b) If, after the date hereof, the existence or occurrence of any Special Eurodollar Circumstance shall, in the opinion of any Lender, make it unlawful, impossible or impracticable for such Lender or its Eurodollar Lending Office to make, maintain or fund its portion of any Eurodollar Rate Loan, or materially restrict the authority of such Lender to purchase or sell, or to take deposits of, dollars in the Designated Eurodollar Market, or to determine or charge interest rates based upon the Eurodollar Rate, and such Lender shall so notify the Administrative Agent and the other Lenders, then the Lenders' obligation to make Eurodollar Rate Advances shall be suspended for the duration of such illegality, impossibility or impracticability and the Administrative Agent forthwith shall give notice thereof to Borrower. Upon receipt of such notice, the outstanding principal amount of all Eurodollar Rate Advances, together with accrued interest thereon, automatically shall be converted to Base Rate Advances with Eurodollar Periods corresponding to the Eurodollar Loans of which such Eurodollar Rate Advances were a part on either (1) the last day of the Eurodollar Period(s) applicable to such Eurodollar Rate Advances if the affected Lender may lawfully continue to maintain and fund such Eurodollar Rate Advances to such day(s) or (2) immediately if the affected Lender may not lawfully continue to fund and maintain such Eurodollar Rate Advances to such day(s), provided that in such event the -------- conversion shall not be subject to payment of a prepayment fee under Section 3.7(d). ------ -43- (c) If, with respect to any proposed Eurodollar Rate Loan: (1) the Administrative Agent reasonably determines that, by reason of circumstances affecting the Designated Eurodollar Market generally that are beyond the reasonable control of the Lenders, deposits in dollars (in the applicable amounts) are not being offered to each of the Lenders in the Designated Eurodollar Market for the applicable Eurodollar Period; or (2) the Majority Lenders advise the Administrative Agent that the Eurodollar Rate as determined by the Administrative Agent (i) does not represent the effective pricing to such Lenders for deposits in dollars in the Designated Eurodollar Market in the relevant amount for the applicable Eurodollar Period, or (ii) will not adequately and fairly reflect the cost to such Lenders of making the applicable Eurodollar Rate Advances; then the Administrative Agent forthwith shall give notice thereof to Borrower and the Lenders, whereupon until the Administrative Agent notifies Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of the Lenders to make any future Eurodollar Rate Advances shall be suspended. If at the time of such notice there is then pending a Request for Loan that specifies a Eurodollar Rate Loan, such Request for Loan shall be deemed to specify a Base Rate Loan. (d) Upon payment or prepayment of any Eurodollar Rate Advance, (other than as the result of a conversion required under Section 3.7(b)), on a day other ------- than the last day in the applicable Eurodollar Period (whether voluntarily, involuntarily, by reason of acceleration, or otherwise), or upon the failure of Borrower to borrow on the date or in the amount specified for a Eurodollar Rate Loan in any Request for Loan, Borrower shall pay to the appropriate Lender a prepayment fee or failure to borrow fee, as the case may be, calculated as follows (and determined as though 100% of the Eurodollar Rate Advance had been funded in the Designated Eurodollar Market): (1) principal amount of the Eurodollar Rate Advance, times ----- [number of days between the date of prepayment and the last day -44- in the applicable Eurodollar Period], divided by 360, times the ------- ----- applicable Interest Differential; plus ---- (2) all actual out-of-pocket expenses (other than those taken into account in the calculation of the Interest Differential) incurred by the Lender (excluding allocations of any expense --------- internal to that Lender) and reasonably attributable to such payment or prepayment; provided that no prepayment fee or failure to borrow fee shall be payable -------- (and no credit or rebate shall be required) if the product of the foregoing formula is not a positive number. Each Lender's determination of the amount of any prepayment fee or failure to borrow fee payable under this Section 3.7(d) shall be conclusive in the absence of manifest error. ------ 3.8 Default Rate. From and after the occurrence of any Event of Default ------------ the Loans and the Swing Line Loans shall bear interest at a fluctuating interest rate per annum at all times equal to the sum of the Base Rate plus 3% per annum, --- -- ---- to the fullest extent permitted by applicable Laws. Accrued and unpaid interest on past due amounts (including, without limitation, interest on past due --------- interest) shall be compounded quarterly, on the last day of each calendar quarter, to the fullest extent permitted by applicable Laws. 3.9 Computation of Interest and Fees. Computation of interest on Base -------------------------------- Rate Loans, Swing Line Loans, Eurodollar Rate Loans, Competitive Advances and on facility and letter of credit fees shall be calculated on the basis of a year of 360 days and the actual number of days elapsed. Borrower acknowledges that this calculation method will result in a higher yield to the Lenders than a method based on a year of 365 or 366 days. Any Loan or Swing Line Loan that is repaid on the same day on which it is made shall bear interest for one day. Notwithstanding anything in this Agreement to the contrary, interest in excess of the maximum amount permitted by applicable Laws shall not accrue or be payable hereunder or under the Notes, and any amount paid as interest hereunder or under the Notes which would otherwise be in excess of such maximum permitted amount shall instead be treated as a payment of principal. 3.10 Non-Banking Days. If any payment to be made by Borrower or any other ---------------- Party under any Loan Document shall come due on a day other than a Banking Day, payment shall instead be considered due on the next succeeding Banking Day and the extension of time shall be reflected in computing interest. -45- 3.11 Manner and Treatment of Payments. -------------------------------- (a) Each payment hereunder or on the Notes or under any other Loan Document shall be made to the Administrative Agent for the account of each of the Lenders, or the Administrative Agent, as the case may be, in immediately available funds not later than 11:00 a.m. (or, in the case of payments with respect to Swing Line Loans, not later than 12:00 noon) on the day of payment (which must be a Banking Day). All payments received after 11:00 a.m. (or, in the case of payments with respect to Swing Line Loans, not later than 12:00 noon) on any particular Banking Day, shall be deemed received on the next succeeding Banking Day. The amount of all payments received by the Administrative Agent for the account of each Lender shall be promptly paid by the Administrative Agent to the applicable Lender in immediately available funds. Should the Administrative Agent fail to remit to any Lender any funds actually received by the Administrative Agent and due to that Lender on the same Banking Day upon which such funds are deemed received by the Administrative Agent as set forth above, that Lender shall be entitled to recover interest on such funds from the Administrative Agent at a rate per annum equal to the Federal Funds Rate. All payments shall be made in lawful money of the United States of America. (b) Each payment or prepayment on account of any Committed Loan shall be applied pro rata according to the outstanding Committed Advances made by each Lender comprising such Committed Loan. Each payment or prepayment of a Competitive Advance shall be applied to the Competitive Advance Note held by the Lender which made such Competitive Advance. (c) Each Lender shall use its best efforts to keep a record of Advances and Swing Line Loans made by it and payments received by it with respect to its Notes and such record shall be presumptive evidence of the amounts owing. Notwithstanding the foregoing sentence, no Lender shall be liable to any Party for any failure to keep such a record. (d) Each payment of any amount payable by Borrower or any other Party under this Agreement or any other Loan Document shall be made free and clear of, and without reduction by reason of, any taxes, assessments or other charges imposed by any Governmental Agency, central bank or comparable authority (other than taxes on income or gross receipts generally applicable -46- to banks). To the extent that Borrower is obligated by applicable Laws to make any deduction or withholding on account of taxes, assessments or other charges imposed by any Governmental Agency from any amount payable to any Lender under any Loan Document, Borrower shall (i) make such deduction or withholding and pay the same to the relevant Governmental Agency and (ii) pay such additional amount to that Lender as is necessary to result in that Lender's receiving a net after-tax (or after-assessment or after-charge) amount equal to the amount to which that Lender would have been entitled under the Loan Document absent such deduction or withholding. If and when receipt of such payment results in an excess payment or credit to that Lender on account of such taxes, assessments or other charges, that Lender shall refund such excess to Borrower. (e) Each Lender which is organized outside the United States of America shall promptly deliver to Borrower and the Administrative Agent a completed Internal Revenue Service Form 4224 and any other certificate or statement or exemption required by applicable Laws, properly completed and duly executed by such Lender, to establish that such payment is (1) not subject to withholding under the Code because such payment is effectively connected with the conduct by such Lender of a trade or business in the United States of America or (2) totally exempt from United States tax under a provision of an applicable tax treaty. Unless Borrower and the Administrative Agent have received such Form or other documents satisfactory to them indicating that payments hereunder or under the Notes are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Administrative Agent shall withhold the taxes from such payment at the applicable statu- tory rate in the case of payments to or for any Lender organized under the Laws of a jurisdiction outside the United States of America and Section 3.11(d) shall not apply thereto. ------- 3.12 Funding Sources. Nothing in this Agreement shall be deemed to --------------- obligate any Lender to obtain the funds for any Loan, Swing Line Loan or Advance in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan, Swing Line Loan or Advance in any particular place or manner. 3.13 Failure to Charge Not Subsequent Waiver. Any decision by the --------------------------------------- Administrative Agent or any Lender not to require payment of any interest (including interest arising --------- under Section 3.8), fee, cost or other amount payable under any Loan ---- -47- Document, or to calculate any amount payable by a particular method, on any occasion shall in no way limit or be deemed a waiver of the Administrative Agent's or such Lender's right to require full payment of any interest (including interest arising under Section 3.8), fee, cost or other amount --------- --- payable under any Loan Document, or to calculate an amount payable by another method, on any other or subsequent occasion. 3.14 Administrative Agent's Right to Assume Payments Will be Made by --------------------------------------------------------------- Borrower. Unless the Administrative Agent shall have been notified by Borrower - -------- prior to the date on which any payment to be made by Borrower hereunder is due that Borrower does not intend to remit such payment, the Administrative Agent may, in its discretion, assume that Borrower has remitted such payment when so due and the Administrative Agent may, in its discretion and in reliance upon such assumption, make available to each Lender on such payment date an amount equal to such Lender's share of such assumed payment. If Borrower has not in fact remitted such payment to the Administrative Agent, each Lender shall forthwith on demand repay to the Administrative Agent the amount of such assumed payment made available to such Lender, together with interest thereon in respect of each day from and including the date such amount was made available by the Administrative Agent to such Lender to the date such amount is repaid to the Administrative Agent at a rate per annum equal to the actual cost to the Administrative Agent of funding such amount as notified by the Administrative Agent to such Lender. 3.15 Fee Determination Detail. The Administrative Agent, and any Lender, ------------------------ shall provide reasonable detail to Borrower regarding the manner in which the amount of any payment to the Lenders, or that Lender, under Article 3 has been determined. --------- 3.16 Survivability All of Borrower's obligations under Sections 3.6 and ------------- --- 3.7 shall survive the date on which all Loans and the Swing Line Loans are fully - --- paid. -48- ARTICLE 4 REPRESENTATIONS AND WARRANTIES ------------------------------ Borrower represents and warrants to the Lenders that: 4.1 Existence and Qualification; Power; Compliance With Laws. Borrower is -------------------------------------------------------- a corporation duly formed, validly existing and in good standing under the Laws of Nevada. Borrower is duly qualified to transact business, and is in good standing, in Nevada and each other jurisdiction in which the conduct of its business or the ownership or leasing of its Properties makes such qualification or registration necessary, except where the failure so to qualify or register and ------ to be in good standing would not constitute a Material Adverse Effect. Borrower has all requisite corporate power and authority to conduct its business, to own and lease its Properties and to execute and deliver each Loan Document to which it is a Party and to perform the Obligations. All outstanding shares of capital stock of Borrower are duly authorized, validly issued, fully paid, nonassessable and issued in compliance with all applicable state and federal securities and other Laws. Borrower is in compliance with all Laws and other legal requirements applicable to its business, has obtained all authorizations, consents, approvals, orders, licenses and permits from, and has accomplished all filings, registra- tions and qualifications with, or obtained exemptions from any of the foregoing from, any Governmental Agency that are necessary for the transaction of its business, except where the failure so to comply, file, register, qualify or ------ obtain exemptions does not constitute a Material Adverse Effect. 4.2 Authority; Compliance With Other Agreements and Instruments and --------------------------------------------------------------- Government Regulations. The execution, delivery and performance by each Party - ---------------------- of the Loan Documents to which it is a party have been duly authorized by all necessary corporate action, and do not: (a) Require any consent or approval not heretofore obtained of any partner, director, stockholder, security holder or creditor of such Party; (b) Violate or conflict with any provision of such Party's certificate of incorporation or bylaws; (c) Result in or require the creation or imposition of any Lien or Right of Others upon or with respect to any Property now owned or leased or hereafter acquired by such Party; -49- (d) Violate any Requirement of Law applicable to such Party; (e) result in a breach of or default under, or would, with the giving of notice or the lapse of time or both, constitute a breach of or default under, or cause or permit the acceleration of any obligation owed under, any indenture or loan or credit agreement or any other Contractual Obligation to which such Party is a party or by which such Party or any of its Property is bound or affected; and no such Party is in violation of, or default under, any Requirement of Law or Contractual Obligation, or any indenture, loan or credit agreement described in Section 4.2(e), in any respect that constitutes a Material Adverse Effect. ------ 4.3 No Governmental Approvals Required. Subject to the representations of ---------------------------------- the Lenders contained in Section 11.8, no authorization, consent, approval, order, license ---- or permit from, or filing, registration or qualification with, any Governmental Agency is required to authorize or permit under applicable Laws the execution, delivery and performance by each Party of the Loan Documents to which it is a party. 4.4 Subsidiaries. ------------ (a) Schedule 4.4 hereto correctly sets forth the names, the form ------------ of legal entity, number of shares of capital stock issued and outstanding, jurisdictions of organization and chief executive offices of all Subsidi- aries of Borrower. Except as described in Schedule 4.4, Borrower does ------------ not own any capital stock or equity interest in any Person. (b) Each Subsidiary of Borrower is in compliance with all Laws and other requirements applicable to its business and has obtained all authorizations, consents, approvals, orders, licenses, and permits from, and each such Subsidiary has accomplished all filings, registrations, and qualifications with, or obtained exemptions from any of the foregoing from, any Governmental Agency that are necessary for the transaction of its business, except where the failure so to comply, file, register, ------ qualify or obtain exemptions does not constitute a Material Adverse Effect. 4.5 Financial Statements. Borrower has furnished to the Lenders (a) the -------------------- audited consolidated financial statements of Borrower and its Subsidiaries as at December 31, 1996 and for the Fiscal Year then ended and (b) the unaudited -50- consolidated financial statements of Borrower and its Subsidiaries as at September 30, 1997 and for the three Fiscal Quarters then ended. Such financial statements fairly present the financial condition and the results of operations of Borrower and its Subsidiaries as at such dates and for such periods in accordance with GAAP, consistently applied. 4.6 No Other Liabilities; No Material Adverse Effect. Borrower and its ------------------------------------------------ Subsidiaries do not have any material liability or material contingent liability not reflected or disclosed in the balance sheet or notes thereto described in Section 4.5(b), ----- other than liabilities and contingent liabilities arising in the ordinary course of business subsequent to September 30, 1997. No event or circumstance has occurred that constitutes a Material Adverse Effect with respect to Borrower and its Subsidiaries since September 30, 1997. 4.7 Title to and Location of Property. Borrower and its Subsidiaries have --------------------------------- good and valid title to all the Property reflected in the balance sheet described in Section 4.5(b), other than Property subsequently sold or disposed of in the ordinary course of business, free and clear of all Liens and Rights of Others, other than (i) Liens and Rights of Others ---------- permitted by Section 6.8. --- 4.8 Intangible Assets. Borrower owns, or possesses the right to use to ----------------- the extent necessary in its business, all trademarks, trade names, copyrights, patents, patent rights, computer software, licenses and other Intangible Assets that are used in the conduct of its business as now operated and which are material to the condition (financial or otherwise), business or operations of Borrower, and no such Intangible Asset, to the best knowledge of Borrower, conflicts with the valid trademark, trade name, copyright, patent, patent right or Intangible Asset of any other Person to the extent that such conflict constitutes a Material Adverse Effect. 4.9 Governmental Regulation. Borrower and its Subsidiaries have obtained ----------------------- all approvals necessary under the Public Utility Holding Company Act of 1935 and the Federal Power Act to permit the execution, delivery and performance of the Obligations under the Loan Documents. Neither Borrower nor any of its Subsidiaries is subject to regulation under the Interstate Commerce Act, the Investment Company Act of 1940 or to any other Law limiting or regulating its ability to incur Indebtedness for money borrowed. 4.10 Litigation. Except for (a) any matter fully covered (subject to ---------- ------ applicable deductibles and retentions) by insurance for which the insurance carrier has assumed -51- full responsibility, (b) any matter, or series of related matters, involving a claim against Borrower or any of its Subsidiaries of less than $5,000,000, (c) matters described in public documents filed with Governmental Agencies and previously delivered to the Lenders, and (d) matters set forth in Schedule 4.10, ---- there are no actions, suits, proceedings or investigations pending as to which Borrower or any of its Subsidiaries have been served or have received notice or, to the best knowledge of Borrower, threatened against or affecting Borrower or any of its Subsidiaries or any Property of any of them before any Governmental Agency. Except for matters set forth in Schedule 4.10, ------ ------------- there is no reasonable basis, to the best knowledge of Borrower, for any action, suit, proceeding or investigation against or affecting Borrower or any of its Subsidiaries or any Property of any of them before any Governmental Agency which would constitute a Material Adverse Effect. 4.11 Binding Obligations. Each of the Loan Documents will, when executed ------------------- and delivered by any Party, constitute the legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms, except as ------ enforcement may be limited by Debtor Relief Laws or equitable principles relating to the granting of specific performance and other equitable remedies as a matter of judicial discretion. 4.12 No Default. No event has occurred and is continuing that is a ---------- Default or Event of Default. 4.13 Pension Plans. Schedule 4.13 correctly lists each Pension Plan -------------- ------------- which, as of the Closing Date, Borrower or any of its ERISA Affiliates maintains or to which, as of the Closing Date, Borrower or any ERISA Affiliate contributes or is required to contribute. As of the Closing Date, all contributions required to be made under any such Pension Plan have been made to such plan or have been reflected as a liability on the consolidated balance sheet described in Section 4.5(b). ----- There is no "accumulated funding deficiency" within the meaning of Section 302 of ERISA or any liability to the PBGC with respect to any Pension Plan other than a Multiemployer Plan. 4.14 Regulations G, U and X. No part of the proceeds of any Advance or ---------------------- Swing Line Loan hereunder will be used to purchase or carry, or to extend credit to others for the purpose of purchasing or carrying, any "margin stock" (as such term is defined in Regulation G) in violation of Regulations G, U or X. Neither Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any such "margin stock." -52- 4.15 Disclosure. No written statement made by a Responsible Official of ---------- Borrower to the Administrative Agent, the Arranger, the Swing Line Lender or any Lender in connection with this Agreement, or in connection with any Advance or Swing Line Loan, contains any untrue statement of a material fact or omits a material fact necessary to make the statement made not misleading in light of all the circumstances existing at the date the statement was made. Borrower has not intentionally withheld from the Lenders any information with respect to any circumstance or event which constitutes a Material Adverse Effect. 4.16 Tax Liability. Borrower and its Subsidiaries have filed all tax ------------- returns which are required to be filed, and have paid, or made provision for the payment of, all taxes with respect to the periods, Property or transactions covered by said returns, or pursuant to any assessment received by Borrower or any of its Subsidiaries, except (a) taxes for which Borrower has been fully indemnified and ------ (b) such taxes, if any, as are being contested in good faith by appropriate proceedings and as to which adequate reserves have been established and maintained. To the best knowledge of Borrower, there is no tax assessment contemplated or proposed by any Governmental Agency against Borrower or any of its Subsidiaries that would constitute a Material Adverse Effect. 4.17 Pari Passu Status. No Indebtedness of Borrower or any of its ----------------- Subsidiaries is entitled to priority of payment over the Obligations, whether by contract or by operation of law, provided that it is acknowledged that the First Mortgage Bonds -------- have the benefit of the collateral described in the Indenture. The Property of Borrower and its Subsidiaries is not subject to any Lien or Negative Pledge not described on Schedule 4.17 or Schedule 6.8, other - ------------- ------------ than Liens in favor of the Trustee under the Indenture securing the obligations of Borrower under the Indenture. 4.18 Hazardous Materials. Except as described in Schedule 4.18, (a) ------------------- ------------- neither Borrower nor any Subsidiary of Borrower at any time has disposed of, discharged, released or threatened the release of any Hazardous Materials on, from or under the Property in violation of any Hazardous Materials Law that would individually or in the aggregate constitute a Material Adverse Effect, (b) to the best knowledge of Borrower, no condition exists that violates any Hazardous Material Law affecting any Property except for such violations that would not individually or in the aggregate have a Material Adverse Effect, (c) no Property or any portion thereof is or has been utilized by Borrower or any Subsidiary of Borrower as a site for the manufacture of any Hazardous Materials and (d) to the extent that any Hazardous Materials are used, generated or stored by Borrower or any Subsidiary of Borrower on any Property, or -53- transported to or from such Property by Borrower or any Subsidiary of Borrower, such use, generation, storage and transportation are in compliance in all material respects with all Hazardous Materials Laws. -54- ARTICLE 5 AFFIRMATIVE COVENANTS --------------------- (OTHER THAN INFORMATION AND -------------------------- REPORTING REQUIREMENTS) ---------------------- So long as any Advance or Swing Line Loan remains unpaid, or any other Obligation remains unpaid or unperformed, or any portion of the Commitment remains in force, Borrower shall, and shall cause each of its Subsidiaries to, unless the Administrative Agent (with the approval of the Majority Lenders) otherwise consents in writing: 5.1 Payment of Taxes and Other Potential Liens. Pay and discharge ------------------------------------------ promptly all taxes, assessments and governmental charges or levies imposed upon any of them, upon their respective Property or any part thereof, upon their respective income or profits or any part thereof or upon any right or interest of the Administrative Agent or any Lender under any Loan Document, except that Borrower and its ------ Subsidiaries shall not be required to pay or cause to be paid (a) any income or gross receipts tax or any other tax on or measured by income gener-ally applicable to banks or (b) any tax, assessment, charge or levy that is not yet past due, or is being contested in good faith by appropriate proceedings, so long as the relevant entity has established and maintains adequate reserves for the payment of the same and by reason of such nonpayment and contest no material item or portion of Property of Borrower and its Subsidiaries, taken as a whole, is in jeopardy of being seized, levied upon or forfeited. 5.2 Preservation of Existence. Preserve and maintain their respective ------------------------- existences in the jurisdiction of their formation and all authorizations, rights, franchises, privileges, consents, approvals, orders, licenses, permits, or registrations from any Governmental Agency that are necessary for the transaction of their respec- tive business, and qualify and remain qualified to transact business in each jurisdiction in which such qualification is necessary in view of their respective business or the ownership or leasing of their respective Properties except that ------ a merger permitted under Section 6.2 shall not constitute a violation of this --- covenant. 5.3 Maintenance of Properties. Maintain, preserve and protect all of ------------------------- their respective depreciable Properties in good order and condition, subject to wear and tear in the ordinary course of business, and not permit any waste of their respective Properties. -55- 5.4 Maintenance of Insurance. Maintain liability, casualty and other ------------------------ insurance (subject to customary deductibles and retentions), with responsible insurance companies in such amounts and against such risks as is carried by responsible companies engaged in similar businesses and owning similar assets in the general areas in which Borrower and its Subsidiaries operate. 5.5 Compliance With Laws. Comply with all Requirements of Laws -------------------- noncompliance with which constitutes a Material Adverse Effect, except that Borrower and its Subsidiaries ------ need not comply with a Requirement of Law then being contested by any of them in good faith by appropriate proceedings. 5.6 Inspection Rights. At any time during regular business hours and as ----------------- often as requested (but not so as to materially interfere with the business of Borrower or any of its Subsidiaries), permit the Administrative Agent or any authorized employee, agent or representative thereof, to examine, audit and make copies and abstracts from the records and books of account of, and to visit and inspect the Properties of, Borrower and its Subsidiaries and to discuss the affairs, finances and accounts of Borrower and its Subsidiaries with any of their officers, key employees, accountants, customers or vendors. Following the occurrence of any Default, (if in any event the Administrative Agent does not obtain information reasonably satisfactory to a Lender as a result of any examination, audit, visit, inspection or discussion referred to above) each Lender shall, upon written notice to Administrative Agent, be permitted to exercise each of the rights granted to the Administrative Agent by this Section. 5.7 Keeping of Records and Books of Account. Keep adequate records and --------------------------------------- books of account reflecting all financial transactions in conformity with GAAP, consistently applied, and in material conformity with all applicable requirements of any Governmental Agency having regulatory jurisdiction over Borrower or any of its Subsidiaries. 5.8 Compliance With Agreements. Promptly and fully comply with all -------------------------- Contractual Obligations under all material agreements, indentures, leases and/or instruments to which any one or more of them is a party, whether such material agreements, indentures, leases or instruments are with a Lender or another Person, except ------ that Borrower and its Subsidiaries need not comply with Contractual Obligations (a) under any such agreements, indentures, leases or instruments then being contested by any of them in good faith by appropriate proceedings or (b) if the failure to comply with such agreements, indentures, leases or instruments does not constitute a Material Adverse Effect. -56- 5.9 Use of Proceeds. Use the proceeds of Advances and Swing Line Loans --------------- only for proper corporate purposes of Borrower. 5.10 Hazardous Materials Laws. Keep and maintain all Property and each ------------------------ portion thereof in compliance in all material respects with all applicable Hazardous Materials Laws and promptly notify the Administrative Agent in writing (attaching a copy of any pertinent written material) of (a) any and all material enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened in writing by a Governmental Agency pursuant to any applicable Hazardous Materials Laws, (b) any and all material claims made or threatened in writing by any Person against Borrower relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials and (c) discovery by any Senior Officer of Borrower of any material occurrence or condition on any real property adjoining or in the vicinity of any Property that could reasonably be expected to cause such Property or any part thereof to be subject to any restrictions on ownership, occupancy, transferability or use of such Property under any applicable Hazardous Materials Laws. -57- ARTICLE 6 --------- NEGATIVE COVENANTS ------------------ So long as any Advance or Swing Line Loan remains unpaid, or any other Obligation remains unpaid or unperformed, or any portion of the Commitment remains in force, Borrower shall not, and shall not permit any of its Subsidiaries to, unless the Administrative Agent (with the approval of the Majority Lenders or, if required pursuant to Section 11.2, all of the Lenders) ---- otherwise consents in writing: 6.1 Disposition of Property. Make any Disposition of its Property, ----------------------- whether now owned or hereafter acquired, if, giving effect thereto, the aggregate book value or fair market value of the Property which is the subject of all Dispositions by Borrower and its Subsidiaries during the immediately preceding twelve (12) month period exceeds $100,000,000. 6.2 Mergers. Merge, consolidate or amalgamate with or into any Person, ------- except: (a) mergers, consolidations or amalgamations of a Subsidiary of Borrower into Borrower; and (b) mergers, consolidations or amalgamations in furtherance of Investments and Acquisitions permitted by this Agreement; provided, in each case, that (y) no Default or Event of Default occurs by reason - -------- of the consummation of such merger, consolidation or amalgamation, and (z) Borrower is the survivor of such merger, consolidation or amalgamation, or Borrower's survivor expressly assumes the Obligations of Borrower to the Administrative Agent and the Lenders pursuant to a written instrument which is in form and substance acceptable to the Administrative Agent and the Majority Lenders. 6.3 Investments and Acquisitions. Make any Acquisition or enter into any ---------------------------- agreement to make any Acquisition, or make or suffer to exist any Investment, except: ------ (a) Investments existing on the Closing Date and disclosed in Schedule 4.4; ------------ (b) Investments consisting of Cash Equivalents; and -58- (c) Acquisitions and Investments not described above in an amount not exceeding (i) $250,000,000 in any Fiscal Year or (ii) $750,000,000 in the aggregate during the term of this Agreement; provided that nothing in this Section 6.3(c) shall -------- permit an Investment prohibited by Section 6.13. ---- 6.4 Hostile Tender Offers. Make any offer to purchase or acquire, or --------------------- consummate a purchase or acquisition of, 5% or more of the capital stock of any corporation or other business entity if the board of directors of such corporation or business entity has notified Borrower that it opposes such offer or purchase. 6.5 Distributions. Make any Distribution which would result in a Default ------------- or, in any event during the existence of an Event of Default, whether from capital, income or otherwise, and whether in Cash or other Property. 6.6 ERISA Compliance (a) Permit any Pension Plan, other than a ---------------- ---------- Multiemployer Plan, to incur any material "accumulated funding deficiency," as such term is defined in Section 302 of ERISA, whether or not waived, or (b) in a manner which could result in the imposition of a material Lien on any Property of Borrower or any of its Subsidiaries pursuant to Section 4068 of ERISA, (i) permit any Pension Plan maintained by any of them to suffer a Termination Event or (ii) incur withdrawal liability under any Multiemployer Plan. 6.7 Change in Nature of Business. Make any material change in the nature ---------------------------- of the business of Borrower and its Subsidiaries, taken as a whole, as at present conducted. 6.8 Indebtedness and Contingent Obligations. Create, incur, assume or --------------------------------------- suffer to exist any Indebtedness or Contingent Obligation, except: ------ (a) Indebtedness and Contingent Obligations in favor of the Lenders or the Administrative Agent under the Loan Documents; (b) Existing Indebtedness and Contingent Obligations disclosed in Schedule 6.8 and, subject to Section 6.12, Indebtedness or Contingent ------------ ---- Obligations which refinance or replace such Indebtedness or Contingent Obligations, provided, in each case, that the principal amount thereof is not -------- increased; -59- (c) Indebtedness not described above that is not secured by a Lien on any Property of Borrower or any of its Subsidiaries not in excess of (i) $300,000,000 incurred during any Fiscal Year or (ii) $900,000,000 in the aggregate outstanding at any time; and (d) Indebtedness pursuant to any series of First Mortgage Bonds hereafter issued in accordance with the terms of the Indenture. 6.9 Transactions with Affiliates. Enter into any transaction of any kind ---------------------------- with any Affiliate of Borrower other than (a) transactions between or among Borrower and ---------- its wholly-owned Subsidiaries or between or among its wholly-owned Subsidiaries and (b) transactions on terms at least as favorable to Borrower or its Subsidiaries as would be the case in an arm's-length transaction between unrelated parties of equal bargaining power. 6.10 Adjusted Stockholders' Equity. Permit Adjusted Stockholders' Equity, ----------------------------- as of the last day of any Fiscal Quarter, to be less than the sum of (a) $800,000,000 plus (b) ------ ---- an amount equal to 33 1/3% of the net cash proceeds from all issuances by Borrower of its capital stock subsequent to the Closing Date. 6.11 Total Debt to Total Capitalization. Permit the ratio of Total Debt ---------------------------------- to Total Capitalization, as of the last day of any Fiscal Quarter, to be greater than 0.65 to 1.00. 6.12 Amendments to Certain Agreements. Amend the Indenture in a manner -------------------------------- which is adverse to the interests of the Lenders or, in any event, to change the definition or means of application of the definition of "Excluded Property" used therein. 6.13 Investments in Subsidiaries. Make any Investment in a Subsidiary of --------------------------- Borrower if, giving effect thereto, the aggregate of all Investments made by Borrower in all Subsidiaries of Borrower during the immediately preceding twelve (12) month period exceeds $100,000,000. -60- ARTICLE 7 --------- INFORMATION AND REPORTING REQUIREMENTS -------------------------------------- 7.1 Financial and Business Information. So long as any Advance or Swing ---------------------------------- Line Loan remains unpaid, or any other Obligation remains unpaid or unperformed, or any portion of the Commitment remains in force, Borrower shall, unless the Administrative Agent (with the approval of the Majority Lenders) otherwise consents in writing, deliver to the Lenders, at Borrower's sole expense: (a) As soon as practicable, and in any event concurrently with its submission to the Securities and Exchange Commission, Borrower's quarterly report on form 10-Q, together with a certificate executed by a Senior Officer of Borrower stating that no Default or Event of Default has occurred as of the date of such quarterly report; (b) As soon as practicable, and in any event concurrently with its submission to the Securities and Exchange Commission, Borrower's annual report on form 10-K, together with a certificate executed by a Senior Officer of Borrower stating that no Default or Event of Default has occurred as of the date of such annual report; (c) As soon as practicable, and in any event within 45 days after the end of each Fiscal Quarter (other than the last Fiscal Quarter in each Fiscal Year, and then within 90 days after the end of such Fiscal Quarter), a Compliance Certificate; (d) Promptly after the same are available, copies of each proxy or financial statement or other report or communication sent to the shareholders of Borrower, and copies of all other regular, periodic and special reports and registration statements which Borrower or a Subsidiary of Borrower may file or be required to file under Sections 13 or 15(d) of the Securities Exchange Act of 1934; (e) Promptly after request by any Lender, copies of any other specific report or other document that was filed by Borrower or any of its Subsidiaries with any Governmental Agency if such report or document would, under applicable Laws, be available to any Person submitting a request therefor to that Governmental Agency; -61- (f) As soon as practicable, and in any event within one Banking Day after a Responsible Official of Borrower obtains actual knowledge of the existence of any condition or event which constitutes a Default or Event of Default, written notice specifying the nature and period of exis- tence thereof and specifying what action Borrower or any of its Subsidi- aries are taking or propose to take with respect thereto; (g) Promptly upon a Senior Officer of Borrower becoming aware, and in any event within five Banking Days after becoming aware, of the occurrence of any (i) "reportable event" (as such term is defined in Section 4043 of ERISA) or (ii) "prohibited transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) in connection with any Pension Plan, other than a Multiemployer Plan, or any trust created thereunder, a written notice specifying the nature thereof, what action Borrower and any of its Subsidiaries is taking or proposes to take with respect thereto, and, when known, any action taken by the Internal Revenue Service with respect thereto; and (h) Such other data and information as from time to time may be reasonably requested by the Administrative Agent or by any Lender. -62- ARTICLE 8 --------- CONDITIONS ---------- 8.1 Initial Advances, Swing Line Loans and Letters of Credit. The -------------------------------------------------------- obligation of each Lender to make the initial Advance to be made by it hereunder, the obligation of the Swing Line Lender to make the initial Swing Line Loan and the obligation of the Issuing Bank to issue the initial Letter of Credit is subject to the fulfillment of the following conditions precedent, each of which shall be satisfied prior to the making of the initial Advances, Swing Line Loans (unless all of the Lenders, in their sole and absolute discretion, shall agree otherwise): (a) The Administrative Agent shall have received all of the following, each of which shall be originals unless otherwise specified, each properly executed by a Responsible Official of each party thereto, each dated as of the Closing Date and each in form and substance satis- factory to the Administrative Agent, its legal counsel, and the Lenders (unless otherwise specified or, in the case of the date of any of the following, unless the Administrative Agent and each Lender otherwise agree or direct): (1) executed counterparts of this Agreement, sufficient in number for distribution to the Lenders and Borrower; (2) the Committed Advance Notes executed by Borrower in favor of each Lender, each in a principal amount equal to that Lender's Pro Rata Share of the Main Commitment; (3) the Competitive Advance Notes executed by Borrower in favor of each Lender, each in a principal amount equal to the Main Commitment; (4) the Swing Line Note executed by Borrower in favor of the Swing Line Bank; (5) such documentation as the Administrative Agent may reasonably require to establish the due organization, valid existence and good standing of each of Borrower and its Subsidiaries, its qualification to engage in business in each jurisdiction in which it is engaged in business or required to be so qualified, its authority to execute, deliver and perform the Loan Documents, and the identity, authority and -63- capacity of each Responsible Official thereof authorized to act on its behalf, including, without limitation, certified copies of its certificate --------- of incorporation and amendments thereto, bylaws and amendments thereto, certificates of good standing and/or qualification to engage in business, tax clearance certificates, certificates of corporate resolutions, incumbency certificates, Certificates of Responsible Officials, and the like; (6) the Opinion of Counsel; (7) a Certificate of a Responsible Official signed by a Senior Officer of Borrower certifying that the conditions specified in Sections 8.1(b) ----- and 8.1(c) have been satisfied; ----- (8) a Request for Loan; (9) evidence that the execution, delivery and performance of the Loan Documents has been authorized and approved by the Nevada Public Service Commission and any other Governmental Agencies, the approval of which is required to permit Borrower to legally enter into the Loan Documents; and (10) such other assurances, certificates, documents, consents or opinions as the Administrative Agent reasonably may require. (b) The representations and warranties of Borrower contained in Article 4 shall be true and correct. --------- (c) Borrower shall be in compliance with all the terms and provisions of the Loan Documents, and no Default or Event of Default shall have occurred and be continuing. (d) Borrower shall, concurrently with the Closing Date repay in full the indebtedness to the other lenders under the Existing Loan Documents, as well as all interest, costs, fees and expenses associated therewith. (e) Borrower shall have paid the fees described in Section 3.3. --- -64- 8.2 Any Advance, etc.. In addition to any applicable conditions precedent ---------------- set forth elsewhere in this Article 8, the obligation of each Lender to make any --------- Advance, and the obligation of the Swing Line Lender to make any Swing Line Loan and the obligation of the Issuing Lender to issue any Letter of Credit, is subject to the following conditions precedent: (a) except as disclosed by Borrower and approved in writing by the Majority Lenders, the representations and warranties contained in Article 4 (other ---------------- than Sections 4.4(a), 4.5, 4.6, 4.10 and 4.18 and except with respect to ----- ---- ---- ---- ---- any insignificant Subsidiary) shall be true and correct on and as of the date of the Advance or Swing Line Loan as though made on that date; (b) the Administrative Agent shall have timely received a Request for Loan in compliance with Article 2 (or telephonic or other request for loan --------- referred to in the second sentence of Section 2.1(c), if applicable) and shall have ----- promptly notified each Lender that is to fund such Advance or Swing Line Loan of such request or (as applicable) the Issuing Lender shall have timely received a Request for Letter of Credit in compliance with Article 2; --------- (c) No Default or Event of Default shall have occurred; and (d) the Administrative Agent shall have received, in form and substance satisfactory to the Administrative Agent, such other assurances, certificates, documents or consents related to the foregoing as the Administrative Agent reasonably may require. -65- ARTICLE 9 --------- EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT ---------------------------------------------------- 9.1 Events of Default. The existence or occurrence of any one or more of ----------------- the following events, whatever the reason therefor and under any circumstances whatsoever, shall constitute an Event of Default: (a) Borrower fails to pay any principal on any of the Notes, or any portion thereof, on the date when due; or (b) Borrower fails to pay any interest on any of the Notes, or any portion thereof, within three (3) Banking Days after the date when due; or fails to pay any other fee or amount payable to Administrative Agent or the Lenders under any Loan Document, or any portion thereof, within three (3) Banking Days after demand therefor; or (c) Any failure to comply with Section 7.1(f); or ------ (d) Borrower, any of its Subsidiaries or any other Party fails to perform or observe any covenant or agreement contained in Article 6 of the Loan --------- Agreement; or (e) Borrower, any of its Subsidiaries or any other Party fails to perform or observe any other covenant or agreement contained in the Loan Agreement or any other Loan Document within thirty (30) days after the giving of notice by the Administrative Agent or the Majority Lenders of such Default; or (f) Any representation or warranty made in any Loan Document proves to have been incorrect when made or reaffirmed in any respect that is materially adverse to the interests of the Administrative Agent or the Lenders; or (g) Borrower or any of its Subsidiaries (i) fails to pay the principal, or any principal installment, of any present or future indebtedness for borrowed money (other than under the Notes) in an amount in excess of $15,000,000, or ---------- any guaranty of present or future indebtedness for borrowed money in an amount in excess of $15,000,000, on its part to be paid, when due -66- (or within any stated grace period), whether at the maturity, upon acceleration, by reason of required prepayment or otherwise or (ii) fails to perform or observe any other term, covenant or agreement on its part to be performed or observed, or suffers any event to occur, in connection with any present or future indebtedness for borrowed money in an amount in excess of $15,000,000, or of any guaranty of present or future indebtedness for borrowed money in excess of $15,000,000, if as a result of such failure or sufferance any holder or holders thereof (or an agent or trustee on its or their behalf) has the right to declare such indebted- ness due before the date on which it otherwise would become due; or (h) Any Loan Document, at any time after its execution and delivery and for any reason other than the agreement of the Lenders or satisfaction in full of all the Obligations, ceases to be in full force and effect or is declared by a court of competent jurisdiction to be null and void, invalid or unenforceable in any respect which, in any such event in the reasonable opinion of the Majority Lenders, is materially adverse to the interests of the Lenders; or Borrower denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind same; or (i) A judgment against Borrower or any of its Subsidiaries is entered for the payment of money in excess of $5,000,000 and, absent procurement of a stay of execution, such judgment remains unbonded or unsatisfied for thirty (30) calendar days after the date of entry of judg- ment, or in any event, later than five (5) days prior to the date of any proposed foreclosure sale thereunder; or (j) Borrower or any of its Subsidiaries institutes or consents to any proceeding under a Debtor Relief Law relating to it or to all or any part of its Property, or is unable or admits in writing its inability to pay its debts as they mature, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any part of its Property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of that Person and the appointment continues undischarged or unstayed for sixty (60) calendar days; or any proceeding under a Debtor Relief Law relating to any such Person or to all or any part of its Property is instituted without the consent of that Person and continues undismissed or unstayed for sixty (60) calendar days; or any judgment, writ, warrant of attachment or execution or similar -67- process is issued or levied against all or any material part of the Property of any such Person and is not released, vacated or fully bonded within sixty (60) calendar days after its issue or levy; or (k) The occurrence subsequent to the Closing Date of a Termination Event with respect to any Pension Plan, maintained by Borrower or any ERISA Affiliate of Borrower if the aggregate liability of Borrower and its ERISA Affiliates under ERISA as a result thereof exceeds $5,000,000; or the complete or partial withdrawal subsequent to the Closing Date by Borrower or any of its ERISA Affiliates from any Multiemployer Plan if the aggregate liability of Borrower and its ERISA Affiliates as a result thereof exceeds $5,000,000. 9.2 Remedies Upon Event of Default. Without limiting any other rights or ------------------------------ remedies of the Administrative Agent or the Lenders provided for elsewhere in this Agreement, or the Loan Documents, or by applicable Law, or in equity, or otherwise: (a) Upon the occurrence of any Event of Default other than an Event of Default described in Section 9.1(j): ------ (1) the commitment to make Advances and Swing Line Loans and all other obligations of the Administrative Agent, the Swing Line Lender or the Lenders and all rights of Borrower and any other Parties under the Loan Documents shall be suspended without notice to or demand upon Borrower, which are expressly waived by Borrower, except that, subject to Section 11.2, the Majority Lenders ------ ---- may waive the Event of Default or, without waiving, determine, upon terms and conditions satisfactory to the Majority Lenders (or all of the Lenders, as the case may be), to reinstate the Commitment and make further Advances and Swing Line Loans, which waiver or deter- mination shall apply equally to, and shall be binding upon, all the Lenders; (2) the Issuing Bank may, with the approval of the Administrative Agent on behalf of the Majority Lenders, demand immediate payment by Borrower of an amount equal to the aggregate amount of all outstanding Letters of Credit to be held by the Issuing Bank in an interest-bearing cash collateral account as collateral hereunder; and -68- (3) the Majority Lenders may request the Administrative Agent to, and the Administrative Agent thereupon shall, terminate the Commitment and declare all or any part of the unpaid principal of all Notes, all interest accrued and unpaid thereon and all other amounts payable under the Loan Documents to be forthwith due and payable, whereupon the same shall become and be forthwith due and payable, without protest, presentment, notice of dishonor, demand or further notice of any kind, all of which are expressly waived by Borrower. (b) Upon the occurrence of any Event of Default described in Section 9.1(j): ------ (1) the commitment to make Advances and Swing Line Loans and all other obligations of the Administrative Agent, the Swing Line Lender or the Lenders and all rights of Borrower and any other Parties under the Loan Documents shall terminate without notice to or demand upon Borrower, which are expressly waived by Borrower, except ------ that all the Lenders may waive the Event of Default or, without waiving, determine, upon terms and conditions satisfactory to all the Lenders, to reinstate the Commitment and make further Advances and Swing Line Loans, which waiver or determination shall apply equally to, and shall be binding upon, all the Lenders; (2) an amount equal to the aggregate amount of all outstanding Letters of Credit shall be immediately due and payable to the Issuing Bank without notice to or demand upon Borrower, which are expressly waived by Borrower, to be held by the Issuing Bank in an interest-bearing cash collateral account as collateral hereunder; and (3) the unpaid principal of all Notes, all interest accrued and unpaid thereon and all other amounts payable under the Loan Docu- ments shall be forthwith due and payable, without protest, present- ment, notice of dishonor, demand or further notice of any kind, all of which are expressly waived by Borrower. (c) Upon the occurrence of any Event of Default, the Lenders and the Administrative Agent, or any of them, without notice to or demand upon Borrower, which are expressly waived by Borrower, may proceed to protect, exercise and enforce their rights and remedies under the Loan Documents -69- against Borrower and any other Party and such other rights and remedies as are provided by Law or equity. (d) The order and manner in which the Lenders' rights and remedies are to be exercised shall be determined by the Majority Lenders in their sole discretion, and all payments received by the Administrative Agent and the Lenders, or any of them, shall be applied first to the costs and expenses (including attorneys' fees and disbursements) of the Administrative Agent, acting as Administrative Agent, and of the Lenders, and thereafter paid pro rata to the Lenders in the same proportions that the aggregate Obligations owed to each Lender under the Loan Documents bear to the aggregate Obligations owed under the Loan Documents to all the Lenders, without priority or preference among the Lenders. Regardless of how each Lender may treat payments for the purpose of its own accounting, for the purpose of computing Borrower's Obligations hereunder and under the Notes, payments shall be applied first, to the costs and ----- expenses (including attorneys' fees and disbursements) of the Administrative Agent, acting as the Administrative Agent, and then to the Lenders, as set forth above, second, to the payment of accrued and unpaid ------ interest due under any Loan Documents to and including the date of such application (ratably, and without duplication, according to the accrued and unpaid interest due under each of the Loan Documents), and third, to the payment of all other ----- amounts (including principal and fees) then owing to the Administrative Agent or the Lenders under the Loan Documents. No application of payments will cure any Event of Default, or prevent acceleration, or continued acceleration, of amounts payable under the Loan Documents, or prevent the exercise, or continued exercise, of rights or remedies of the Lenders hereunder or thereunder or at law or in equity. -70- ARTICLE 10 ---------- THE ADMINISTRATIVE AGENT ------------------------ 10.1 Appointment and Authorization. Each Lender hereby irrevocably ----------------------------- appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms thereof or are reasonably incidental, as determined by the Administrative Agent, thereto. This appointment and authorization is intended solely for the purpose of facilitating the servicing of the Advances and does not constitute appointment of the Administrative Agent as trustee for any Lender or as representative of any Lender for any other purpose and, except as specifically set forth in the Loan Documents to the contrary, the ------ Administrative Agent shall take such action and exercise such powers only in an administrative and ministerial capacity. The Administrative Agent is the agent of the Lenders only and does not assume any agency relationship with Borrower, express or implied. 10.2 Administrative Agent and Affiliates. Wells Fargo Bank, National ----------------------------------- Association (and each successor Administrative Agent) has the same rights and powers under the Loan Documents as any other Lender and may exercise the same as though it was not the Administrative Agent, and the term "Lender" or "Lenders" includes Wells Fargo Bank, National Association in its individual capacity. Wells Fargo Bank, National Association (and each successor Administrative Agent) and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with Borrower, any Subsidiary thereof, or any Affiliate of Borrower or any Subsidiary thereof, as if it was not the Administrative Agent and without any duty to account therefor to the Lenders. Wells Fargo Bank, National Association (and each successor Administrative Agent) need not account to any other Lender for any monies received by it for reimburse- ment of its fees, costs and expenses as Administrative Agent hereunder, or for any monies received by it in its capacity as a Lender hereunder. Neither the Arranger, the Swing Line Lender nor the Administrative Agent shall be deemed to hold a fiduciary relationship with any Lender and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Administrative Agent, the Swing Line Lender or the Arranger. 10.3 Proportionate Interest of the Lenders in any Collateral. The ------------------------------------------------------- Administrative Agent, on behalf of all the Lenders, shall hold in accordance with the Loan Documents all collateral or interests therein, if any, received or held by the Administra- tive Agent. Subject to the Administrative Agent's, the Swing Line Lender's and the -71- Lender's rights to reimbursement for their costs and expenses hereunder (including attorneys' - ---------- fees and disbursements and other professional services) and subject to the application of payments in accordance with Section 9.2(d), each Lender (including the Swing Line Lender) shall ------ have an interest in any collateral or interests therein in the same proportions that the aggregate Obligations beneficially owed such Lender under the Loan Documents bear to the aggregate Obligations owed under the Loan Documents to all the Lenders, without priority or preference among the Lenders. 10.4 Lenders' Credit Decisions. Each Lender agrees that it has, ------------------------- independently and without reliance upon the Administrative Agent, the Arranger, the Swing Line Lender, any other Lender or the directors, officers, agents, employees or attorneys of the Administrative Agent, the Arranger, the Swing Line Lender or of any other Lender, and instead in reliance upon information supplied to it by or on behalf of Borrower and upon such other information as it has deemed appropriate, made its own independent credit analysis and decision to enter into this Agreement. Each Lender also agrees that it shall, independently and without reliance upon the Administrative Agent, the Arranger, the Swing Line Lender any other Lender or the directors, officers, agents, employees or attorneys of the Administrative Agent, the Arranger, the Swing Line Lender or of any other Lender, continue to make its own independent credit analyses and decisions in acting or not acting under the Loan Documents. 10.5 Action by Administrative Agent;. ------------------------------ (a) The Administrative Agent and the Swing Line Lender may assume that no Default has occurred and is continuing, unless the Administrative Agent and the Swing Line Lender have received written notice from Borrower stating the nature of the Default or has received written notice from a Lender stating the nature of the Default and that such Lender considers the Default to have occurred and to be continuing. (b) The Administrative Agent has only those obligations under the Loan Documents as are expressly set forth therein. The Arranger has no obligations under the Loan Documents, although it is an intended third party beneficiary of those Sections of this Agreement which refer to the Arranger. (c) Except for any obligation expressly set forth in the Loan ------ Documents and as long as the Administrative Agent may assume that no Event of Default has occurred and is continuing, the Administrative Agent may, but shall not be required to, exercise its discretion to act or not act, except ------ that the -72- Administrative Agent shall be required to act or not act upon the instruc- tions of the Majority Lenders (or of all the Lenders, to the extent required by this Agreement) and those instructions shall be binding upon the Administrative Agent and all the Lenders, provided that the -------- Administrative Agent shall not be required to act or not act if to do so would be contrary to any Loan Document or to applicable Law or would result, in the reasonable judgment of the Administrative Agent, in substantial risk of liability to the Administrative Agent. (d) If the Administrative Agent has received a written notice specified in clause (a), the Administrative Agent shall give notice thereof to the --- Lenders and shall act or not act upon the instructions of the Majority Lenders (or of all the Lenders, to the extent required by Section 11.2), provided that the Administrative ---- -------- Agent shall not be required to act or not act if to do so would be contrary to any Loan Document or to applicable Law or would result, in the reasonable judgment of the Administrative Agent, in substantial risk of liability to the Administrative Agent, and except that if the Majority Lenders (or all the ------ Lenders, if required under this Agreement) fail, for five (5) Banking Days after the receipt of notice from the Administrative Agent, to instruct the Administrative Agent, then the Administrative Agent, in its sole discretion, may act or not act as it deems advisable for the protection of the interests of the Lenders. (e) The Administrative Agent shall have no liability to any Lender for acting, or not acting, as instructed by the Majority Lenders (or all the Lenders, if required under this Agreement), notwithstanding any other provision hereof. 10.6 Liability of Administrative Agent and Arranger. Neither the ---------------------------------------------- Administrative Agent, the Arranger, nor any of their respective directors, advisors, officers, agents, employees or attorneys shall be liable for any action taken or not taken by them under or in connection with the Loan Documents, except for their own gross ------ negli- gence or willful misconduct. Without limitation on the foregoing, the Administrative Agent, the Arranger and their respective directors, advisors, officers, agents, employees and attorneys: (a) May treat the payee of any Note as the holder thereof until the Administrative Agent receives written notice of the assignment or transfer thereof, in form satisfactory to the Administrative Agent, signed by the payee, and may treat each Lender as the owner of that Lender's interest in the -73- Obligations for all purposes of this Agreement until the Administrative Agent receives written notice of the assignment or transfer thereof, in form satisfactory to the Administrative Agent, signed by that Lender. (b) May consult with legal counsel (including in-house legal --------- counsel), accountants (including in-house accountants) and other professionals or --------- experts selected by it, or with legal counsel, accountants or other professionals or experts for Borrower and/or its Subsidiaries or the Lenders, and shall not be liable for any action taken or not taken by it in good faith in accordance with any advice of such legal counsel, accountants or other professionals or experts. (c) Shall not be responsible to any Lender for any statement, warranty or representation made in any of the Loan Documents or in any notice, certificate, report, request or other statement (written or oral) given or made in connection with any of the Loan Documents, unless such statement, ------ warranty or representation is an independent statement, warranty or representation of the Administrative Agent which is not based upon information received by the Administrative Agent from Borrower or any other Person not affiliated with the Administrative Agent. (d) Except to the extent expressly set forth in the Loan Docu- ------ ments, shall have no duty to ask or inquire as to the performance or observance by Borrower or its Subsidiaries of any of the terms, conditions or covenants of any of the Loan Documents or to inspect any collateral or the Property, books or records of Borrower or its Subsidiaries. (e) Will not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, effectiveness, sufficiency or value of any Loan Document, any other instrument or writing furnished pursuant thereto or in connection therewith, or any collateral. (f) Will not incur any liability by acting or not acting in reliance upon any Loan Document, notice, consent, certificate, statement, request or other instrument or writing believed by it to be genuine and signed or sent by the proper party or parties. (g) Will not incur any liability for any arithmetical error in computing any amount paid or payable by the Borrower or any Subsidiary -74- or Affiliate thereof or paid or payable to or received or receivable from any Lender under any Loan Document, including, without limitation, principal, --------- interest, commitment fees, Advances, Swing Line Loans and other amounts; provided that, -------- promptly upon discovery of such an error in computation, the Administrative Agent, the Lenders and (to the extent applicable) Borrower and/or its Subsidiaries or Affiliates shall make such adjustments as are necessary to correct such error and to restore the parties to the position that they would have occupied had the error not occurred. 10.7 Indemnification. Each Lender and the Swing Line Lender shall, --------------- ratably in accordance with their respective portions of the Commitment, indemnify and hold the Administrative Agent, and the Arranger and their respective directors, advisors, officers, agents, employees and attorneys harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, --------- without limitation, attorneys' fees and disbursements) that may be imposed on, incurred by or asserted against it or them in any way relating to or arising out of the Loan Documents (other than losses incurred by reason of the failure of Borrower to pay the indebtedness represented by the Notes and interest thereon or to pay the fees described in Sections 3.2 and 3.3) or any action taken or not --- --- taken by Wells Fargo Bank, National Association as Administrative Agent thereunder, except such as result from their own gross ------ negligence or willful misconduct. Without limitation on the foregoing, each Lender shall reimburse the Administrative Agent and the Arranger upon demand for that Lender's ratable share of any cost or expense incurred by the Administrative Agent or the Arranger in connection with the negotiation, preparation, execution, delivery, amendment, waiver, restructuring, reorganization (including --------- a bankruptcy reorganization), enforcement or attempted enforcement of the Loan Documents, to the extent that Borrower or any other Party is required by Section 11.3 to pay that cost or expense but fails to do so upon demand. ---- 10.8 Successor Administrative Agent. If the Administrative Agent ------------------------------ determines that for it to continue as Administrative Agent would result in a conflict of interest affecting the Administrative Agent, or would create an unacceptable risk of significant liability of the Administrative Agent to a third party, or would otherwise be inadvisable under prevailing standards of banking prudence, it may resign as such at any time upon prior written notice to Borrower and the Lenders, to be effective upon a successor's acceptance of appointment as Administrative Agent. The Administrative Agent may also resign as such absent such a determination by it with the consent of Borrower, which shall not be unreasonably withheld, to be likewise effective. The Majority -75- Lenders at any time may remove the Administrative Agent by written notice to that effect to be effective on such date as the Majority Lenders designate. In either event: (a) the Majority Lenders shall appoint a successor Administrative Agent, who must be from among the Lenders, provided that any resigning Administrative -------- Agent shall be entitled to appoint a successor Administrative Agent from among the Lenders, subject to acceptance of appointment by that successor Administrative Agent, if the Majority Lenders have not appointed a successor Administrative Agent within thirty (30) days after the date the resigning Administrative Agent gave notice of resignation; (b) upon a successor's acceptance of appointment as Administrative Agent, the successor will thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning Administrative Agent or the removed Administrative Agent; and (c) upon the effectiveness of any resignation or removal, the resigning Administrative Agent or the removed Administrative Agent thereupon will be discharged from its duties and obligations thereafter arising under the Loan Documents other than obligations arising as a result of any action or inaction of the resigning Administrative Agent or the removed Administrative Agent prior to the effectiveness of such resignation or removal. 10.9 No Obligations of Borrower. Nothing contained in this Article 10 -------------------------- ---------- shall be deemed to impose upon Borrower any obligation in respect of the due and punctual performance by the Administrative Agent of its obligations to the Lenders under any provision of this Agreement, and Borrower shall have no liability to the Administrative Agent or any of the Lenders in respect of any failure by the Administrative Agent or any Lender to perform any of its obligations to the Administrative Agent or the Lenders under this Agreement. Without limiting the generality of the foregoing, where any provision of this Agreement relating to the payment of any amounts due and owing under the Loan Documents provides that such payments shall be made by Borrower to the Administrative Agent for the account of the Lenders, Borrower's obligations to the Lenders in respect of such payments shall be deemed to be satisfied upon the making of such payments to the Administrative Agent in the manner provided by this Agreement. 10.10 The Swing Line. It is intended that each Lender and the Swing Line -------------- Lender shall have a proportionate credit risk with respect to the credit facilities extended pursuant to this Agreement (other than any Competitive Advances) equal for each ----- Lender to the proportion which (a) the amount of that Lender's Pro Rata Share of the Main Commitment plus in the case of the Swing Line Lender, the Swing Line ---- Commitment, bears to (b) the Commitment. To the extent, if any, that the aggregate principal amount of the Obligations (other than any Competitive Advances) owed to ----- -76- any Lender are ratably in excess of its proportionate share of the Obligations (determined in accordance with the foregoing sentence), then each Lender shall be deemed to have purchased a ratable unfunded participation in the excess such Obligations owed to that Lender. Upon the occurrence of an Event of Default, each Lender and the Swing Line Lender agree that (x) the amount of the Main Commitment shall automatically be increased by the amount of the Swing Line Commitment and the Swing Line Commitment terminated, (y) each Lender (or, in the appropriate case, the Swing Line Lender) shall pay to the Swing Line Lender (or, in the appropriate case, to the Lenders) such amounts as are necessary to result in the Obligations (other than any outstanding Competitive Advances) owed to ----- each Lender being ratably equal, provided however, that in no event shall any Lender be obligated -------- to make Advances to Borrower which are greater than its pro rata share of the total Commitment. -77- ARTICLE 11 ---------- MISCELLANEOUS ------------- 11.1 Cumulative Remedies; No Waiver. The rights, powers, privileges and ------------------------------ remedies of the Administrative Agent and the Lenders provided herein or in any Note or other Loan Document are cumulative and not exclusive of any right, power, privilege or remedy provided by Law or equity. No failure or delay on the part of the Administrative Agent or any Lender in exercising any right, power, privilege or remedy may be, or may be deemed to be, a waiver thereof; nor may any single or partial exercise of any right, power, privilege or remedy preclude any other or further exercise of the same or any other right, power, privilege or remedy. The terms and conditions of Article 8 hereof are inserted for the sole benefit of --------- the Administrative Agent and the Lenders; the same may be waived in whole or in part, with or without terms or conditions, in respect of any Loan without prejudicing the Administrative Agent's or the Lenders' rights to assert them in whole or in part in respect of any other Loan. 11.2 Amendments; Consents. No amendment, modification, supplement, -------------------- extension, termination or waiver of any provision of this Agreement or any other Loan Document, no approval or consent thereunder, and no consent to any departure by the Borrower or any other Party therefrom, may in any event be effective unless in writing signed by the Administrative Agent with the approval in writing of the Majority Lenders and Borrower, and then only in the specific instance and for the specific purpose given; and, without the approval in writing of all the Lenders, no amendment, modification, supplement, termination, waiver or consent may be effective: (a) To amend or modify the principal of, or the amount of principal, or the rate of interest payable on, any Note, or the amount of the Main Commitment, the Swing Line Commitment or the Commitment or of any facility fee payable to any Lender, or any other fee or amount payable to any Lender under the Loan Documents; (b) To postpone any date fixed for any payment of principal of, prepayment of principal of or any installment of interest on, any Note or any installment of any facility fee, or any other fee or amount payable to any Lender under the Loan Documents, or to extend the term of the Commit- ment, or to release any collateral for the Obligations; -78- (c) To amend or modify the provisions of the definitions of "Commitment", "Main ---------- ---- Commitment", "Majority Lenders", or "Swing Line Commitment", Section 6.8 ---------- ---------------- --------------------- --- or this Section; or (d) To amend or modify any provision of this Agreement that expressly requires the consent or approval of all the Lenders. Any amendment, modification, supplement, termination, waiver or consent pursuant to this Section shall apply equally to, and shall be binding upon, all the Lenders and the Administrative Agent. 11.3 Costs, Expenses and Taxes. Borrower shall pay on demand the ------------------------- reasonable costs and expenses of the Administrative Agent (including the fees and expenses of counsel to the Administrative Agent) in connection with the negotiation, preparation, execution and delivery of the Loan Documents, and of the Administrative Agent, the Swing Line Lender and the Lenders in connection with any amendment, waiver, refinancing, restructuring, reorganization (including a --------- bankruptcy reorganization), enforcement or attempted enforcement of the Loan Documents, and any matter related thereto, including, without limitation, filing --------- fees, recording fees, title insurance fees, appraisal fees, search fees and other out-of-pocket expenses and the reasonable fees and out-of-pocket expenses of any legal counsel, independent public accountants and other outside experts retained by the Administrative Agent or any Lender, and including, without limitation, any costs, expenses or fees --------- incurred or suffered by the Administrative Agent or any Lender in connection with or during the course of any bankruptcy or insolvency proceedings of Borrower or any Subsidiary thereof. Borrower shall pay any and all documentary and other taxes (other than income or gross receipts taxes generally applicable to banks) and all costs, expenses, fees and charges payable or determined to be payable in connection with the filing or recording of this Agreement, any other Loan Document or any other instrument or writing to be delivered hereunder or thereunder, or in connection with any transaction pursuant hereto or thereto, and shall reimburse, hold harmless and indemnify the Administrative Agent and the Lenders from and against any and all loss, liability or legal or other expense with respect to or resulting from any delay in paying or failure to pay any tax, cost, expense, fee or charge or that any of them may suffer or incur by reason of the failure of any Party to perform any of its Obligations. Any amount payable to the Administrative Agent or any Lender under this Section shall bear interest from the second Banking Day following the date of demand for payment at the Default Rate. -79- 11.4 Nature of Lenders' Obligations. The obligations of the Lenders ------------------------------ hereunder are several and not joint or joint and several. Nothing contained in this Agreement or any other Loan Document and no action taken by the Administrative Agent or the Lenders or any of them pursuant hereto or thereto may, or may be deemed to, make the Lenders a partnership, an association, a joint venture or other entity, either among themselves or with the Borrower or any Affiliate of the Borrower. Each Lender's several obligation to make Committed Advances is conditioned upon the performance by all other Lenders of their obligations to make similar Committed Advances. A default by any Lender will not increase the amount of the Commitment attributable to any other Lender, and any Lender not in default may, if it desires, assume in such proportion as the nondefaulting Lenders agree the obligations of any Lender in default, but is not obligated to do so. 11.5 Survival of Representations and Warranties. All representations and ------------------------------------------ warranties contained herein or in any other Loan Document, or in any certificate or other writing delivered by or on behalf of any one or more of the Parties to any Loan Document, will survive the making of the Advances hereunder and the execution and delivery of the Notes, and have been or will be relied upon by the Administrative Agent and each Lender, notwithstanding any investigation made by the Administrative Agent or any Lender or on their behalf. 11.6 Notices. Except as otherwise expressly provided in any Loan ------- ------ Document, all notices, requests, demands, directions and other communications provided for hereunder or under any other Loan Document must be in writing and must be mailed, telecopied, or personally delivered to the appropriate party at the address set forth on the signature pages of this Agreement or other applicable Loan Document or, as to any party to any Loan Document, at any other address as may be designated by it in a written notice sent to all other parties to such Loan Document in accordance with this Section. Except as otherwise expressly provided in any Loan Document, if ------ any notice, request, demand, direction or other communication required or permitted by any Loan Document is given by mail it will be effective on the earlier of receipt or the third calendar day after deposit in the United States mail with first class or airmail postage prepaid; if given by telex or telecopier, when sent; or if given by personal delivery, when delivered. 11.7 Execution of Loan Documents; Counterparts. Unless the Administrative ----------------------------------------- Agent otherwise specifies with respect to any Loan Document, this Agreement and any other Loan Document may be executed in any number of counterparts and any party hereto or thereto may execute any counterpart, each of which when executed and -80- delivered will be deemed to be an original and all of which counterparts of this Agreement or any other Loan Document, as the case may be, when taken together will be deemed to be but one and the same instrument. The execution of this Agreement or any other Loan Document by any party hereto or thereto will not become effective until counterparts hereof or thereof, as the case may be, have been executed by all the parties hereto or thereto. 11.8 Binding Effect; Assignment -------------------------- (a) This Agreement and the other Loan Documents to which Borrower is a Party will be binding upon and inure to the benefit of Borrower, the Administrative Agent, each of the Lenders, and their respective successors and assigns, except that ------ Borrower may not assign its rights hereunder or thereunder or any interest herein or therein without the prior written consent of all the Lenders. Each Lender represents that it is not acquiring its Notes with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (subject to any requirement that disposition of such Notes must be within the control of such Lender). Any Lender may at any time pledge its Notes or any other instrument evidencing its rights as a Lender under this Agreement to a Federal Reserve Bank, but no such pledge shall release that Lender from its obligations hereunder or grant to such Federal Reserve Bank the rights of a Lender hereunder absent foreclosure of such pledge. (b) From time to time following the Closing Date, each Lender may assign to one or more Eligible Assignees all or any portion of its Pro Rata Share of the Main Commitment; provided that (i) such Eligible Assignee, if not then a -------- Lender, shall be reasonably acceptable to the Administrative Agent, (ii) such assignment shall be evidenced by a Commitment Assignment and Acceptance, a copy of which shall be furnished to the Administrative Agent for registration as hereinbelow provided, (iii) the assignment shall not assign a Pro Rata Share of the Main Commitment equivalent to less than $5,000,000 unless the assigning Lender thereby assigns its entire Pro Rata Share and (iv) the effective date of any such assignment shall be as specified in the Commitment Assignment and Acceptance, but without the consent of the Administrative Agent not earlier than the date which is ten (10) Banking Days after the date the Administrative Agent has registered the Commitment Assignment and Acceptance in the register kept for that purpose by the Administrative Agent described below. Upon the effective date of such Commitment Assignment and Acceptance, the Eligible Assignee named therein shall be a Lender for all purposes of this -81- Agreement, with the Pro Rata Share of the Main Commitment therein set forth and, to the extent of such Pro Rata Share, the assigning Lender shall be released from its obligations under this Agreement. Borrower agrees that it shall execute and deliver (against delivery by the assigning Lender to Borrower of its Notes) to such assignee Lender, Note evidencing that assignee Lender's Pro Rata Share of the Main Commitment and any Competitive Advances to be made by that Lender, and to the assigning Lender, a Note evidencing the remaining balance Pro Rata Share retained by the assigning Lender. (c) By executing and delivering a Commitment Assignment and Acceptance, the Eligible Assignee thereunder acknowledges and agrees that: (i) other than the representation and warranty that it is the legal and beneficial owner of the Pro Rata Share of the Main Commitment being assigned thereby free and clear of any adverse claim, the assigning Lender has made no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness or sufficiency of this Agreement or any other Loan Document; (ii) the assigning Lender has made no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or the performance by Borrower of the Obligations; (iii) it has received a copy of this Agreement, together with copies of the most recent financial statements delivered pursuant to Section 7.1 --- and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Commitment Assignment and Acceptance; (iv) it will, independently and without reliance upon the Administrative Agent or any Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) it appoints and authorizes the Administrative Agent to take such action and to exercise such powers under this Agreement as are delegated to the Administrative Agent by this Agreement; and (vi) it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) The Administrative Agent shall maintain at the Administrative Agent's Office a copy of each Commitment Assignment and Acceptance delivered to it and a register for recordation of the names and addresses of the Lenders and their respective Pro Rata Shares of the Main Commitment. Upon receipt of a completed Commitment Assignment and Acceptance executed by -82- any Lender and an Eligible Assignee, and upon receipt of a registration fee of $3,000 from such Eligible Assignee, Administrative Agent shall record the making of the assignments contemplated in such Commitment Assignment and Acceptance in such register. The entries in such register shall be conclusive in the absence of manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the register as a Lender hereunder for all purposes of this Agreement. (e) Each Lender may from time to time without the consent of Borrower or the Administrative Agent grant participations to one or more banks or other financial institutions in a portion of its Pro Rata Share of the Main Commitment; provided, - - -------- however, that (i) such Lender's obligations under this Agreement shall ------- remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other financial institutions shall not be a Lender hereunder for any purpose except, if ------ the participation agreement so provides, for the purposes of Sections 3.6, 3.7 and 11.11 --- --- ----- but only to the extent that the cost of such benefits to Borrower does not exceed the cost which Borrower would have incurred in respect of such Lender absent the participation, (iv) Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, (v) the consent of the holder of such participation interest shall not be required for amendments or waivers of provisions of the Loan Documents other than those which (A) increase the monetary amount of any ----- ---- of the Commitment, (B) extend the Maturity Date or any other date upon which any payment of money is due to the Lenders or (C) reduce the rate of interest on the Notes, or any fee or any other monetary amount payable to the Lenders and (vi) such Lender shall notify the Administrative Agent in writing of the identity of the participant and the amount of the participation interest within five Banking Days after the date granted. (f) The Swing Line Lender may assign the entire Swing Line Commitment subject to the conditions and in the manner applicable to assignments of portions of the Main Commitment set forth above. (g) Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC") of such Granting Lender, identified as such in writing from time to time by the Granting Lender to the Administrative Agent and Borrower, -83- the option to provide to Borrower all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to Sections 2.1(a) or 2.2, ----- --- provided that (i) nothing herein shall constitute a commitment to make -------- any Loan by any SPC and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPC shall utilize the Pro Rata Share of the Main Commitment of the Granting Lender to the same extent, and as if, such Loan were made by the Granting Lender. Each party hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the related Granting Lender). In furtherance of the foregoing, each party hereto agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding senior indebtedness of any SPC, it will not institute against, or join any other Person in instituting against, such SPC any proceeding under any Debtor Relief Law, provided that the Granting Lender for each -------- SPC hereby agrees to indemnify, save and hold harmless each other party hereto for any loss, cost, damage and expense arising out of its inability to institute any such proceeding against the SPC related to such Granting Lender. In addition, notwithstanding anything to the contrary contained in this Section 11.8, any SPC may (i) with notice to, but without the ---- consent of, Borrower or the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to its Granting Lender or to any financial institutions providing liquidity and/or credit facilities to or for the account of such SPC to fund the Loans made by such SPC or to support the securities (if any) issued by such SPC to fund such Loans (but nothing contained herein shall be construed in derogation of the obligation of the Granting Lender to make Loans hereunder), provided that neither -------- the consent of the SPC or of any such assignee shall be required for amend- ments or waivers of provisions of the Loan Documents except for those amendments or waivers for which the consent of participants is required under Section 11.8(e)(v), and (ii) disclose on a confidential basis any --------- non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of a surety, guarantee or credit or liquidity enhancement to such SPC. 11.9 Setoff Rights. If an Event of Default has occurred and is ------------- continuing, the Administrative Agent or any Lender (but only with the consent of the Majority Lenders) may, to the extent permitted by applicable Laws, exercise its rights under -84- applicable Laws to setoff and apply any funds in any deposit account maintained with it by Borrower and/or any Property of Borrower in its possession against the Obligations. 11.10 Sharing of Setoffs. Each Lender severally agrees that if it, ------------------ through the exercise of any right of setoff, banker's lien or counterclaim against Borrower, or otherwise, receives payment, through any means, of the Obligations held by it that is in excess of that Lender's Pro Rata Share of such payment, then: (a) The Lender exercising the right of setoff, banker's lien or counterclaim or otherwise receiving such payment shall purchase, and shall be deemed to have simultaneously purchased, from the other Lender a participation in the Obligations held by the other Lender and shall pay to the other Lender a purchase price in an amount so that the share of the Obligations held by each Lender after the exercise of the right of setoff, banker's lien or counterclaim or receipt of payment shall be in the same proportion that existed prior to the exercise of the right of setoff, banker's lien or counterclaim or receipt of payment; and (b) Such other adjustments and purchases of participations shall be made from time to time as shall be equitable to ensure that all of the Lenders share any payment obtained in respect of the Obligations ratably in accordance with each Lender's share of the Obligations immediately prior to, and without taking into account, the payment; provided that, if all or any portion of a disproportionate payment -------- obtained as a result of the exercise of the right of setoff, banker's lien, counterclaim or otherwise is thereafter recovered from the purchasing Lender by Borrower or any Person claiming through or succeeding to the rights of Borrower, the purchase of a participation shall be rescinded and the purchase price thereof shall be restored to the extent of the recovery, but without interest. Each Lender that purchases a participation in the Obligations pursuant to this Section shall from and after the purchase have the right to give all notices, requests, demands, directions and other communications under this Agreement with respect to the portion of the Obligations purchased to the same extent as though the purchasing Lender were the original owner of the Obligations purchased. Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in an Obligation so purchased may exercise any and all rights of setoff, banker's lien or counterclaim with respect to the participation as fully as if the Lender were the original owner of the Obligation purchased; provided, however, that each Lender agrees that it shall -------- not exercise any right of setoff, banker's lien or counterclaim without first obtaining the consent of the Majority Lenders. 11.11 Indemnity by Borrower. Borrower agrees to indemnify, save and hold --------------------- harmless the Administrative Agent, the Arranger, the Swing Line Lender and each Lender and their directors, officers, agents, advisors, attorneys and employees (collec- -85- tively the "Indemnitees") from and against: (a) Any and all claims, demands, ----------- actions or causes of action that are asserted against any Indemnitee by any Person (other than the Administrative Agent, the Arranger, the Swing Line Lender or a Lender) if the claim, demand, action or cause of action directly or indirectly relates to a claim, demand, action or cause of action that such Person has or asserts against Borrower, any Affiliate of Borrower or any officer, director or shareholder of Borrower; (b) Any and all claims, demands, actions or causes of action that are asserted against any Indemnitee if the claim, demand, action or cause of action arises out of or relates to the relationship between Borrower and the Lenders under any of the Loan Documents or the transactions contemplated thereby; (c) Any and all administrative or investigative proceedings by any Governmental Agency arising out of or related to any claim, demand, action or cause of action described in clauses (a) or (b) above; and (d) Any and all liabilities, losses, costs or expenses (including attorneys' fees and disbursements and other pro- --------- fessional services) that any Indemnitee suffers or incurs as a result of the assertion of any of the foregoing; provided that no Indemnitee shall be entitled -------- to indemnification for any loss caused by its own gross negligence or willful misconduct. Each Indemnitee is authorized to employ counsel of its own choosing in enforcing its rights hereunder and in defending against any claim, demand, action, cause of action or administrative or investigative proceeding covered by this Section; provided that each Indemnitee -------- shall endeavor, in connection with any matter covered by this Section which also involves other Indemnitees, to use reasonable efforts to avoid unnecessary duplication of effort by counsel for all Indemnitees. Any obligation or liability of Borrower to any Indemnitee under this Section shall be and hereby is covered and secured by the Loan Documents and the Collateral, and shall survive the expiration or termination of this Agreement and the repayment of all Loans and Swing Line Loans and the payment and performance of all other Obligations owed to the Lenders. 11.12 Nonliability of the Lenders. Borrower acknowledges and agrees that: --------------------------- (a) Any inspections of any Property of Borrower made by or through the Administrative Agent, the Arranger, the Swing Line Lender or the Lenders are for purposes of administration of the Loan Documents only and Borrower is not entitled to rely upon the same; (b) By accepting or approving anything required to be observed, performed, fulfilled or given to the Administrative Agent or the Lenders pursuant to the Loan Documents, neither the Administrative Agent nor the Lenders shall be deemed to have warranted or represented the sufficiency, -86- legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance or approval thereof shall not constitute a warranty or representation to anyone with respect thereto by the Administrative Agent or the Lenders; (c) The relationship between Borrower and the Administrative Agent, the Arranger, the Swing Line Lender and the Lenders is, and shall at all times remain, solely that of a borrower and lenders; neither the Administrative Agent, the Arranger, the Swing Line Lender nor the Lenders shall under any circumstance be construed to be partners or joint venturers of Borrower or its Affiliates; neither the Administrative Agent, the Arranger, the Swing Line Lender nor the Lenders shall under any circumstance be deemed to be in a relationship of confidence or trust or a fiduciary relationship with Borrower or its Affiliates, or to owe any fiduciary duty to Borrower or its Affiliates; neither the Administrative Agent, the Arranger, the Swing Line Lender nor the Lenders undertake or assume any responsibility or duty to Borrower or its Affiliates to select, review, inspect, supervise, pass judgment upon or inform Borrower or its Affiliates of any matter in connection with their Property or the operations of Borrower or its Affiliates; Borrower and its Affiliates shall rely entirely upon their own judgment with respect to such matters; and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by the Administrative Agent, the Arranger, the Swing Line Lender or the Lenders in connection with such matters is solely for the protection of the Administrative Agent, the Arranger, the Swing Line Lender and the Lenders and neither Borrower nor any other Person is entitled to rely thereon; and (d) The Administrative Agent, the Arranger, the Swing Line Lender and the Lenders shall not be responsible or liable to any Person for any loss, damage, liability or claim of any kind relating to injury or death to Persons or damage to Property caused by the actions, inaction or negligence of Borrower and/or its Affiliates and Borrower hereby indemnifies and holds the Administrative Agent, the Arranger, the Swing Line Lender and the Lenders harmless from any such loss, damage, liability or claim. 11.13 No Third Parties Benefited. This Agreement is made for the purpose -------------------------- of defining and setting forth certain obligations, rights and duties of Borrower, the Administrative Agent, the Arranger, the Swing Line Lender, the Issuing Bank and the Lenders in connection with the Loans, the Swing Line Loans and Advances, and the Letters of Credit and is made for the sole benefit of Borrower, the Administrative Agent, the Arranger, the Swing Line Lender and the Lenders, and the Administrative -87- Agent's, the Arranger's, the Swing Line Lender's and the Lenders' successors and assigns. Except as provided in Sections 11.8 and 11.11, no other Person shall ------ ---- ----- have any rights of any nature hereunder or by reason hereof. 11.14 Termination of Existing Loan Documents. Borrower agrees for the -------------------------------------- benefit of the lenders and the administrative agent under the Existing Loan Documents that, concurrently with the execution and delivery of this Agreement, the lending commitments under the Existing Loan Documents shall be deemed terminated. On the Closing Date, the Administrative Agent is hereby authorized and directed to effect a net settlement of the amounts due to the Borrower, the Lenders and the lenders under the Existing Loan Documents. 11.15 Further Assurances. Borrower and its Subsidiaries shall, at their ------------------ expense and without expense to the Lenders or the Administrative Agent, do, execute and deliver such further acts and documents as any Lender or the Administrative Agent from time to time reasonably requires for the assuring and confirming unto the Lenders or the Administrative Agent of the rights hereby created or intended now or hereafter so to be, or for carrying out the intention or facilitating the performance of the terms of any Loan Document. 11.16 Integration. This Agreement, together with the other Loan ----------- Documents, comprises the complete and integrated agreement of the parties on the subject matter hereof and supersedes all prior agreements, written or oral, on the subject matter hereof. In the event of any conflict between the provisions of this Agreement and those of any other Loan Document, the provisions of this Agreement shall control and govern; provided that the inclusion of supplemental rights or -------- remedies in favor of the Administrative Agent or the Lenders in any other Loan Document shall not be deemed a conflict with this Agreement. Each Loan Document was drafted with the joint participation of the respective parties thereto and shall be construed neither against nor in favor of any party, but rather in accordance with the fair meaning thereof. 11.17 Governing Law. Except to the extent otherwise expressly provided ------------- ------ therein, each loan document shall be governed by, and construed and enforced in accordance with, the local Laws of Nevada. 11.18 Severability of Provisions. Any provision in any Loan Document that -------------------------- is held to be inoperative, unenforceable or invalid as to any party or in any jurisdiction shall, as to that party or jurisdiction, be inoperative, unenforceable or invalid without -88- affecting the remaining provisions or the operation, enforceability or validity of that provision as to any other party or in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 11.19 Independent Covenants. Each covenant in Articles 5, 6 and 7 is --------------------- -------- - - - independent of the other covenants in those Articles; the breach of any such covenant shall not be excused by the fact that the circumstances underlying such breach would be permitted by another such covenant. 11.20 Headings. Article and Section headings in this Agreement and the -------- other Loan Documents are included for convenience of reference only and are not part of this Agreement or the other Loan Documents for any other purpose. 11.21 Time of the Essence. Time is of the essence of the Loan Documents. ------------------- 11.22 Purported Oral Amendments. BORROWER EXPRESSLY ACKNOWLEDGES THAT ------------------------- THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY ONLY BE AMENDED OR MODIFIED, OR THE PROVISIONS HEREOF OR THEREOF WAIVED OR SUPPLEMENTED, BY AN INSTRUMENT IN WRITING THAT COMPLIES WITH SECTION 11.2. BORROWER ---- AGREES THAT IT WILL NOT RELY ON ANY COURSE OF DEALING, COURSE OF PERFORMANCE, OR ORAL OR WRITTEN STATEMENTS BY ANY REPRESENTATIVE OF THE ADMINISTRATIVE AGENT OR ANY BANK THAT DOES NOT COMPLY WITH SECTION 11.2 TO EFFECT AN AMENDMENT, MODIFICATION, WAIVER OR SUPPLEMENT TO THE AGREEMENT OF THE OTHER LOAN DOCUMENTS. 11.23 Jury Trial Waiver. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY ----------------- WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY TRIAL COURT WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN -89- ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. BORROWER: NEVADA POWER COMPANY, a Nevada corporation By: Steven W. Rigazio ----------------- Steven W. Rigazio, Vice President, Finance and Planning, Treasurer, and Chief Financial Officer Address: Nevada Power Company 6226 West Sahara Avenue Las Vegas, Nevada 89102 Attention: Richard Schmalz Telecopier: (702) 367-5036 Telephone: (702) 367-5608 -90- BANKS: WELLS FARGO BANK, NATIONAL ASSOCIATION, individually, as the Swing Line Lender, the Issuing Lender and Administrative Agent By: Steven M. Dastrup ----------------- Steven M. Dastrup Vice President Address for Matters Other than Loan Administration: Wells Fargo Bank, National Association Corporate Banking Division 3800 Howard Hughes Parkway Las Vegas, Nevada 89109 Attn: Steven M. Dastrup Vice President Telecopier: (702) 791-6365 Telephone: (702) 791-6263 Address for Loan Administration: Wells Fargo Bank, National Association Commercial Bank Loan Center Agency Dept. 2840 201 3rd Street, 8th Floor San Francisco, California 94103 Attn: Manager Telecopier: (415) 512-9408 Telephone: (415) 477-5418 -91- NATIONSBANK OF TEXAS, N.A. By: Curtis L. Anderson ------------------- Curtis L. Anderson, Senior Vice President Address: NationsBank of Texas, N.A. 901 Main Street, 64th Floor Dallas, Texas 75202 Attention: Curtis Anderson, Senior Vice President Telecopier: (214) 508-3943 Telephone: (214) 508-1290 -92- MELLON BANK, N.A. By: Jacquelyn S. Peters ------------------- Jacquelyn S. Peters Vice President Address: Mellon Bank, N.A. One Mellon Bank Center Suite 4425 Pittsburgh, PA 15258-0001 Attention: Jacquelyn S. Peters Vice President Telecopier: (412) 236-1840 Telephone: (412) 236-2988 -93- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: Judy Crosswhite --------------- Judy Crosswhite Vice President Address: Bank of America National Trust and Savings Association Commercial Banking Division #2006 300 South 4th Street, 2nd Floor Las Vegas, Nevada 89101 Attention: Judy Crosswhite Vice President Telecopier: (702) 654-7158 Telephone: (702) 654-7149 -94- THE FIRST NATIONAL BANK OF CHICAGO By: Richard H. Waldman ------------------ Richard H. Waldman Authorized Agent Address: The First National Bank of Chicago One First National Plaza, 10th Floor Suite 0363 Chicago, Illinois 60670-0363 Attention: Richard H. Waldman Managing Director Telecopier: (312) 732-3055 Telephone: (312) 732-3520 -95- BANK OF MONTREAL, acting through its Chicago Branch By: John K. Harche -------------- John Harche Director Address: Bank of Montreal 601 South Figueroa Street, Suite 4900 Los Angeles, California 90017 Attention: Warren Wimmer Director Natural Resources Telecopier: (213) 239-0680 Telephone: (213) 239-0633 -96- U.S. BANK NATIONAL ASSOCIATION By: Dale Parshall ------------- Dale Parshall Vice President Address: U.S. Bank National Association 555 SW Oak Street, Suite 400 Portland, Oregon 92704 Attention: Dale Parshall Vice President Telecopier: (503) 275-5428 Telephone: (503) 275-3476 -97- -----END PRIVACY-ENHANCED MESSAGE-----