-----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, D44+Rm1N38vSakMUigaacYqt5yoHXbrlUCe/0IHXRTBe1SI7n0SaJppqPVTArtc1 OgtqZg8j15OXIwdKfgC0EQ== 0000950123-02-010814.txt : 20021114 0000950123-02-010814.hdr.sgml : 20021114 20021114082622 ACCESSION NUMBER: 0000950123-02-010814 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIERRA PACIFIC RESOURCES /NV/ CENTRAL INDEX KEY: 0000741508 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 880198358 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08788 FILM NUMBER: 02821880 BUSINESS ADDRESS: STREET 1: PO BOX 30150 STREET 2: 6100 NEIL RD CITY: RENO STATE: NV ZIP: 89511 BUSINESS PHONE: 7758344011 MAIL ADDRESS: STREET 1: P O BOX 30150 STREET 2: 6100 NEIL ROAD CITY: RENO STATE: NV ZIP: 89511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIERRA PACIFIC POWER CO CENTRAL INDEX KEY: 0000090144 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 880044418 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00508 FILM NUMBER: 02821881 BUSINESS ADDRESS: STREET 1: 6100 NEIL RD STREET 2: P O BOX 10100 CITY: RENO STATE: NV ZIP: 89520-0400 BUSINESS PHONE: 7026895408 MAIL ADDRESS: STREET 1: 6100 NEIL ROAD STREET 2: P.O. BOX 10100 CITY: RENO STATE: NV ZIP: 89520 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: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-28348 FILM NUMBER: 02821882 BUSINESS ADDRESS: STREET 1: 6226 W SAHARA AVE CITY: LAS VEGAS STATE: NV ZIP: 89146 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-Q 1 b44528spe10vq.txt SIERRA PACIFIC POWER COMPANY ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Registrant, State of Incorporation, Address of Commission File Principal Executive Offices and Telephone I.R.S. employer Number Number Identification Number 1-8788 SIERRA PACIFIC RESOURCES 88-0198358 P.O. Box 10100 (6100 Neil Road) Reno, Nevada 89520-0400 (89511) (775) 834-4011 1-4698 NEVADA POWER COMPANY 88-0045330 6226 West Sahara Avenue Las Vegas, Nevada 89146 (702) 367-5000 0-508 SIERRA PACIFIC POWER COMPANY 88-0044418 P.O. Box 10100 (6100 Neil Road) Reno, Nevada 89520-0400 (89511) (775) 834-4011
Indicate by check mark whether 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 the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Class Outstanding at November 6, 2002 Common Stock, $1.00 par value 102,138,325 Shares of Sierra Pacific Resources Sierra Pacific Resources is the sole holder of the 1,000 shares of outstanding Common Stock, $1.00 stated value, of Nevada Power Company. Sierra Pacific Resources is the sole holder of the 1,000 shares of outstanding Common Stock, $3.75 stated value, of Sierra Pacific Power Company. This combined Quarterly Report on Form 10-Q is separately filed by Sierra Pacific Resources, Nevada Power Company and Sierra Pacific Power Company. Information contained in this document relating to Nevada Power Company is filed by Sierra Pacific Resources and separately by Nevada Power Company on its own behalf. Nevada Power Company makes no representation as to information relating to Sierra Pacific Resources or its subsidiaries, except as it may relate to Nevada Power Company. Information contained in this document relating to Sierra Pacific Power Company is filed by Sierra Pacific Resources and separately by Sierra Pacific Power Company on its own behalf. Sierra Pacific Power Company makes no representation as to information relating to Sierra Pacific Resources or its subsidiaries, except as it may relate to Sierra Pacific Power Company. ================================================================================ SIERRA PACIFIC RESOURCES NEVADA POWER COMPANY SIERRA PACIFIC POWER COMPANY QUARTERLY REPORTS ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2002 CONTENTS PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (Unaudited) SIERRA PACIFIC RESOURCES - Condensed Consolidated Balance Sheets - September 30, 2002 and December 31, 2001.......... 3 Condensed Consolidated Statements of Operations - Three Months and Nine Months Ended September 30, 2002 and 2001................................................... 4 Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2002 and 2001................................................... 5 NEVADA POWER COMPANY - Condensed Balance Sheets - September 30, 2002 and December 31, 2001....................... 6 Condensed Statements of Operations - Three Months and Nine Months Ended September 30, 2002 and 2001................................................... 7 Condensed Statements of Cash Flows - Nine Months Ended September 30, 2002 and 2001........ 8 SIERRA PACIFIC POWER COMPANY - Condensed Consolidated Balance Sheets - September 30, 2002 and December 31, 2001.......... 9 Condensed Consolidated Statements of Operations - Three Months and Nine Months Ended September 30, 2002 and 2001................................................... 10 Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2002 and 2001................................................... 11 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.............................................. 12 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 36 Sierra Pacific Resources Results of Operations...................................... 41 Nevada Power Company Results of Operations.......................................... 46 Sierra Pacific Power Company Results of Operations.................................. 53 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk................................ 65 ITEM 4. Controls and Procedures................................................................... 65 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings......................................................................... 66 ITEM 4. Submission of Matters to a Vote of Security Holders....................................... 66 ITEM 5. Other Information......................................................................... 66 ITEM 6. Exhibits and Reports on Form 8-K.......................................................... 66 Signature Page and Certifications ....................................................................... 68
2 SIERRA PACIFIC RESOURCES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 2002 2001 ------------- ------------- ASSETS Utility Plant at Original Cost: Plant in service $ 5,845,229 $ 5,683,296 Less: accumulated provision for depreciation 1,902,630 1,777,517 ----------- ----------- 3,942,599 3,905,779 Construction work-in-progress 261,691 203,456 ----------- ----------- 4,204,290 4,109,235 ----------- ----------- Investments in subsidiaries and other property, net 182,486 128,892 ----------- ----------- Current Assets: Cash and cash equivalents 360,345 99,109 Restricted cash (Note 1) 22,750 - Accounts receivable less provision for uncollectible accounts: 2002-$42,001 ; 2001-$39,335 467,881 394,489 Deferred energy costs - electric 254,226 333,062 Deferred energy costs - gas 18,957 19,805 Income tax receivable - 59,630 Materials, supplies and fuel, at average cost 96,053 94,167 Risk management assets (Note 10) 66,494 286,509 Other 24,040 14,071 ----------- ----------- 1,310,746 1,300,842 ----------- ----------- Deferred Charges and Other Assets: Goodwill (Note 12) 310,441 312,145 Deferred energy costs - electric 767,238 854,778 Deferred energy costs - gas 11,737 23,248 Income tax receivable 266,665 314,619 Regulatory tax asset 168,276 169,738 Other regulatory assets 139,914 102,959 Risk management assets (Note 10) 7,813 61,058 Risk management regulatory assets - net (Note 10) 78,441 664,383 Other 120,557 139,417 ----------- ----------- 1,871,082 2,642,345 ----------- ----------- $ 7,568,604 $ 8,181,314 =========== =========== CAPITALIZATION AND LIABILITIES Capitalization: Common shareholders' equity $ 1,413,738 $ 1,702,322 Accumulated other comprehensive loss (Note 10) (4,260) (6,986) Preferred stock 50,000 50,000 NPC obligated mandatorily redeemable preferred trust securities 188,872 188,872 Long-term debt 2,986,517 3,376,105 ----------- ----------- 4,634,867 5,310,313 ----------- ----------- Current Liabilities: Short-term borrowings 350,000 177,000 Current maturities of long-term debt 431,327 122,010 Accounts payable 390,660 265,250 Accrued interest 74,294 37,565 Dividends declared 1,045 1,045 Accrued salaries and benefits 16,763 30,145 Deferred taxes on deferred energy costs 94,823 123,503 Risk management liabilities (Note 10) 132,121 855,301 Other current liabilities 28,966 15,678 ----------- ----------- 1,519,999 1,627,497 ----------- ----------- Commitments & Contingencies (Note 11) Deferred Credits and Other Liabilities: Deferred federal income taxes 404,666 412,658 Deferred investment tax credit 49,355 51,947 Deferred taxes on deferred energy costs 273,432 307,309 Regulatory tax liability 45,708 46,702 Customer advances for construction 114,447 108,179 Accrued retirement benefits 95,351 82,624 Risk management liabilities (Note 10) 20,454 163,636 Contract termination reserves (Note 11) 315,780 - Other 94,545 70,449 ----------- ----------- 1,413,738 1,243,504 ----------- ----------- $ 7,568,604 $ 8,181,314 =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 3 SIERRA PACIFIC RESOURCES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------------- ------------------------------- 2002 2001 2002 2001 ------------- ------------- ------------- ------------ OPERATING REVENUES: Electric $ 997,559 $ 1,977,453 $ 2,251,813 $ 3,738,177 Gas 18,473 18,831 99,139 104,725 Other 3,987 5,650 8,328 13,350 ------------- ------------- ------------- ------------ 1,020,019 2,001,934 2,359,280 3,856,252 ------------- ------------- ------------- ------------ OPERATING EXPENSES: Operation: Purchased power 604,683 2,195,051 1,546,394 3,636,006 Fuel for power generation 120,668 220,002 356,084 586,136 Gas purchased for resale 9,884 9,294 61,585 105,008 Deferred energy costs disallowed - - 487,224 - Deferral of energy costs - electric - net (41,425) (737,634) (309,203) (1,080,846) Deferral of energy costs - gas - net 4,281 3,453 14,649 (23,354) Other 70,566 81,924 206,004 248,428 Maintenance 12,904 15,475 46,826 53,933 Depreciation and amortization 43,847 40,958 129,606 120,552 Taxes: Income taxes 41,002 40,087 (145,949) 8,033 Other than income 10,282 11,134 33,585 32,358 ------------- ------------- ------------- ------------ 876,692 1,879,744 2,426,805 3,686,254 ------------- ------------- ------------- ------------ OPERATING INCOME (LOSS) 143,327 122,190 (67,525) 169,998 ------------- ------------- ------------- ------------ OTHER INCOME (EXPENSE): Allowance for other funds used during construction (272) (106) 382 (793) Other income - net 8,016 16,007 6,472 22,319 ------------- ------------- ------------- ------------ 7,744 15,901 6,854 21,526 ------------- ------------- ------------- ------------ Total Income (Loss) Before Interest Charges 151,071 138,091 (60,671) 191,524 ------------- ------------- ------------- ------------ INTEREST CHARGES: Long-term debt 56,734 47,623 170,973 131,155 Other 11,097 5,474 23,993 20,767 Allowance for borrowed funds used during construction and capitalized interest (902) (1,225) (3,483) (1,514) ------------- ------------- ------------- ------------ 66,929 51,872 191,483 150,408 ------------- ------------- ------------- ------------ INCOME (LOSS) BEFORE NPC OBLIGATED MANDATORILY REDEEMABLE PREFERRED TRUST SECURITIES 84,142 86,219 (252,154) 41,116 Preferred dividend requirements of NPC obligated mandatorily redeemable preferred trust securities 3,793 4,835 11,379 14,293 ------------- ------------- ------------- ------------ INCOME (LOSS) BEFORE PREFERRED STOCK DIVIDENDS 80,349 81,384 (263,533) 26,823 Preferred stock dividend requirements of subsidiary 975 975 2,925 2,725 ------------- ------------- ------------- ------------ INCOME (LOSS) FROM CONTINUING OPERATIONS 79,374 80,409 (266,458) 24,098 ------------- ------------- ------------- ------------ DISCONTINUED OPERATIONS: Income from operations of water business disposed of (net of income taxes of $0 and $888 in 2001, respectively) - - - 1,022 Gain on disposal of water business (net of income taxes of $18,237) - - - 25,845 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX (Note 12) - - (1,566) - ------------- ------------- ------------- ------------ NET INCOME (LOSS) $ 79,374 $ 80,409 $ (268,024) $ 50,965 ============= ============= ============= ============ Amounts per share - Basic and Diluted Income (loss) from continuing operations $ 0.78 $ 0.89 $ (2.61) $ 0.29 Income from discontinued operations - 0.01 Gain on disposal of water business - 0.32 Cumulative effect of change in accounting principle (net of tax) - (0.01) - ------------- ------------- ------------- ------------ Net income (loss) $ 0.78 $ 0.89 $ (2.62) $ 0.62 ============= ============= ============= ============ Weighted Average Shares of Common Stock Outstanding 102,132,465 90,302,825 102,117,926 82,423,032 ============= ============= ============= ============ Dividends Paid Per Share of Common Stock $ - $ 0.20 $ 0.20 $ 0.45 ============= ============= ============= ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 4 SIERRA PACIFIC RESOURCES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 2002 2001 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Income (Loss) from continuing operations before preferred dividends $ (263,533) $ 26,823 Income from discontinued operations before preferred dividends - 1,222 Gain on disposal of water business - 25,845 Non-cash items included in income: Depreciation and amortization 130,097 124,011 Deferred taxes and deferred investment tax credit 79,410 107,795 AFUDC and capitalized interest (3,865) (730) Amortization of deferred energy costs - electric 130,667 - Amortization of deferred energy costs - gas 8,950 - Deferred energy costs disallowed (net of taxes) 317,977 - Early retirement and severance amortization 2,082 3,121 Gain on disposal of water business - (44,081) Other non-cash (12,099) 3,676 Changes in certain assets and liabilities: Accounts receivable (115,247) (498,883) Deferral of energy costs - electric (123,308) (1,105,698) Deferral of energy costs - gas 3,408 (25,938) Materials, supplies and fuel (1,886) (19,849) Other current assets (32,658) (4,093) Accounts payable 166,144 543,413 Income tax receivable 108,992 - Other current liabilities 35,293 18,061 Other - net 32,396 16,827 ------------ ----------- Net Cash from Operating Activities 462,820 (828,478) ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to utility plant (259,831) (251,458) AFUDC and other charges to utility plant 3,865 730 Customer advances (refunds) for construction 6,268 (3,219) Contributions in aid of construction 32,381 24,259 ------------ ----------- Net cash used for utility plant (217,317) (229,688) Proceeds from sale of assets of water business - 318,882 Investments in subsidiaries and other property (53,672) (3,961) ------------ ----------- Net Cash from Investing Activities (270,989) 85,233 ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in short-term borrowings 173,000 56,487 Proceeds from issuance of long-term debt - 900,000 Retirement of long-term debt (80,272) (536,103) Sale of common stock 187 340,764 Dividends paid (23,510) (43,366) ------------ ----------- Net Cash from Financing Activities 69,405 717,782 ------------ ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 261,236 (25,463) Beginning Balance in Cash and Cash Equivalents 99,109 51,503 ------------ ----------- Ending Balance in Cash and Cash Equivalents $ 360,345 $ 26,040 ============ =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during period for: Interest $ 154,754 $ 112,982 Income taxes $ (185,011) $ 28,424
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS 5 NEVADA POWER COMPANY CONDENSED BALANCE SHEETS (DOLLARS IN THOUSANDS) (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 2002 2001 ------------ ------------ ASSETS Utility Plant at Original Cost: Plant in service $ 3,500,244 $ 3,356,584 Less: accumulated provision for depreciation 999,584 928,939 ------------ ------------ 2,500,660 2,427,645 Construction work-in-progress 153,529 134,706 ------------ ------------ 2,654,189 2,562,351 ------------ ------------ Investment in Sierra Pacific Resources (Note 2) 236,821 309,259 Investments in subsidiaries and other property, net 20,168 12,721 ------------ ------------ 256,989 321,980 ------------ ------------ Current Assets: Cash and cash equivalents 207,746 8,505 Restricted cash (Note 1) 10,872 - Accounts receivable less provision for uncollectible accounts: 2002-$34,269; 2001-$30,861 306,868 210,333 Deferred energy costs - electric 197,542 281,555 Income tax receivable - 18,590 Materials, supplies and fuel, at average cost 45,434 48,511 Risk management assets (Note 10) 49,142 200,829 Other 10,732 6,698 ------------ ------------ 828,336 775,021 ------------ ------------ Deferred Charges and Other Assets: Deferred energy costs - electric 591,871 698,510 Income tax receivable 245,009 295,818 Regulatory tax asset 108,912 109,859 Other regulatory assets 53,904 31,588 Risk management assets (Note 10) 7,813 49,493 Risk management regulatory assets - net (Note 10) 7,198 351,264 Other 24,948 29,485 ------------ ------------ 1,039,655 1,566,017 ------------ ------------ $ 4,779,169 $ 5,225,369 ============ ============ CAPITALIZATION AND LIABILITIES Capitalization: Common shareholder's equity including $236,821 and $309,259 of equity in Sierra Pacific Resources in 2002 and 2001 (Note 2) $ 1,413,738 $ 1,702,322 Accumulated other comprehensive income 117 520 NPC obligated mandatorily redeemable preferred trust securities 188,872 188,872 Long-term debt 1,393,034 1,607,967 ------------ ------------ 2,995,761 3,499,681 ------------ ------------ Current Liabilities: Short-term borrowings 200,000 130,500 Current maturities of long-term debt 228,927 19,380 Accounts payable 332,333 202,555 Accrued interest 35,542 19,310 Dividends declared 78 71 Accrued salaries and benefits 5,520 12,450 Deferred taxes on deferred energy costs 68,349 98,544 Risk management liabilities (Note 10) 58,218 522,508 Other current liabilities 20,370 17,710 ------------ ------------ 949,337 1,023,028 ------------ ------------ Commitments & Contingencies (Note 11) Deferred Credits and Other Liabilities: Deferred federal income taxes 210,773 223,641 Deferred investment tax credit 22,310 23,533 Deferred taxes on deferred energy costs 207,945 244,479 Regulatory tax liability 18,280 18,604 Customer advances for construction 64,525 61,454 Accrued retirement benefits 36,089 28,104 Risk management liabilities (Note 10) 5,818 78,558 Contract termination reserves (Note 11) 229,002 - Other 39,329 24,287 ------------ ------------ 834,071 702,660 ------------ ------------ $ 4,779,169 $ 5,225,369 ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 6 NEVADA POWER COMPANY CONDENSED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------ -------------------------------- 2002 2001 2002 2001 ------------- ------------- -------------- -------------- OPERATING REVENUES: Electric $ 712,536 $ 1,395,496 $ 1,545,867 $ 2,562,949 OPERATING EXPENSES: Operation: Purchased power 440,559 1,686,816 1,102,551 2,728,176 Fuel for power generation 87,864 131,023 245,060 348,633 Deferred energy costs disallowed - - 434,123 - Deferral of energy costs-net (43,224) (638,571) (238,059) (908,408) Other 39,250 45,670 116,520 130,192 Maintenance 8,050 10,331 31,576 36,789 Depreciation and amortization 24,975 23,042 72,924 67,345 Taxes: Income taxes 39,944 36,197 (116,536) 21,979 Other than income 5,935 6,221 19,122 18,118 ------------- ------------- -------------- -------------- 603,353 1,300,729 1,667,281 2,442,824 ------------- ------------- -------------- -------------- OPERATING INCOME (LOSS) 109,183 94,767 (121,414) 120,125 ------------- ------------- -------------- -------------- OTHER INCOME (EXPENSE): Equity in earnings (losses) of Sierra Pacific Resources (Note 2) 70 1,658 (51,999) (5,494) Allowance for other funds used during construction (262) (87) 239 (560) Other income (expense) - net 4,933 11,021 (839) 14,189 ------------- ------------- -------------- -------------- 4,741 12,592 (52,599) 8,135 ------------- ------------- -------------- -------------- Total Income (Loss) Before Interest Charges 113,924 107,359 (174,013) 128,260 ------------- ------------- -------------- -------------- INTEREST CHARGES: Long-term debt 23,714 20,545 70,668 55,504 Other 7,251 3,269 14,133 10,982 Allowance for borrowed funds used during construction and capitalized interest (208) (657) (2,169) (570) ------------- ------------- -------------- -------------- 30,757 23,157 82,632 65,916 ------------- ------------- -------------- -------------- INCOME (LOSS) BEFORE NPC OBLIGATED MANDATORILY REDEEMABLE PREFERRED TRUST SECURITIES 83,167 84,202 (256,645) 62,344 Preferred dividend requirements of NPC obligated mandatorily redeemable preferred trust securities 3,793 3,793 11,379 11,379 ------------- ------------- -------------- -------------- NET INCOME (LOSS) $ 79,374 $ 80,409 $ (268,024) $ 50,965 ============= ============= ============== ============== Net Income (Loss) Per Share - Basic (Note 2) $ 0.78 $ 0.89 $ (2.62) $ 0.62 ============= ============= ============== ============== - Diluted (Note 2) $ 0.78 $ 0.89 $ (2.62) $ 0.62 ============= ============= ============== ============== Weighted Average Shares of Common Stock Outstanding (Note 2) 102,132,465 90,302,825 102,117,926 82,423,032 ============= ============= ============== ============== Dividends Paid Per Share of Common Stock (Note 2) $ - $ 0.20 $ 0.20 $ 0.45 ============= ============= ============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 7 NEVADA POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ 2002 2001 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (268,024) $ 50,965 Non-cash items included in income: Depreciation and amortization 72,924 67,345 Deferred taxes and deferred investment tax credit 68,430 51,944 AFUDC and capitalized interest (2,408) (10) Amortization of deferred energy costs 112,959 - Deferred energy costs disallowed (net of taxes) 282,181 - Other non-cash (14,184) 2,367 Equity in losses of SPR (Note 2) 51,999 5,494 Changes in certain assets and liabilities: Accounts receivable (95,791) (411,765) Deferral of energy costs (127,429) (928,987) Materials, supplies and fuel 3,077 (5,809) Other current assets (14,843) (725) Accounts payable 129,728 523,642 Income tax receivable 70,807 - Other current liabilities 11,961 12,632 Other - net 18,832 8,780 ------------ ------------ Net Cash from Operating Activities 300,219 (624,127) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to utility plant (196,006) (141,414) AFUDC and other charges to utility plant 2,408 10 Customer advances (refunds) for construction 3,072 (4,054) Contributions in aid of construction 27,635 5,630 ------------ ------------ Net cash used for utility plant (162,891) (139,828) Investments in subsidiaries and other property (2,200) - ------------ ------------ Net Cash from Investing Activities (165,091) (139,828) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Increase in short-term borrowings 69,500 130,561 Proceeds from issuance of long-term debt - 500,000 Retirement of long-term debt (5,387) (254,112) Investment by parent company 10,000 394,921 Dividends paid (10,000) (33,014) ------------ ------------ Net Cash from Financing Activities 64,113 738,356 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 199,241 (25,599) Beginning Balance in Cash and Cash Equivalents 8,505 43,858 ------------ ------------ Ending Balance in Cash and Cash Equivalents $ 207,746 $ 18,259 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during period for: Interest $ 66,400 $ 28,160 Income taxes $ (102,904) $ 47,501
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 8 SIERRA PACIFIC POWER COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 2002 2001 ------------ ------------ ASSETS Utility Plant at Original Cost: Plant in service $ 2,344,985 $ 2,326,712 Less: accumulated provision for depreciation 903,046 848,578 ------------ ------------ 1,441,939 1,478,134 Construction work-in-progress 108,162 68,750 ------------ ------------ 1,550,101 1,546,884 ------------ ------------ Investments in subsidiaries and other property, net 54,775 57,185 ------------ ------------ Current Assets: Cash and cash equivalents 143,868 11,772 Restricted cash (Note 1) 9,273 - Accounts receivable less provision for uncollectible accounts: 2002 - $7,732; 2001 - $8,474 249,692 194,698 Deferred energy costs - electric 56,684 51,507 Deferred energy costs - gas 18,957 19,805 Materials, supplies and fuel, at average cost 46,795 42,290 Income tax receivable - 41,040 Risk management assets (Note 10) 17,352 85,680 Other 10,827 5,935 ------------ ------------ 553,448 452,727 ------------ ------------ Deferred Charges and Other Assets: Deferred energy costs - electric 175,367 156,268 Deferred energy costs - gas 11,737 23,248 Regulatory tax asset 59,364 59,879 Other regulatory assets 66,107 51,146 Risk management assets (Note 10) - 11,565 Risk management regulatory assets - net (Note 10) 71,243 313,119 Other 12,332 13,886 ------------ ------------ 396,150 629,111 ------------ ------------ $ 2,554,474 $ 2,685,907 ============ ============ CAPITALIZATION AND LIABILITIES Capitalization: Common shareholder's equity $ 670,365 $ 692,654 Accumulated other comprehensive income 56 247 Preferred stock 50,000 50,000 Long-term debt 917,100 923,070 ------------ ------------ 1,637,521 1,665,971 ------------ ------------ Current Liabilities: Short-term borrowings 150,000 46,500 Current maturities of long-term debt 2,400 2,630 Accounts payable 82,270 95,555 Accrued interest 24,489 8,408 Dividends declared 967 974 Accrued salaries and benefits 8,923 15,466 Deferred taxes on deferred energy costs 26,474 24,959 Risk management liabilities (Note 10) 73,903 332,793 Other current liabilities 7,586 3,387 ------------ ------------ 377,012 530,672 ------------ ------------ Commitments & Contingencies (Note 11) Deferred Credits and Other Liabilities: Deferred federal income taxes 186,864 178,533 Deferred investment tax credit 27,045 28,414 Deferred taxes on deferred energy costs 65,487 62,831 Income tax payable 2,345 - Regulatory tax liability 27,428 28,098 Customer advances for construction 49,922 46,725 Accrued retirement benefits 49,455 43,028 Risk management liabilities (Note 10) 14,636 77,324 Contract termination reserves (Note 11) 86,778 - Other 29,981 24,311 ------------ ------------ 539,941 489,264 ------------ ------------ $ 2,554,474 $ 2,685,907 ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 9 SIERRA PACIFIC POWER COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ ---------------------------- 2002 2001 2002 2001 ---------- ----------- ----------- ------------- OPERATING REVENUES: Electric $ 285,023 $ 581,957 $ 705,946 $ 1,175,228 Gas 18,473 18,831 99,139 104,725 ---------- ----------- ----------- ------------- 303,496 600,788 805,085 1,279,953 ---------- ----------- ----------- ------------- OPERATING EXPENSES: Operation: Purchased power 164,124 508,235 443,843 907,830 Fuel for power generation 32,804 88,980 111,024 237,504 Gas purchased for resale 9,884 9,294 61,585 105,008 Deferred energy costs disallowed - - 53,101 - Deferral of energy costs - electric - net 1,799 (98,702) (71,144) (172,437) Deferral of energy costs - gas - net 4,281 3,093 14,649 (23,354) Other 25,064 28,222 75,687 79,090 Maintenance 4,854 5,143 15,250 17,143 Depreciation and amortization 18,592 17,620 55,861 52,328 Taxes: Income taxes 7,601 8,630 (9,037) 7,974 Other than income 4,472 4,671 14,129 13,639 ---------- ----------- ----------- ------------- 273,475 575,186 764,948 1,224,725 ---------- ----------- ----------- ------------- OPERATING INCOME 30,021 25,602 40,137 55,228 ---------- ----------- ----------- ------------- OTHER INCOME (EXPENSE): Allowance for other funds used during construction (10) (19) 143 (233) Other income - net 1,954 4,309 4,631 5,322 ---------- ----------- ----------- ------------- 1,944 4,290 4,774 5,089 ---------- ----------- ----------- ------------- Total Income Before Interest Charges 31,965 29,892 44,911 60,317 ---------- ----------- ----------- ------------- INTEREST CHARGES: Long-term debt 16,173 15,380 48,638 38,479 Other 2,943 1,455 7,051 7,437 Allowance for borrowed funds used during construction and capitalized interest (694) (566) (1,314) (943) ---------- ----------- ----------- ------------- 18,422 16,269 54,375 44,973 ---------- ----------- ----------- ------------- INCOME (LOSS) BEFORE SPPC OBLIGATED MANDATORILY REDEEMABLE PREFERRED TRUST SECURITIES 13,543 13,623 (9,464) 15,344 Preferred dividend requirements of SPPC obligated mandatorily redeemable preferred trust securities - 1,042 - 2,914 ---------- ----------- ----------- ------------- INCOME (LOSS) BEFORE PREFERRED DIVIDENDS 13,543 12,581 (9,464) 12,430 Preferred dividend requirements 975 975 2,925 2,725 ---------- ----------- ----------- ------------- INCOME (LOSS) FROM CONTINUING OPERATIONS 12,568 11,606 (12,389) 9,705 ---------- ----------- ----------- ------------- DISCONTINUED OPERATIONS: Income from operations of water business disposed of (net of income taxes of $0 and $888 in 2001, respectively) - - - 1,022 Gain on disposal of water business (net of income taxes of $18,237) - - - 25,845 ---------- ----------- ----------- ------------- NET INCOME (LOSS) $ 12,568 $ 11,606 $ (12,389) $ 36,572 ========== =========== =========== =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 10 SIERRA PACIFIC POWER COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ 2002 2001 ----------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Income (Loss) from continuing operations before preferred dividends $ (9,464) $ 12,430 Income from discontinued operations before preferred dividends - 1,222 Gain on disposal of water business - 25,845 Non-cash items included in income: Depreciation and amortization 55,861 55,788 Deferred taxes and investment tax credits 10,979 55,807 AFUDC and capitalized interest (1,457) (719) Amortization of deferred energy costs - electric 17,708 - Amortization of deferred energy costs - gas 8,950 - Deferred energy costs disallowed (net of taxes) 35,796 - Early retirement and severance amortization 2,082 3,121 Gain on disposal of water business - (44,081) Other non-cash (10,612) (3,580) Changes in certain assets and liabilities: Accounts receivable (54,994) (162,234) Deferral of energy costs - electric 4,121 (176,712) Deferral of energy costs - gas 3,408 (25,938) Materials, supplies and fuel (4,506) (11,601) Other current assets (14,165) (2,728) Accounts payable (13,285) 80,416 Income tax receivable 43,385 - Other current liabilities 13,738 13,742 Other-net 12,096 1,596 ----------- ------------ Net Cash from Operating Activities 99,641 (177,626) ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to utility plant (63,825) (110,043) AFUDC and other charges to utility plant 1,457 719 Customer advances for construction 3,196 835 Contributions in aid of construction 4,746 18,628 ----------- ------------ Net cash used for utility plant (54,426) (89,861) Proceeds from sale of assets of water business - 318,882 Disposal of subsidiaries and other property - net 2,411 2,102 ----------- ------------ Net Cash from Investing Activities (52,015) 231,123 ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in short-term borrowings 103,500 (89,962) Proceeds from issuance of long-term debt - 400,000 Retirement of long-term debt (6,200) (281,980) Investment by parent company 10,000 4,948 Dividends paid (22,830) (88,932) ----------- ------------ Net Cash from Financing Activities 84,470 (55,926) ----------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 132,096 (2,429) Beginning Balance in Cash and Cash Equivalents 11,772 5,348 ----------- ------------ Ending Balance in Cash and Cash Equivalents $ 143,868 $ 2,919 =========== ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during period for: Interest $ 38,294 $ 29,154 Income taxes (62,109) 22,227
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 11 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. MANAGEMENT'S STATEMENT (SPR, NPC, SPPC) In the opinion of the management of Sierra Pacific Resources (SPR), Nevada Power Company (NPC), and Sierra Pacific Power Company (SPPC), the accompanying unaudited interim condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the condensed consolidated financial position, condensed consolidated results of operations and condensed consolidated cash flows for the periods shown. These condensed consolidated financial statements do not contain the complete detail or footnote disclosure concerning accounting policies and other matters which are included in full year financial statements and therefore, they should be read in conjunction with the audited financial statements included in SPR's, NPC's, and SPPC's Combined Annual Report on Form 10-K for the year ended December 31, 2001. The results of operations for the three- and nine-month periods ended September 30, 2002 are not necessarily indicative of the results to be expected for the full year. PRINCIPLES OF CONSOLIDATION The condensed consolidated financial statements of SPR include the accounts of SPR and its wholly owned subsidiaries, Nevada Power Company, Sierra Pacific Power Company, (collectively, the "Utilities"), Tuscarora Gas Pipeline Company (TGPC), Sierra Gas Holding Company (SGHC), Sierra Energy Company dba e-three (e-three), Sierra Pacific Energy Company (SPE), Lands of Sierra (LOS), Sierra Pacific Communications (SPC), and Sierra Water Development Company (SWDC). All significant intercompany transactions and balances have been eliminated in consolidation. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The March 29, 2002 decision of the Public Utilities Commission of Nevada (PUCN) on NPC's deferred energy application to disallow $434 million of deferred purchased fuel and power costs accumulated between March 1, 2001 and September 30, 2001 had a significant negative impact on the results of operations of SPR and NPC for the nine months ended September 30, 2002. Several of the intervenors from NPC's deferred energy rate case filed petitions with the PUCN for reconsideration of its decision, seeking additional disallowances ranging from $12.8 million to $488 million. The petitions for reconsideration were granted in part and denied in part by the PUCN on May 24, 2002, but no additional disallowances to the deferred energy balance resulted from that decision. Although the PUCN's March 29, 2002 decision on NPC's deferred energy application is being challenged by NPC in a lawsuit filed in Nevada state court and by various intervenors, as discussed in Note 9, Regulatory Events, the decision caused the two major national rating agencies to issue an immediate downgrade of the credit ratings on SPR's, NPC's and SPPC's debt securities (followed by further downgrades late in April). Following those events, the market price of SPR's common stock fell substantially, NPC and SPPC were obliged within 5 business days of the downgrades to issue general and refunding mortgage bonds to secure their bank lines of credit, NPC was obliged to obtain a waiver and amendment from its credit facility banks before it was permitted to draw down on the facility, NPC and SPPC were no longer able to issue commercial paper, a number of NPC's power suppliers contacted NPC regarding its ability to pay the purchase price of outstanding contracts, and several power suppliers, including a subsidiary of Enron Corp., Morgan Stanley Capital Group Inc., Reliant Energy Services, Inc. and several smaller suppliers, terminated their power supply agreements with one or both of the Utilities. As discussed below, Duke Energy Trading and Marketing ("Duke") agreed to replace the amount of contracted power and natural gas that would have been supplied by the Utilities' terminating suppliers during the peak summer period. The separate decision of the PUCN on May 28, 2002 on SPPC's deferred energy application to disallow $53.1 million of deferred purchased fuel and power costs accumulated between March 1, 2001 and November 30, 2001 had a significant negative impact on the results of operations of SPR and SPPC for the nine months ended September 30, 2002. Several of the intervenors from SPPC's deferred energy rate case filed petitions with the PUCN for reconsideration of its decision, seeking an additional disallowance of $126 million. On July 18, 2002, the petitions for reconsideration were granted in part and denied in part by the PUCN, but no additional disallowances to the deferred energy balance resulted from that decision. The PUCN's May 28, 2002 decision on SPPC's deferred energy application is being challenged by SPPC in a lawsuit filed August 22, 2002 in Nevada state court, which is discussed in Note 9, Regulatory Events. NPC expects to file a deferred energy case on November 14, 2002, requesting recovery and/or an affirmation of prudency for fuel and purchased power costs incurred and recorded in its deferred energy account for the period October 1, 2001 through September 30, 2002. The case includes a reduction for annual fuel and purchased power revenues of $148 million and recovery of the deferred energy account balance in the amount of $65 million annually for a three-year period. The net change will result in an annual revenue decrease of $83 million representing a 5.6% rate decrease for residential customers and a 5.1% rate decrease for all other classes. The balance for the current deferral period is approximately $425 million, which includes a balance of $196 million which NPC is requesting recovery over a three-year period and costs of approximately $229 million accrued for claims made by terminated suppliers for which NPC is requesting an affirmation of prudency. (See Note 11, Commitment and Contingencies.) These amounts are subject to whatever adjustments may be ordered by the PERC in NPC's Section 206 complaints. (See Note 9, Regulatory Events.) 12 SPPC is required to file its next deferred energy case in approximately mid-January 2003 and will request recovery and/or an affirmation of prudency for all costs for fuel and purchased power recorded in its deferred energy account over the period December 1, 2001, through November 30, 2002. That amount is expected to approximate $100 million, which includes costs of approximately $82 million accrued for claims made by terminated suppliers. (See Note 11, Commitments and Contingencies.) These amounts are subject to whatever adjustments may be ordered by the FERC in SPPC's Section 206 complaints. (See Note 9, Regulatory Events.) A significant disallowance in future deferred energy rate cases filed by either Utility could further weaken the financial condition, liquidity, and capital resources of SPR, NPC, and SPPC. In particular, such a decision or decisions could cause further downgrades of debt securities by the rating agencies, could make it impracticable to access the capital markets, and could cause additional power suppliers to terminate purchased power contracts and seek liquidated damages. Under such circumstances, there can be no assurance that SPR, NPC, or SPPC would be able to remain solvent or continue operations. Under such circumstances, there also can be no assurance that SPR, NPC, or SPPC would not seek protection under the bankruptcy laws. In response to the decisions by the PUCN in NPC's rate cases, SPR implemented certain measures that management expects will positively impact cash flow by $125 million in 2002. Two major transmission construction projects, discussed in the Form 10-K for the year ended December 31, 2001, have been delayed for a total capital preservation impact of $80.8 million. The delay in NPC's Centennial Plan has an impact of $46.4 million and the delay of SPPC's Falcon to Gonder Project has an impact of $34.4 million. An additional $28.9 million was reduced from the Utilities' capital budgets by curtailing or delaying other projects. Management expects that the balance of the $125 million cash flow enhancement will be obtained from various land sales. Additional cost-cutting actions by SPR may be necessary. On March 29 and April 1, 2002, Standard & Poor's Rating Group, Inc. (S&P) and Moody's Investors Service, Inc. (Moody's) lowered the unsecured debt ratings of SPR, NPC and SPPC to below investment grade in response to the decision of the PUCN with respect to NPC's rate cases. On April 23 and 24, 2002, the unsecured debt ratings of SPR and the Utilities were further downgraded by both rating agencies, and the Utilities' secured debt ratings were downgraded to below investment grade. The downgrades have affected SPR's, NPC's and SPPC's liquidity primarily in two principal areas: (1) their respective financing arrangements and (2) NPC's and SPPC's contracts for fuel, for purchase and sale of electricity and for transportation of natural gas. SPR's ability to make capital contributions to NPC and SPPC also became severely limited. The PUCN's May 28, 2002 decision on SPPC's deferred energy application did not result in any further downgrades of the unsecured debt ratings of SPR, NPC or SPPC. As a result of the ratings downgrades, SPR's, NPC's, and SPPC's ability to access the capital markets to raise funds is severely limited. On April 3, 2002, SPR terminated its $75 million unsecured revolving credit facility as a condition to the banks agreeing to an amendment of NPC's recently terminated $200 million unsecured revolving credit facility that would permit NPC to draw down funds under that facility. In connection with the credit downgrades by S&P and Moody's, the Utilities lost their A2/P2 commercial paper ratings and can no longer issue commercial paper. At the time NPC and SPPC had commercial paper balances outstanding of $198.9 million and $47.7 million, respectively, with weighted average interest rates of 2.52% and 2.49%, respectively. Since the Utilities were no longer able to roll over their commercial paper, they paid off their maturing commercial paper with the proceeds of borrowings under their credit facilities and terminated their commercial paper programs on May 28, 2002. The Utilities do not expect to have direct access to the commercial paper market for the foreseeable future. With respect to NPC's and SPPC's contracts for purchased power, NPC and SPPC purchase and sell electricity with counterparties under the Western Systems Power Pool ("WSPP") agreement, which is an industry standard contract. The WSPP contract is posted on the WSPP website. These contracts provide that a material adverse change may give rise to a right to request collateral, which, if not provided within 3 business days, could cause a default. A default must be declared within 30 days of the event giving rise to the default becoming known. A default will result in a termination payment equal to the present value of the net gains and losses for the entire remaining term of all contracts between the parties aggregated to a single liquidated amount due within 3 business days following the date the notice of termination is received. The mark-to-market value, which is substantially based on quoted market prices, can be used to roughly approximate the termination payment at any point in time. The mark-to-market value as of November 1, 2002, for all suppliers continuing to provide power under a WSPP agreement was approximately $90.1 million and $59.9 million, respectively, for NPC and SPPC. Following the PUCN decisions, a number of power suppliers requested collateral from NPC and SPPC. On April 4, 2002, the Utilities sent a letter to their suppliers advising them that, assuming the Utilities could access the capital markets for secured debt and no other significant negative developments occurred, the Utilities expected to be able to honor their obligations under the power supply contracts. However, the Utilities noted that a simultaneous call for 100% mark-to-market 13 collateral in the short-term would likely not be met. On April 24, 2002, the Utilities met with representatives of various suppliers to discuss SPR's and the Utilities' financial situation and plans, and indicated that they intended to propose extended payment terms for the above-market portions of NPC's existing power contracts. Such extended payment terms were proposed to NPC's suppliers in a letter dated May 2, 2002, and proposed paying less than contract prices, but more than market prices plus interest, for the period May 1 to September 15, 2002, and NPC paying any balances remaining prior to December 2003. NPC also agreed to extend the suppliers' rights under the WSPP agreement. As of October 29, 2002, NPC paid all of the outstanding balances owed to its continuing suppliers. In early May, Enron Power Marketing Inc. ("Enron"), Morgan Stanley Capital Group Inc., Reliant Energy Services, Inc. and several smaller suppliers notified the Utilities that they would end power deliveries to the Utilities based on what they believed to be their contractual right to end deliveries because of the Utilities' alleged inability to provide adequate assurances of their ability to perform all of their outstanding material obligations under the WSPP agreement. Each of these terminating suppliers has asserted, or has indicated that it will assert, a claim for liquidated damages. As discussed in Note 11, Commitments and Contingencies, Enron filed suit in its bankruptcy case in the Bankruptcy Court for the Southern District of New York seeking approximately $216 million and $93 million from NPC and SPPC, respectively. Enron initially filed a motion for partial summary judgment to require the Utilities to make immediate payment of the full amount of Enron's claim, pending final resolution of the lawsuit. Enron subsequently filed another motion for summary judgment seeking final payment of its damages claim. In connection with this suit, the Utilities filed motions to dismiss and/or to stay all proceedings pending the final outcome of the Utilities' Section 206 complaints against Enron and others. (See Note 9, Regulatory Events.) Hearings were conducted in September, October, and early November 2002. In the event the Utilities' motions are denied, further hearings will be scheduled on Enron's motion for summary judgment. An adverse decision on Enron's motion for summary judgment or an adverse decision in the lawsuit itself would have a material adverse affect on the financial condition and liquidity of SPR and the Utilities and would render their ability to continue to operate outside of bankruptcy uncertain. At this time, SPR and the Utilities are not able to predict the outcome of a decision in this matter. On June 10, 2002, Duke Energy Trading and Marketing ("Duke") entered into an agreement with SPR and the Utilities to supply up to 1,000 megawatts of electricity per hour, as well as natural gas, to fulfill the Utilities' power requirements during the peak summer period. The effect of the Duke agreement was to replace the amount of contracted power and natural gas that would have been supplied by the various terminating suppliers, including Enron. Duke also agreed to accept deferred payment for a portion of the amount due under its existing power contracts with NPC for purchases made through September 15, 2002. Several other continuing suppliers also entered into formal agreements with NPC regarding deferred payments, and NPC deferred a portion of the payments to such suppliers, as well as those suppliers who continued to supply but did not sign agreements, beginning May 1, 2002 for charges incurred through September 15, 2002. As of October 29, 2002, NPC had paid in full all of the outstanding delayed payments, approximately $101 million, to all continuing suppliers, and, by the end of 2003, expects to make all payments determined to be due to terminating suppliers other than Enron. The approximately $101 million paid in October, and approximately $39 million accrued for amounts owed to terminating suppliers, are included in SPR's and NPC's Accounts Payable balance as of September 30, 2002. Following the PUCN decisions, SPR and the Utilities were also required to post cash collateral in connection with the surety bonds carried by their surety company and the disbursement facilities provided by their bank. These collateral amounts are classified as "Restricted cash" on the Balance Sheets of SPR and the Utilities. SPR has a qualified pension plan (the "Plan") that covers substantially all employees of SPR, NPC and SPPC. The annual net benefit cost for the Plan is expected to increase for 2003 by an amount between $12 million and $22 million over the 2002 cost of $18.4 million. Also, the Plan currently has assets with a fair value that is less than the present value of the accumulated benefit obligation under the Plan. While the amount of the deficiency has not yet been determined, SPR and the Utilities expect their combined minimum funding requirement for 2002 will be at least $24 million. However, SPR and the Utilities do not expect that their funding obligation for 2002 will have a material adverse effect on their liquidity. SPPC's Washoe County, Nevada, Water Facilities Refunding Revenue Bonds, Series 2001 in the aggregate principal amount of $80,000,000, will be subject to remarketing on May 1, 2003. In the event that these bonds cannot be successfully remarketed on that date, SPPC will be required to purchase the outstanding bonds at a price of 100% of the principal amount, plus accrued interest. SPR has a substantial amount of debt and other obligations including, but not limited to: $200 million of its unsecured Floating Rate Notes due April 20, 2003; $300 million of its unsecured 8 3/4% Senior Notes due 2005; and $345 million of its unsecured 7.93% Senior Notes due 2007. In connection with the effects of the disallowance of a significant portion of the Utilities' deferred purchased power costs by the PUCN as stated above, SPR's credit ratings, along with those of NPC and SPPC, were downgraded to below investment grade. As a result of the downgrades, SPR's ability to service its debt obligations and refinance its maturing debt as it becomes due has become uncertain. In the event that SPR's financial condition does not improve or becomes worse, it may have to consider other options including the possibility of seeking protection in a bankruptcy proceeding. SPR's future liquidity depends, in part, on SPPC's ability to continue to pay dividends to SPR, on a restoration of NPC to financial stability including a restoration of its ability to pay dividends to SPR, both as discussed in Note 5, Dividend Restrictions, and on SPR's ability to access the capital markets or otherwise refinance debt that matures in 2003 and thereafter. Further adverse developments at NPC or SPPC, including a material disallowance of deferred energy costs in future rate cases 14 or an adverse decision in the pending lawsuit by Enron to collect liquidated damages (including Enron's motion for partial summary judgment to require the Utilities to make immediate payment of the full amount of Enron's claim), could cause SPR to become insolvent and would render SPR's ability to continue to operate outside of bankruptcy uncertain. NPC's liquidity would also be significantly affected by an adverse decision in the pending lawsuit by Enron to collect liquidated damages (including Enron's motion for partial summary judgment to require the Utilities to make immediate payment of the full amount of Enron's claim), or by unfavorable rulings by the PUCN in future NPC or SPPC rate cases. Both S&P and Moody's have NPC's credit ratings on "watch negative" or "possible downgrade", and any further downgrades could further preclude NPC's access to the capital markets, and could adversely affect NPC's ability to continue to purchase power and fuel. Adverse developments with respect to any one or a combination of the foregoing could cause NPC to become insolvent and would render NPC's ability to continue to operate outside of bankruptcy uncertain. SPPC's future liquidity could be significantly affected by unfavorable rulings by the PUCN in future SPPC or NPC rate cases. Both S&P and Moody's have SPPC's credit ratings on "watch negative" or "possible downgrade", and any further downgrades could further preclude SPPC's access to the capital markets and could adversely affect SPPC's ability to continue purchasing power and fuel. Adverse developments with respect to any one or a combination of the factors and contingencies set forth above could cause SPPC to become insolvent and could render SPPC's ability to continue to operate outside of bankruptcy uncertain. The accompanying financial statements do not include any adjustments that might result from the outcome of the uncertainties discussed above. OTHER MATTERS On July 7, 2002, the Board of County Commissioners of Clark County, Nevada, added an Electric Utility Advisory Question to its November 5, 2002 general election ballot, which asked voters whether "the Nevada Legislature should take appropriate action to enable the electrical energy provider for southern Nevada to be a locally controlled, not for profit public utility." NPC filed a lawsuit seeking to remove the question from the ballot, and the lawsuit was dismissed. Although the referendum is non-binding, the results of this advisory question, which was approved by a 57% to 43% vote, may impact future utility legislation by the Nevada Legislature in its next legislative session which may, in turn, directly or indirectly affect NPC and its operations. On August 22, 2002, SPR received a letter from the Southern Nevada Water Authority ("SNWA") stating that it was prepared to enter into good faith negotiation of definitive agreements to acquire all of NPC's assets and assume certain of NPC's existing indebtedness. On September 12, 2002, SPR responded with a letter stating that it did not view the SNWA's letter as an offer and expressing concerns with the SNWA's financing plans, certain significant legal issues with the proposal and the SNWA's lack of utility management experience. The SNWA has responded by reaffirming its purported offer to acquire NPC. Also see Note 5, Dividend Restrictions, Note 9, Regulatory Events and Note 11, Commitments and Contingencies. RECLASSIFICATIONS Certain items previously reported for years prior to 2002 have been reclassified to conform to the current year's presentation. Net income and shareholders' equity were not affected by these reclassifications. RECENT PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued three new pronouncements, Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets," and SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. See Note 12, Change in Accounting for Goodwill, for a discussion of SPR's implementation of SFAS No. 142. SFAS No. 143, effective for fiscal years beginning after June 15, 2002, requires an entity to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. Management does not expect the adoption of SFAS No. 143 to have a material effect on the financial position or results of operations of SPR, NPC, and SPPC. 15 In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". Among other things, this statement rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt" which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," will now be used to classify those gains and losses. Adoption of this statement did not have an impact on the financial position or results of operations of SPR, NPC or SPPC. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. A fundamental conclusion reached by the FASB in this statement is that an entity's commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. Adoption of this statement did not have an impact on the financial position or results of operations of SPR, NPC or SPPC. NOTE 2. FINANCIAL STATEMENTS OF NEVADA POWER COMPANY (NPC) In accordance with Generally Accepted Accounting Principles, the 1999 merger between SPR and NPC was accounted for as a reverse purchase, with NPC deemed to be the acquirer of SPR as reflected in the SPR Consolidated Financial Statements. However, after the merger with SPR and as a result of the structure of the transactions, NPC is a separate legal entity, which is a wholly owned subsidiary of SPR. As a legal matter, NPC does not own any equity interest in SPR. The NPC Financial Statements accommodate the presentation of financial information of NPC on a stand-alone basis by summarizing all non-NPC financial information into a few items in each of the Financial Statements. These summarized items are repeated below (in 000's): Non-NPC Financial Items in the NPC Financial Statements
NPC Balance Sheets: September 30, 2002 December 31, 2001 - ------------------- ------------------ ----------------- Investment in Sierra Pacific Resources $236,821 $309,259 Equity in Sierra Pacific Resources $236,821 $309,259
The Investment in Sierra Pacific Resources reflects the net assets of SPR, after deducting for all liabilities and preferred stock of SPR not related to NPC. The Equity in Sierra Pacific Resources reflects the sum of paid-in-capital and retained earnings of SPR, without the benefit of NPC. These line items do not represent any asset to which holders of NPC's securities may look for recovery of their investment. These items must be disregarded for determining the ability of NPC to satisfy its obligations or to pay dividends (preferred or common), for calculating NPC's ratios of earnings to fixed charges and preferred stock dividends and for all of NPC's financial covenants and earnings tests including those under its charter and First Mortgage Indenture.
NPC Statements of Operations: Three Months Ended Three Months Ended - ----------------------------- ------------------ ------------------ September 30, 2002 September 30, 2001 ------------------ ------------------ Equity in Earnings of Sierra Pacific Resources $70 $1,658
Nine Months Ended Nine Months Ended ----------------- ----------------- September 30, 2002 September 30, 2001 ------------------ ------------------ Equity in Losses of Sierra Pacific Resources $(51,999) $(5,494)
This line does not represent any item of revenue or income to which holders of NPC's securities may look for recovery of their investment. This item must be disregarded for determining the ability of NPC to satisfy its obligations or its ability to pay dividends (preferred or common), for calculating NPC's ratios of earnings to fixed charges and preferred dividends and for all of NPC's financial covenants and earnings tests including those under its charter and First Mortgage Indenture. Excluding NPC's equity in the losses/earnings of its parent, SPR, NPC earned approximately $79.3 million and $78.8 million, respectively, for the three-month periods ended September 30, 2002, and 2001. Excluding NPC's equity in the losses of its parent, SPR, NPC incurred a loss of approximately ($216.0) million for the nine months ended September 30, 2002, and earned approximately $56.5 million for the nine months ended September 30, 2001. 16 Net Income (Loss) Per Share, Weighted Average Shares of Common Stock Outstanding, and Dividends Paid Per Share of Common Stock refer to stock share amounts and dividends paid at SPR.
NPC Statements of Cash Flows: Nine Months Ended Nine Months Ended - ----------------------------- ----------------- ----------------- September 30, 2002 September 30, 2001 ------------------ ------------------ Equity in Losses of Sierra Pacific Resources $51,999 $5,494
As in the statement of operations, the Equity in Losses of Sierra Pacific Resources reflects the nine months of SPR net losses, after SPPC preferred stock dividends. This line item does not represent any item of cash flow to which holders of NPC's securities may look for recovery of their investment. This item must be disregarded for determining the ability of NPC to satisfy its obligations or its ability to pay dividends (preferred or common), for calculating NPC's ratios of earnings to fixed charges and preferred dividends and for all of NPC's financial covenants and earnings tests including those under its charter and First Mortgage Indenture. NOTE 3. SHORT-TERM BORROWINGS (SPR, NPC, SPPC) SIERRA PACIFIC RESOURCES On April 3, 2002, SPR terminated its $75 million unsecured revolving credit facility in connection with the amendment of NPC's $200 million unsecured revolving credit facility, discussed below. NEVADA POWER COMPANY On November 29, 2001, NPC put into place a $200 million unsecured revolving credit facility for working capital and general corporate purposes, including commercial paper backup. As a result of NPC's rate case decisions (discussed in Note 9 - Regulatory Events) and the credit downgrades by S&P and Moody's, which occurred on March 29 and April 1, 2002, respectively, the banks participating in NPC's credit facility determined that a material adverse event had occurred with respect to NPC, thereby precluding NPC from borrowing funds under its credit facility. The banks agreed to waive the consequences of the material adverse event in a waiver letter and amendment that was executed on April 4, 2002. As required under the waiver letter and amendment, NPC issued and delivered its General and Refunding Mortgage Bond, Series C, due November 28, 2002, in the principal amount of $200 million, to the Administrative Agent for the credit facility. As of September 30, 2002, NPC had borrowed the entire $200 million of funds available under its credit facility at an average interest rate of 3.72%. On October 30, 2002, NPC paid in full and terminated its $200 million credit facility and retired its Series C, General & Refunding Bond which secured the credit facility with the proceeds from the issuance of NPC's $250 million aggregate principal amount of 107/8% General and Refunding Notes, Series E, due 2009. On October 29, 2002, NPC established an accounts receivables purchase facility of up to $125 million, which was arranged by Lehman Brothers. If NPC elects to activate the receivables purchase facility, NPC will sell all of its accounts receivable generated from the sale of electricity to customers to its newly created bankruptcy remote special purpose subsidiary. The receivables sales will be without recourse except for breaches of customary representations and warranties made at the time of sale. The subsidiary will, in turn, sell these receivables to a bankruptcy-remote subsidiary of SPR. SPR's subsidiary will issue variable rate revolving notes backed by the purchased receivables. Lehman Brothers Holdings, Inc. will be the sole initial committed purchaser of all of the variable rate revolving notes. The agreements relating to the receivables purchase facility contain various conditions to purchase, covenants and trigger events, termination events and other provisions customary in receivables transactions. In connection with NPC's receivables facility, SPR has agreed to guaranty NPC's performance of certain obligations as a seller and servicer under the facility. NPC has agreed to issue $125 million principal amount of its General and Refunding Mortgage Bonds upon activation of the accounts receivables purchase facility. The full principal amount of the Bond would secure certain of NPC's obligations as seller and servicer, plus certain interest, fees and expenses thereon to the extent not paid when due, regardless of the actual amounts owing with respect to the secured obligations. As a result, in the event of an NPC bankruptcy or liquidation, the holder of the Bond securing the receivables facility may recover more on a pro rata basis than the holders of other General and Refunding Mortgage securities, who could recover less on a pro rata basis, than they otherwise would recover. However, in no event will the holder of the Bond recover more than the amount of obligations secured by the Bond. NPC intends to use the accounts receivables purchase facility as a back-up liquidity facility and does not plan to activate this facility in the foreseeable future. NPC may activate the facility within five days upon the delivery of certain customary funding documentation and the delivery of the $125 million General and Refunding Mortgage Bond. 17 NPC is in the process of negotiating a 364-day credit facility of up to $50 million. The 364-day credit facility will be secured by $50 million aggregate principal amount of NPC's General and Refunding Mortgage Bonds. The closing of the 364-day credit facility will be subject to the completion of the lender's due diligence, the negotiation and finalization of documentation and other customary closing conditions. Although NPC has commenced negotiations of the terms of the 364-day credit facility, it cannot give assurances that it will enter into the credit facility or any similar arrangement. SIERRA PACIFIC POWER COMPANY On November 29, 2001, SPPC put into place a $150 million unsecured revolving credit facility for working capital and general corporate purposes, including commercial paper backup. Under this credit facility, SPPC was required, in the event of a ratings downgrade of its senior unsecured debt, to secure the facility with General and Refunding Mortgage Bonds. In satisfaction of its obligation to secure the credit facility, on April 8, 2002, SPPC issued and delivered its General and Refunding Mortgage Bond, Series B, due November 28, 2002, in the principal amount of $150 million, to the Administrative Agent for the credit facility. As of September 30, 2002, SPPC had borrowed the entire $150 million of funds available under its credit facility to, in part, pay off maturing commercial paper, and to maintain a cash balance at SPPC at an average interest rate of 3.69%. On October 31, 2002, SPPC paid off and terminated its $150 million credit facility and retired its Series B, General & Refunding Bond which secured the credit facility with a combination of cash on hand and proceeds from its $100 million Term Loan Facility. On October 29, 2002, SPPC established an accounts receivables purchase facility of up to $75 million, which was arranged by Lehman Brothers. If SPPC elects to activate the receivables purchase facility, SPPC will sell all of its accounts receivable generated from the sale of electricity to customers to its newly created bankruptcy remote special purpose subsidiary. The receivables sales will be without recourse except for breaches of customary representations and warranties made at the time of sale. The subsidiary will, in turn, sell these receivables to a bankruptcy-remote subsidiary of SPR. SPR's subsidiary will issue variable rate revolving notes backed by the purchased receivables. Lehman Brothers Holdings, Inc. will be the sole initial committed purchaser of all of the variable rate revolving notes. The agreements relating to the receivables purchase facility contain various conditions to purchase, covenants and trigger events, termination events and other provisions customary in receivables transactions. In connection with SPPC's receivables facility, SPR has agreed to guaranty SPPC's performance of certain obligations as a seller and servicer under the facility. SPPC has agreed to issue $75 million principal amount of its General and Refunding Mortgage Bonds upon activation of the accounts receivables purchase facility. The full principal amount of the Bond would secure certain of SPPC's obligations as seller and servicer, plus certain interest, fees and expenses thereon to the extent not paid when due, regardless of the actual amounts owing with respect to the secured obligations. As a result, in the event of an SPPC bankruptcy or liquidation, the holder of the Bond securing the receivables facility may recover more on a pro rata basis than the holders of other General and Refunding Mortgage securities, who could recover less on a pro rata basis, than they otherwise would recover. However, in no event will the holder of the Bond recover more than the amount of obligations secured by the Bond. SPPC intends to use the accounts receivables purchase facility as a back-up liquidity facility and does not plan to activate this facility in the foreseeable future. SPPC may activate the facility within five days upon the delivery of certain customary funding documentation and the delivery of the $75 million General and Refunding Mortgage Bond. NOTE 4. LONG-TERM DEBT (SPR, NPC, SPPC) NPC's, SPPC's and SPR's aggregate annual amount of maturities for long-term debt for the next five years is shown below (in thousands of dollars): 18
SPR Holding Co. SPR NPC SPPC and Other Subs. Consolidated ------------ ---------- --------------- ------------ 2002 $ 15,000 $ - $ - $ 15,000 2003 350,000 20,400 (1) 200,000 570,400 (1) 2004 130,000 2,400 - 132,400 2005 - 2,400 300,000 302,400 2006 - 51,963 - 51,963 ------------ ---------- ------------ ------------ Subtotal 495,000 77,163 500,000 1,072,163 Thereafter 1,126,961 842,337 376,383 2,345,681 ------------ ---------- ------------ ------------ Total $ 1,621,961 $ 919,500 $ 876,383 $ 3,417,844 ============ ========== ============ ============
(1) In addition to the amounts shown in the table, on May 1, 2003, $80,000,000 aggregate principal amount of the Washoe County, Nevada, Water Facilities Refunding Revenue Bonds (Sierra Pacific Power Company Project) Series 2001, will be subject to remarketing. In the event that the Bonds cannot be successfully remarketed on that date, SPPC will be required to purchase the outstanding Bonds at a price of 100% of the principal amount, plus accrued interest. SIERRA PACIFIC RESOURCES On April 20, 2002, $100 million of SPR's floating rate notes matured and were paid in full. The notes had been issued on April 20, 2000, and the net proceeds used to make a capital contribution to NPC. NEVADA POWER COMPANY On May 13, 2002, NPC issued a General and Refunding Mortgage Bond, Series D, due April 15, 2004, in the principal amount of $130 million, for the benefit of the holders of NPC's 6.20% Senior Unsecured Notes, Series B, due April 15, 2004. The Senior Unsecured Notes Indenture required that in the event that NPC issued debt secured by liens on NPC's operating property, in excess of 15% of its Net Tangible Assets or Capitalization (as both terms are defined in the Senior Unsecured Notes Indenture), NPC would equally and ratably secure the Senior Unsecured Notes. NPC triggered this negative pledge covenant on April 23, 2002, when it borrowed certain amounts under its secured credit facility. On October 25, 2002 NPC redeemed its 7 5/8% Series L, First Mortgage Bonds in the aggregate principal amount of $15 million. On October 29, 2002, NPC issued and sold $250 million of its 10 7/8% General and Refunding Mortgage Notes, Series E, due 2009 for a purchase price of $235.6 million. The Series E Notes were issued with registration rights. The proceeds of the issuance were used to pay off NPC's $200 million credit facility and for general corporate purposes. The Series E Notes will mature October 15, 2009. As discussed in Note 5, Dividend Restrictions, NPC's Series E Notes limit the amount of dividends that NPC may pay to SPR. The terms of the Series E Notes also restrict NPC from incurring any additional indebtedness unless (i) at the time the debt is incurred, the ratio of consolidated cash flow to fixed charges for NPC's most recently ended four quarter period on a pro forma basis is at least 2 to 1, or (ii) the debt incurred is specifically permitted, which includes certain credit facility or letter of credit indebtedness, obligations incurred to finance property construction or improvement, indebtedness incurred to refinance existing indebtedness, certain intercompany indebtedness, hedging obligations, indebtedness incurred to support bid, performance or surety bonds, and certain letters of credit issued to support NPC's obligations with respect to energy suppliers. If NPC's Series E Notes are upgraded to investment grade by both Moody's and S&P, the dividend restrictions and the restrictions on indebtedness applicable to the Series E Notes will be suspended and will no longer be in effect so long as the Series E Notes remain investment grade. Among other things, the Series E Notes also contain restrictions on liens (other than permitted liens, which include liens to secure certain permitted debt) and certain sale and leaseback transactions. In the event of a change of control of NPC, 19 the holders of Series E Notes are entitled to require that NPC repurchase the Series E Notes for a cash payment equal to 101% of the aggregate principal amount plus accrued and unpaid interest. NPC's first mortgage indenture creates a first priority lien on substantially all of NPC's properties. As of September 30, 2002, $372.5 million of NPC's first mortgage bonds were outstanding. Although the first mortgage indenture allows NPC to issue additional mortgage bonds on the basis of (i) 60% of net utility property additions and/or (ii) the principal amount of retired mortgage bonds, NPC agreed in connection with its $250 million 10 7/8% General and Refunding Mortgage Notes, Series E, due 2009 that it would not issue any more first mortgage bonds. NPC's General and Refunding Mortgage Indenture creates a lien on substantially all of NPC's properties in Nevada that is junior to the lien of the first mortgage indenture. As of September 30, 2002, $820 million of NPC's General and Refunding Mortgage securities were outstanding. Additional securities may be issued under the General and Refunding Mortgage Indenture on the basis of (1) 70% of net utility property additions, (2) the principal amount of retired General and Refunding Mortgage bonds, and/or (3) the principal amount of first mortgage bonds retired after delivery to the indenture trustee of the initial expert's certificate under the General and Refunding Mortgage Indenture. As of October 1, 2002, NPC had the capacity to issue approximately $871 million of additional General and Refunding Mortgage securities, not including the issuance of $250 million Series E Notes and the retirement of $200 million of General and Refunding Mortgage Bonds that secured NPC's terminated credit facility. However, the financial covenants contained in the Series E Notes limits NPC ability to issue additional General and Refunding Mortgage bonds or other debt. NPC has reserved $125 million of General and Refunding Mortgage Bonds for issuance upon the initial funding of NPC's receivables facility and $50 million of its General and Refunding Mortgage Bonds to secure a proposed 364-day facility, discussed below. NPC also has the ability to release property from the liens of the two mortgage indentures on the basis of net property additions, cash and/or retired bonds. To the extent NPC releases property from the lien of its General and Refunding Mortgage Indenture, it will reduce the amount of bonds issuable under that indenture. SIERRA PACIFIC POWER COMPANY On October 30, 2002 SPPC entered into a $100 million Term Loan Agreement with several lenders and Lehman Commercial Paper Inc., as Administrative Agent. The net proceeds of $97 million from the Term Loan Facility, along with available cash, were used to pay off SPPC's $150 million credit facility, which was secured by a Series B General and Refunding Mortgage Bond. As discussed in Note 5, Dividend Restrictions, SPPC's Term Loan Agreement limits the amount of dividends that SPPC may pay to SPR. SPPC's Term Loan Agreement also requires that SPPC maintain a ratio of consolidated total debt to consolidated total capitalization at all times during each of the following quarters in an amount not to exceed (i) .650 to 1.0 for the fiscal quarters ended December 31, 2002 through December 31, 2003, (ii) .625 to 1.0 for the fiscal quarters ended March 31, 2004 through December 31, 2004, and (iii) ..600 to 1.0 for the fiscal quarter ended March 31, 2005 and for each fiscal quarter thereafter. SPPC's Term Loan Agreement also requires that SPPC maintain a consolidated interest coverage ratio for any four consecutive fiscal quarters ending with the fiscal quarter set forth below of not less than (i) 1.75 to 1.00 for the fiscal quarters ended December 31, 2002 and March 31, 2003, (ii) 2.50 to 1.0 for the fiscal quarters ended June 30, 2003 through December 31, 2003, (iii) 2.75 to 1.0 for the fiscal quarters ended March 31, 2004 through September 30, 2004, and (iv) 3.00 to 1.0 for the fiscal quarter ended December 31, 2004 and for each fiscal quarter thereafter. The Term Loan Facility, which is secured by a $100 million Series C General and Refunding Mortgage Bond, will expire October 31, 2005. 20 On May 23, 2002, SPPC defeased its 2% First Mortgage Bonds due 2011, 5% Series Y First Mortgage Bonds due 2024, and 2% Series Z First Mortgage Bonds due 2004 by depositing $1.2 million, $3.1 million, and $45,000, respectively, with its First Mortgage Trustee. These First Mortgage Bonds were issued to secure loans made to SPPC by the United States under the Rural Electrification Act of 1936, as amended. SPPC's first mortgage indenture creates a first priority lien on substantially all of SPPC's properties in Nevada and California. As of September 30, 2002, $505.3 million of SPPC's first mortgage bonds were outstanding. Although the first mortgage indenture allows SPPC to issue additional mortgage bonds on the basis of (i) 60% of net utility property additions and/or (ii) the principal amount of retired mortgage bonds, SPPC agreed in its General and Refunding Mortgage Indenture that it would not issue any additional first mortgage bonds. SPPC's General and Refunding Mortgage Indenture creates a lien on substantially all of SPPC's properties in Nevada that is junior to the lien of the first mortgage indenture. As of September 30, 2002, $470 million of SPPC's General and Refunding Mortgage bonds were outstanding. Additional securities may be issued under the General and Refunding Mortgage Indenture on the basis of (i) 70% of net utility property additions, (ii) the principal amount of retired General and Refunding Mortgage bonds, and/or (iii) the principal amount of first mortgage bonds retired after delivery to the indenture trustee of the initial expert's certificate under the General and Refunding Mortgage Indenture. At September 30, 2002, SPPC had the capacity to issue approximately $363 million of additional General and Refunding Mortgage securities, not including the issuance of SPPC's $100 million Series C General and Refunding Mortgage Bond which secures SPPC's Term Loan Facility and the retirement of $150 million of Series B General and Refunding Mortgage Bonds that secured SPPC's terminated credit facility. However, the financial covenants contained in SPPC's Term Loan Agreement and Receivable Purchase Facility Agreements limit SPPC's ability to issue additional General and Refunding Mortgage Securities or other debt. SPPC will reserve $75 million of General and Refunding Mortgage Bonds for issuance upon the initial funding of its receivables purchase facility. SPPC also has the ability to release property from the liens of the two mortgage indentures on the basis of net property additions, cash and/or retired bonds. To the extent SPPC releases property from the lien of its General and Refunding Mortgage Indenture, it will reduce the amount of bonds issuable under that indenture. NOTE 5. DIVIDEND RESTRICTIONS (SPR, NPC, SPPC) Since SPR is a holding company, substantially all of its cash flow is provided by dividends paid to SPR by NPC and SPPC on their common stock, all of which is owned by SPR. NPC and SPPC are public utilities and are subject to regulation by state utility commissions which may impose limits on investment returns or otherwise impact the amount of dividends that the Utilities may declare and pay. In addition, certain agreements entered into by the Utilities set restrictions on the amount of dividends they may declare and pay and restrict the circumstances under which such dividends may be declared and paid. SPPC's charter also contains a dividend restriction for the benefit of SPPC's preferred stock holders. Any of the provisions which restrict dividends payable by NPC or SPPC could adversely affect the liquidity of SPR. SIERRA PACIFIC RESOURCES The Master Amendment to Confirmation Agreements with Duke Energy Trading and Marketing L.L.C. (discussed below) prohibited SPR from using any amounts received from NPC to pay a dividend or to make any other payment on account of SPR's common stock until certain deferred payments to Duke were paid in full and certain energy and gas deliveries had been made and paid for under the Agreement. As of October 25, 2002, NPC had paid all of the deferred payments due under this Agreement, and NPC is current on payment for energy and gas deliveries under the Agreement. NEVADA POWER COMPANY The PUCN issued a Compliance Order, Docket No. 02-4037, on June 19, 2002, relating to NPC's request for authority to issue long-term debt. The PUCN order requires that, until such time as the order's authorization expires (December 31, 2003), NPC must either receive the prior approval of the PUCN or reach an equity ratio of 42% before paying any dividends to SPR. If NPC achieves a 42% equity ratio prior to December 31, 2003, the dividend restriction ceases to have effect. In addition, NPC's first mortgage indenture limits the cumulative amount of dividends that NPC may pay on its capital stock to the cumulative net earnings of NPC since 1953. At the present time, this restriction precludes NPC from making further payments of dividends on NPC's common stock and will continue to bar such payments unless the restriction is waived or removed by the consent of the first mortgage bondholders, the first mortgage bonds are redeemed or defeased, or until, over the passage of time, NPC generates sufficient earnings to overcome the shortfall created by the write-off of $465 million in connection with the March 2002 decision in NPC's deferred energy rate case. 21 On June 4, 2002, NPC entered into a Master Amendment to Confirmation Agreements with Duke Energy Trading and Marketing L.L.C., which, among other things, limited the amount of dividends NPC could declare or pay on its equity securities until NPC completed certain deferred payments under the Agreement. Under the Agreement, until the deferred payments were paid in full, NPC could not declare any dividend or make any dividend payments other than (1) payments to SPR to enable SPR to pay its reasonable fees and expenses (including interest on SPR's debts and payment of obligations under SPR's PIES) incurred in the ordinary course of business in calendar year 2003, up to a maximum amount of $20,000,000 and (2) any currently scheduled payments to any of NPC's preferred trust vehicles on account of NPC's preferred trust securities. As of October 25, 2002, NPC had paid all of the deferred payments due under this Agreement. On June 25, 2002, NPC entered into Amendment No. 2 to its $200 million credit agreement. The amendment provides that NPC may not declare or pay any dividend on its capital stock for the duration of the credit facility which expires on November 28, 2002. This facility was paid off on October 30, 2002 with proceeds from the issuance of the Series E General & Refunding Mortgage Notes. On October 29, 2002 NPC issued $250 million 10 7/8% General and Refunding Mortgage Notes, Series E, due 2009 the terms of which, among other things, limit the amount of dividends NPC may pay to SPR. However, that limitation does not apply to payments by NPC to enable SPR to pay its reasonable fees and expenses (including, but not limited to, interest on SPR's indebtedness and payment obligations on account of SPR's premium income equity securities) provided that those payments do not exceed $60 million for any one calendar year, those payments comply with any regulatory restrictions then applicable to NPC, and the ratio of consolidated cash flow to fixed charges for NPC's most recently ended four full fiscal quarters immediately preceding the date of payment is at least 1.75 to 1. The terms of the Series E Notes also permit dividend payments to SPR in an aggregate amount not to exceed $15 million from the date of the issuance of the Notes. In addition, NPC may make dividend payments to SPR in excess of the amounts described above so long as, at the time of payment and after giving effect to the payment: there are no defaults or events of default with respect to the Series E Notes, NPC can meet a Fixed Charge Coverage Ratio Test, and the total amount of such dividends is less than (i) the sum of 50% of NPC's Consolidated Net Income measured on a quarterly basis cumulative of all quarters from the date of issuance of the Series E Notes, plus (ii) 100% of NPC's aggregate net cash proceeds from the issuance or sale of certain equity or convertible debt securities of NPC, plus (iii) the lesser of cash return of capital or the initial amount of certain restricted investments, plus (iv) the fair market value of NPC's investment in certain subsidiaries. If NPC's Series E Notes are upgraded to investment grade by both Moody's and S&P, these dividend restrictions will be suspended and will no longer be in effect so long as the Series E Notes remain investment grade. As described in Note 3, Short-Term Borrowings, on October 29, 2002, NPC established an accounts receivables purchase facility. The agreements relating to the receivables purchase facility contain various conditions, including a limitation on the payment of dividends by NPC to SPR that is identical to the limitation contained in NPC's General and Refunding Mortgage Notes, Series E, described above. Finally, the terms of NPC's preferred trust securities provide that no dividends may be paid on NPC's common stock if NPC has elected to defer payments on the junior subordinated debentures issued in conjunction with the preferred trust securities. At this time, NPC has not elected to defer payments on the junior subordinated debentures. SIERRA PACIFIC POWER COMPANY SPPC's Articles of Incorporation contain restrictions on the payment of dividends on SPPC's common stock in the event of a default in the payment of dividends on SPPC's preferred stock and prohibit SPPC from declaring or paying any dividends on any shares of common stock except from the net income of SPPC, and its predecessor, available for dividends on common stock accumulated subsequent to December 31, 1955, less preferred stock dividends plus the sum of $500,000. As of June 30, 2002, SPPC was not prohibited by these restrictions from paying dividends. In addition, on June 25, 2002, SPPC entered into Amendment No. 1 to its $150 million credit agreement. This amendment prohibits the payment of dividends on SPPC's capital stock if SPPC is in default under the terms of its credit facility. On October 31, 2002 SPPC paid off this credit agreement with cash and proceeds from the $100 million term loan. On October 30, 2002 SPPC entered into a $100 million Term Loan Agreement with Lehman Commercial Paper Inc., as administrative agent, which matures October 31, 2005, and which is secured by a $100 million General and Refunding Bond, Series C, due October 31, 2005. The Term Loan Agreement limits the amount of dividends that SPPC may pay to SPR. However, that limitation does not apply to payments by SPPC to enable SPR to pay its reasonable fees and expenses (including, but not limited to, interest on SPR's indebtedness and payment obligations on account of SPR's premium income equity securities) provided that those payments do not exceed $90 million, $80 million and $60 million in the aggregate for the twelve month periods ending on October 30, 2003, 2004 and 2005, respectively. The Term Loan Agreement also permits SPPC to make dividend payments to SPR in an aggregate amount not to exceed $10 million during the term of the Term Loan Agreement. In addition, SPPC may make dividend payments to SPR in 22 excess of the amounts described above so long as, at the time of the payment and after giving effect to the payment, there are no defaults or events of default under the Term Loan Agreement, and such amounts, when aggregated with the amount of dividends paid to SPR by SPPC since the date of execution of the Term Loan Agreement, does not exceed the sum of (i) 50% of SPPC's Consolidated Net Income for the period commencing January 1, 2003 and ending with last day of fiscal quarter most recently completed prior to the date of the contemplated dividend payment plus (ii) the aggregate amount of cash received by SPPC from SPR as equity contributions on its common stock during such period. As described in Note 3, Short-Term Borrowings, on October 29, 2002, SPPC established an accounts receivables purchase facility. The agreements relating to the receivables purchase facility contain various conditions, including a limitation on the payment of dividends by SPPC to SPR that is identical to the limitation contained in SPPC's Term Loan Agreement, described above. 23 NOTE 6. EARNINGS PER SHARE (SPR) SPR follows SFAS No. 128, "Earnings Per Share". The difference, if any, between Basic EPS and Diluted EPS would be due to common stock equivalent shares resulting from stock options, employee stock purchase plan, performance shares and a non-employee director stock plan. Due to net losses for the nine months ended September 30, 2002, these items are anti-dilutive for that period. Common stock equivalents were determined using the treasury stock method.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ------------------------------- 2002 2001 2002 2001 ------------- ----------- ------------- ------------ BASIC EPS Numerator ($000) Income (Loss) from continuing operations $ 79,374 $ 80,409 $ (266,458) $ 24,098 Income from discontinued operations - - - 1,022 Gain on disposal of water business - - - 25,845 Cumulative effect of change in accounting principle - - (1,566) - ------------- ----------- ------------- ------------ Net income (loss) $ 79,374 $ 80,409 $ (268,024) $ 50,965 ============= =========== ============= ============ Denominator Weighted average number of shares outstanding 102,132,465 90,302,825 102,117,926 82,423,032 ------------- ----------- ------------- ------------ Per-Share Amounts: Income (Loss) from continuing operations $ 0.78 $ 0.89 $ (2.61) $ 0.29 Income from discontinued operations - - - 0.01 Gain on disposal of water business - - - 0.32 Cumulative effect of change in accounting principle - - (0.01) - ------------- ----------- ------------- ------------ Net income (loss) $ 0.78 $ 0.89 $ (2.62) $ 0.62 ============= =========== ============= ============ DILUTED EPS Numerator ($000) Income (Loss) from continuing operations $ 79,374 $ 80,409 $ (266,458) $ 24,098 Income from discontinued operations - - - 1,022 Gain on disposal of water business - - - 25,845 Cumulative effect of change in accounting principle - - (1,566) - ------------- ----------- ------------- ------------ Net income (loss) $ 79,374 $ 80,409 $ (268,024) $ 50,965 ============= =========== ============= ============ Denominator Weighted average number of shares outstanding before dilution 102,132,465 90,302,825 102,117,926 82,423,032 Stock options (1) - 31,645 10,537 18,285 Executive long term incentive plan- performance shares (1) - 71,593 8,918 37,960 Non-Employee Director stock plan (1) 15,148 9,355 11,930 9,355 Employee stock purchase plan (1) - 3,519 1,619 3,185 ------------- ----------- ------------- ------------ 102,147,613 90,418,937 102,150,930 82,491,817 ------------- ----------- ------------- ------------ Per-Share Amounts (1) : Income (Loss) from continuing operations $ 0.78 $ 0.89 $ (2.61) $ 0.29 Income from discontinued operations - - - 0.01 Gain on disposal of water business - - - 0.32 Cumulative effect of change in accounting principle - - (0.01) - ------------- ----------- ------------- ------------ Net income (loss) $ 0.78 $ 0.89 $ (2.62) $ 0.62 ============= =========== ============= ============
(1) Because of a net loss for the nine months ended September 30, 2002, stock equivalents would be anti-dilutive. Accordingly, Diluted EPS for this period is computed using the weighted average number of shares outstanding before dilution. 24 NOTE 7. SEGMENT INFORMATION (SPR) SPR operates three business segments providing regulated electric and natural gas services. NPC provides electric service to Las Vegas and surrounding Clark County. SPPC provides electric service in northern Nevada and the Lake Tahoe area of California. SPPC also provides natural gas service in the Reno-Sparks area of Nevada. Other segment information includes segments below the quantitative threshold for separate disclosure. On June 11, 2001, SPPC sold its water utility business. Accordingly, the water business is not included in the segment information below. Information as to the operations of the different business segments is set forth below based on the nature of products and services offered. SPR evaluates performance based on several factors, of which the primary financial measure is business segment operating income. Intersegment revenues are not material. Financial data for business segments is as follows (in thousands):
Three Months Ended NPC SPPC Total September 30, 2002 Electric Electric Electric Gas Other Consolidated - --------------------- ------------ ------------ ------------ ----------- ----------- -------------- Operating Revenues $ 712,536 $ 285,023 $ 997,559 $ 18,473 $ 3,987 $ 1,020,019 ============ ============ ============ =========== =========== ============== Operating Income (Loss) $ 109,183 $ 30,252 $ 139,435 $ (231) $ 4,123 $ 143,327 ============ ============ ============ =========== =========== ==============
Three Months Ended NPC SPPC Total September 30, 2001 Electric Electric Electric Gas Other Consolidated - --------------------- ------------ ------------ ------------ ----------- ----------- -------------- Operating Revenues $ 1,395,496 $ 581,957 $ 1,977,453 $ 18,831 $ 5,650 $ 2,001,934 ============ ============ ============ =========== =========== ============== Operating Income $ 94,767 $ 25,146 $ 119,913 $ 456 $ 1,821 $ 122,190 ============ ============ ============ =========== =========== ==============
Nine Months Ended NPC SPPC Total September 30, 2002 Electric Electric Electric Gas Other Consolidated - --------------------- ------------ ------------ ------------ ----------- ----------- -------------- Operating Revenues $ 1,545,867 $ 705,946 $ 2,251,813 $ 99,139 $ 8,328 $ 2,359,280 ============ ============ ============ =========== =========== ============== Operating Income (Loss) $ (121,414) $ 35,311 $ (86,103) $ 4,826 $ 13,752 $ (67,525) ============ ============ ============ =========== =========== ==============
Nine Months Ended NPC SPPC Total September 30, 2001 Electric Electric Electric Gas Other Consolidated - --------------------- ------------ ------------ ------------ ----------- ----------- -------------- Operating Revenues $ 2,562,949 $ 1,175,228 $ 3,738,177 $ 104,725 $ 13,350 $ 3,856,252 ============ ============ ============ =========== =========== ============== Operating Income (Loss) $ 120,125 $ 49,123 $ 169,248 $ 6,105 $ (5,355) $ 169,998 ============ ============ ============ =========== =========== ==============
NOTE 8. DISCONTINUED OPERATIONS (SPR, SPPC) As previously reported, SPPC closed the sale of its water business to the Truckee Meadows Water Authority for $341 million on June 11, 2001. Accordingly, the water business is reported as a discontinued operation for the nine months ending September 30, 2001. SPPC recorded a $25.8 million gain on the sale, net of income taxes, for the same period. Revenues from operations of the water business were $23.2 million for the nine-month period ended September 30, 2001. The net income from operations of the water business, as shown in the Condensed Consolidated Statements of Operations of SPR and SPPC, includes preferred dividends of approximately $200,000 for the nine-month period ended September 30, 2001. These amounts are not included in the revenues and income (loss) from continuing operations shown in the accompanying statements of operations. NOTE 9. REGULATORY EVENTS (SPR, NPC, SPPC) NEVADA MATTERS (NPC, SPPC) NEVADA POWER COMPANY GENERAL RATE CASE (NPC) On October 1, 2001, NPC filed an application with the PUCN seeking an electric general rate increase. This application was mandated by Assembly Bill 369 (AB 369). On December 21, 2001, NPC filed a Certification to its general rate filing updating costs and revenues pursuant to Nevada regulations. In the certification filing, NPC requested an increase in its general rates charged to all classes of electric customers designed to produce an increase in annual electric revenues of 25 $22.7 million, which is an overall 1.7% rate increase. The application also sought a return on common equity ("ROE") for Nevada Power's total electric operations of 12.25% and an overall rate of return ("ROR") of 9.30%. On March 27, 2002, the PUCN issued its decision on the general rate application, ordering a $43 million revenue decrease with an ROE of 10.1% and ROR of 8.37%. The effective date for the decision was April 1, 2002. The decision also resulted in adverse adjustments to depreciation aggregating $7.9 million, and the adverse treatment of approximately $5 million of revenues related to SO2 Allowances. On April 15, 2002, NPC filed a petition for reconsideration with the PUCN. In the petition, NPC raised six issues for reconsideration: the treatment of revenues related to SO2 Allowances, in particular the calculation of the annual amortization amount, which appears to be in error; the adjustment for "excess" capital investment related to common facilities at the Harry Allen generating station; the rejection of adjustments to accumulated depreciation reserves related to the establishment of revised depreciation rates for transmission, distribution and common facilities; the delay in allowing NPC to recover its merger costs without the benefit of carrying charges; the finding that NPC has no need for and is entitled to zero funds cash working capital; and the establishment of a 10.1% ROE. On May 24, 2002, the PUCN issued an order on the petition for reconsideration. In its order the PUCN reaffirmed its findings in the original order for the issues related to "excess" capital investment at the Harry Allen generating station, merger costs, cash working capital, and the 10.1% ROE. The PUCN, however, did modify its original order to include adjustments related to SO2 Allowances and depreciation issues. Revised rates for these changes went into effect on June 1, 2002. NEVADA POWER COMPANY DEFERRED ENERGY CASE (NPC) On November 30, 2001, NPC filed an application with the PUCN seeking to clear deferred balances for purchased fuel and power costs accumulated between March 1, 2001 through September 30, 2001, as mandated by AB 369. The application sought to establish a Deferred Energy Accounting Adjustment ("DEAA") rate to clear accumulated purchased fuel and power costs of $922 million and spread the recovery of the deferred costs, together with a carrying charge, over a period of not more than three years. On March 29, 2002, the PUCN issued its decision on the deferred energy application, allowing NPC to recover $478 million over a three-year period, but disallowing $434 million of deferred purchased fuel and power costs and $10 million in carrying charges. The order states that the disallowance was based on alleged imprudence in incurring the disallowed costs. On April 11, 2002, NPC filed a lawsuit in the First District Court of Nevada seeking to reverse portions of the PUCN's decision. NPC asserts that, as a result of the PUCN's decision, NPC's credit rating was reduced to below investment grade, SPR suffered a reduction in its equity market capitalization by approximately 41%, and the disallowed costs are effectively imposed upon SPR's shareholders. In its lawsuit, NPC alleges that the order of the PUCN is: in violation of constitutional and statutory provisions; made upon unlawful procedure; affected by other error of law; clearly erroneous in view of the reliable, probative and substantial evidence on the whole record; arbitrary and capricious and characterized by abuse of discretion. NPC also states that its decisions with respect to the purchase of power during the energy crisis in the western United States were made prudently, as required under AB 369. In early 2001, the PUCN and the Nevada State Legislature expressly required that NPC secure sufficient, safe and reliable power for anticipated summer loads and needs for the summer of 2001. Prior to the April 2001 enactment of AB 369, which prohibits until July 2003 all divestiture of generation assets, NPC was operating under an order of the PUCN to divest itself of its electric generating plants. To meet this requirement, NPC had engaged in an open auction process that led to the signing of asset sale agreements for a number of its plants, in connection with which, NPC entered into long-term purchase power contracts with the potential buyers that would have availed NPC of reasonably priced purchase power over a long-term period. In its petition, NPC challenges the disallowance by the PUCN of $180 million of its deferred energy costs relating to an informal offer made by an agent for Merrill Lynch for the delivery of energy from January 2001 to March 2003. In addition to certain procedural questions relating to the PUCN's finding with respect to the Merrill Lynch informal offer, NPC asserts that the energy being negotiated was not firm (uninterruptible), the obligations, costs and arrangements for delivery in the informal offer were not specified, the cost of the energy proposed under the informal offer was above then-current market price, and that the supplier was a minor market participant and the magnitude of the transaction proposed was more than 45 times its previously combined annual transactions. NPC's lawsuit requests that the District Court reverse portions of the PUCN's order and remand the matter to the PUCN with direction that the PUCN authorize NPC to immediately establish rates that would allow NPC to recover its entire deferred energy balance of $922 million, with a carrying charge, over three years. A hearing on this matter has been scheduled for February 2003. At this time, NPC is not able to predict the outcome or the timing of a decision in this matter. Various interveners in NPC's deferred energy case before the PUCN filed petitions with the PUCN for reconsideration of the PUCN's order, seeking additional disallowances of between $12.8 million and $488 million. On May 24, 2002, the PUCN issued an order denying any further disallowances and granted NPC the authority to increase the deferred energy cost recovery charge for the month of June 2002 by one cent per kilowatt-hour. This increase accelerated the recovery of the deferred balance by approximately $16 million for the month of June 2002 only. The Bureau of Consumer Protection (BCP) of 26 the Nevada Attorney General's Office has since filed a petition in NPC's pending state court case seeking additional disallowances. SIERRA PACIFIC POWER COMPANY GENERAL RATE CASE (SPPC) On November 30, 2001, SPPC filed an application with the PUCN seeking an electric general rate increase. This application was mandated by AB 369. On February 28, 2002, SPPC filed a certification to its general rate filing, updating costs and revenues pursuant to Nevada regulations. In the certification filing, SPPC requested an increase in its general rates charged to all classes of electric customers, which were designed to produce an increase in annual electric revenues of $15.9 million representing an overall 2.4% rate increase. The application also sought an ROE for SPPC's total electric operations of 12.25% and an overall ROR of 9.42%. On May 28, 2002, the PUCN issued its decision on the general rate application, ordering a $15.3 million revenue decrease with an ROE of 10.17% and ROR of 8.61%. The effective date of the decision was June 1, 2002. Various parties to the case had filed petitions for reconsideration of the order. On July 18, 2002, the PUCN issued a final decision on the petitions for reconsideration, clarifying issues contained its original order. As a result of the clarifications, SPPC was ordered to change the total annual electric revenue decrease from $15.3 million to $15.8 million. On August 19, 2002, Barrick filed a lawsuit in the First District Court of Nevada seeking to reverse portions of the decision related to the High Voltage Distribution facilities contained in the general rate case order. Barrick alleges that the order of the PUCN is: in violation of constitutional and statutory provisions; in excess of the statutory authority of the PUCN; affected by error of law: clearly erroneous in view of the reliable, probative and substantial evidence on the whole record; and arbitrary or capricious or characterized by abuse of discretion. A hearing date has not yet been scheduled. At this time, SPPC is not able to predict the outcome or the timing of a decision in this matter. SIERRA PACIFIC POWER COMPANY DEFERRED ENERGY (SPPC) On February 1, 2002, SPPC filed an application with the PUCN seeking to clear deferred balances for purchased fuel and power costs accumulated between March 1, 2001 and November 30, 2001. This application was mandated by AB 369. The application sought to establish a DEAA rate to clear accumulated purchased fuel and power costs of $205 million and spread the cost recovery over a period of not more than three years. It also sought to recalculate the Base Tariff Energy Rate to reflect anticipated ongoing purchased fuel and power costs. The total rate increase resulting from the requested DEAA would have amounted to 9.8%. Various parties intervened in SPPC's deferred energy rate case including the Staff of the PUCN, the BCP from the Nevada Attorney General's office, and Barrick, among others. Interveners proposed disallowances ranging from $40.4 million to $361 million. On May 28, 2002, the PUCN issued its decision on the deferred energy application, allowing SPPC three years to collect $150 million but disallowing $53 million of deferred purchased fuel and power costs and $2 million in carrying charges. Several of the interveners from SPPC's deferred energy rate case filed petitions with the PUCN for reconsideration of its decision, seeking an additional disallowance of $126 million. On July 18, 2002, the petitions for reconsideration were granted in part and denied in part by the PUCN, but no additional disallowances to the deferred energy balance resulted from that decision. On August 22, 2002, SPPC filed a lawsuit in the First District Court of Nevada seeking to reverse portions of the decision of the PUCN denying the recovery of deferred energy costs incurred by SPPC on behalf of its customers in 2001 on the grounds that such power costs were not prudently incurred. In its lawsuit, SPPC alleges that the order of the PUCN is: in violation of constitutional and statutory provisions; in excess of the statutory authority of the PUCN; made upon unlawful procedure; affected by other error of law; clearly erroneous in view of the reliable, probative and substantial evidence on the whole record; arbitrary and capricious and characterized by abuse of discretion. SPPC's lawsuit requests that the District Court reverse portions of the order of the PUCN and remand the matter to the PUCN with direction that the PUCN authorize SPPC to immediately establish rates that would allow SPPC to recover its entire deferred energy balance of $205 million, with a carrying charge, over three years. A hearing date has not yet been scheduled. On August 22, 2002, the BCP from the Nevada Attorney General's office also filed a lawsuit in the First District Court of Nevada seeking to set aside the decision of the PUCN so that SPPC is not authorized to reflect in rates any costs for fuel and purchased power which may have been imprudently incurred. A hearing date has not yet been scheduled. At this time, SPPC is not able to predict the outcome or the timing of a decision in these matters. CUSTOMERS FILE UNDER AB 661 (NPC, SPPC) Assembly Bill 661 (AB 661), passed by the Nevada legislature in 2001, allows commercial and governmental customers with an average demand greater than 1 MW to select new energy suppliers. The Utilities would continue to provide 27 transmission, distribution, metering and billing services to such customers. AB 661 requires customers wishing to choose a new supplier to receive the approval of the PUCN and meet public interest standards. In particular, departing customers must secure new energy resources that are not under contract to the Utilities, the departure must not burden the Utilities with increased costs or cause any remaining customers to pay increased costs, and the departing customers must pay their portion of any deferred energy balances. The PUCN adopted regulations prescribing the criteria that will be used to determine if there will be negative impacts to remaining customers or the Utility. These regulations place certain limits upon the departure of NPC customers until 2003; most significantly, the amount of load departing is limited to approximately 1100 MW in peak conditions. Customers wishing to choose a new supplier must provide 180-day notice to the Utilities. AB 661 permitted customers to file applications with the PUCN beginning in the fourth quarter of 2001, and customers could begin to receive service from new suppliers by mid-2002. On January 10, 2002, Barrick, an approximately 130 MW SPPC customer, filed an application with the PUCN to exit the system of SPPC and to purchase energy, capacity and ancillary services from a provider other than SPPC. A stipulation filed on March 8, 2002 by SPPC and Barrick was rejected by the PUCN on March 29, 2002. The PUCN indicated a desire for more information regarding transmission access, the definition of a new electric resource, and the computation of exit fees. Subsequently, a second application was filed and later withdrawn by Barrick. Barrick has filed a new application with the PUCN. Barrick could receive service from a new supplier as early as May 1, 2003. A hearing date on this application has not yet been scheduled. During May 2002, Rouse Fashion Show Management LLC, Coast Hotels and Casinos Inc., Station Casinos, Inc., Gordon Gaming Corporation, MGM Mirage, and Park Place Entertainment filed separate applications with the PUCN to exit the system of NPC and to purchase energy, capacity and ancillary services from a provider other than NPC. The loads of these customers aggregate 260 MW on peak. Hearings on the applications of all the customers except Park Place Entertainment were completed on July 19, and the PUCN issued its decision on July 31, 2002. In its decision, the PUCN approved the applications of these customers to choose an energy supplier other than NPC. The earliest any of these customers could have begun taking energy from an alternative provider was November 1, 2002. If all five customers whose applications were approved were to leave its system, NPC would incur an annual loss in revenue of $48 million, which would be offset by a reduction in costs, primarily for fuel and purchased power, of $46 million with the difference being paid by exit fees from the departing customers. These customers will also be responsible for their share of balances in NPC's deferred energy accounts until the time they leave and must continue to pay their share of these balances after they leave. For example, if all five customers whose applications were approved had left the system on November 1, 2002, their remaining share of NPC's previously approved deferred energy balance is estimated to have been $27 million. Additionally, these departing customers would be responsible for paying their share of the yet to be approved accumulated deferred energy balances from October 1, 2001 to their date of departure. They will also remain accountable to any rulings made by the District Court on legal actions brought in NPC's past deferred energy case. They could also benefit from any refunds that might be granted on power contracts under review with the FERC. A hearing on the application of Park Place Entertainment was held on August 2, 2002, and on August 12, 2002, the PUCN approved the application with terms and conditions similar to those described above for the aforementioned five customers. All of the customers approved for departure are addressing compliance items in their PUCN orders. To date, none of these customers has provided official notice of departure. Other customers are continuing to express an interest, and additional gaming properties, including Monte Carlo, Riviera, and Imperial Palace, have indicated intent to potentially procure energy sources from a new supplier. Any customer who departs NPC's system and later decides to return to NPC as their energy provider will be charged for their energy at a rate equivalent to NPC's incremental cost of service. A stipulation regarding the incremental cost of service tariff is currently pending before the PUCN. NEVADA POWER COMPANY ADDITIONAL FINANCE AUTHORITY (NPC) On April 26, 2002, Nevada Power filed with the PUCN an application seeking additional finance authority. In the application NPC asked for authority to issue secured long-term debt in an aggregate amount not to exceed $450 million through the period ending 2003. On June 19, 2002, the PUCN issued a Compliance Order, Docket No. 02-4037, authorizing NPC to issue $300 million of long-term debt. The PUCN order requires NPC, if it is able, to issue the $50 million of remaining authorized short-term debt, before it issues any long-term debt authorized by the order. Moreover, the order provides that, if NPC is able to issue short-term debt at any point prior to September 1, 2002 (whether or not the issuance of short-term debt actually occurs), the amount of long-term debt authorized by the order will be automatically reduced to $250 million. The PUCN order also provides that NPC will bear the burden of demonstrating that any financings undertaken pursuant to the order, including any determination made regarding the length of such commitment, the type of security or rate, is reasonable. Finally, the order requires that, until such time as the order's authorization expires (December 31, 2003), NPC must either receive the prior approval of the PUCN or reach an equity ratio of 42% before paying any dividends to SPR. If NPC achieves a 42% equity ratio prior to December 31, 2003, the dividend restriction ceases to have effect. On July 3, 2002, the Bureau of Consumer Protection of the Nevada Attorney General's Office filed a petition with the PUCN requesting that the hearing in Docket No. 02-4037 be reopened to allow for the introduction of additional evidence or for the PUCN to reconsider its decision granting NPC the authority to issue long-term debt. On September 11, 2002, the PUCN denied the petition to reopen the proceeding and rescinded the portion of its Compliance Order that had previously required NPC to immediately issue $50 million to $100 million of debt. 28 CALIFORNIA MATTERS (SPPC) RATE STABILIZATION PLAN SPPC serves approximately 44,500 customers in California. On June 29, 2001, SPPC filed with the California Public Utilities Commission (CPUC) a Rate Stabilization Plan, which includes two phases. Phase One, which was also filed June 29, 2001, is an emergency electric rate increase of $10.2 million annually or 26%. If granted, the typical residential monthly electric bill for a customer using 650 kilowatt-hours would increase from approximately $47.12 to $60.12. On August 14, 2001, a pre-hearing conference was held, and a procedural order was established. On September 27, 2001, the Administrative Law Judge issued an order stating that no interim or emergency relief could be granted until the end of the "rate freeze" period mandated by the California restructuring law for recovery of stranded costs. In accordance with the judge's request, on October 26, 2001, SPPC filed an amendment to its application declaring the rate freeze period to be over. On December 5 and 11, 2001, hearings were held and on January 11, 2002 and January 25, 2002 opening briefs and reply briefs were filed. On July 17, 2002, the CPUC approved the requested 2-cent per kilowatt-hour surcharge, subject to refund and interest pending the outcome of Phase Two. The increase of $10 million or 26% is applicable to all customers except those eligible for low-income and medical-needs rates and went into effect July 18, 2002. Phase Two of the Rate Stabilization Plan was filed with the CPUC on April 1, 2002, and includes a general rate case and requests the CPUC to reinstate the Energy Cost Adjustment Clause, which would allow SPPC to file for periodic rate adjustments to reflect its actual costs for wholesale energy supplies. Phase Two also includes a proposal to terminate the 10% rate reduction mandated by AB 1890, but does not include a performance -based rate-making proposal. This request was for an additional overall increase in revenues of 17.1%, or $8.9 million annually. Hearings are scheduled for February 25 through March 3, 2003, and a decision by the CPUC is expected in the third quarter of 2003. CALIFORNIA ASSEMBLY BILL 1235 (SPPC) On September 24, 2002, the Governor of California signed into law Assembly Bill 1235 (AB 1235), which allows the transfer of hydroelectric plants along the Truckee River from SPPC to the Truckee Meadows Water Authority (TMWA). AB 1235 effectively amends previous California legislation (AB 6X) that prevented until 2006 private utilities from selling any power plants that provide energy to California customers. AB 1235 provides an exemption for the four "run-of-the-river" hydroelectric plants that SPPC sold to TMWA as part of the sale of its water business in June 2001. AB 1235 was effective September 24, 2002, and the process to transfer the plants from SPPC to TMWA has begun. The CPUC must now review and approve the transfer of the plants. FERC MATTERS (SPPC, NPC) FERC 206 COMPLAINTS In December 2001, the Utilities filed ten wholesale purchased power complaints with the FERC under Section 206 of the Federal Power Act seeking their review of certain forward power purchase contracts that the Utilities entered into prior to the price caps established by the FERC during the western United States utility crisis. The Utilities believe the prices under these purchased power contracts are unjust and unreasonable. The FERC ordered the case set for hearing and assigned an administrative law judge. A primary issue is whether or not the dysfunctional short-term market, which was previously declared by the FERC, impacted the forward market. The Utilities negotiated a settlement with Duke Energy Trading and Marketing and have engaged in bilateral settlement discussions with other respondents as well. Written direct and rebuttal testimony have been filed by the parties that have not negotiated settlements with the Utilities. Hearings concluded on October 24, 2002, and a draft decision is expected in December 2002. At this time, the Utilities are not able to predict the outcome of a decision in this matter. OPEN ACCESS TRANSMISSION TARIFF On September 27, 2002, the Utilities filed with the FERC a revised Open Access Transmission Tariff. The purpose of the filing was to implement changes that are required to implement retail open access in Nevada. The Utilities have requested the changes to become effective November 1, 2002, the date retail access is scheduled to commence in Nevada in accordance with provisions of AB 661, passed in the 2001 session of the Nevada Legislature. NOTE 10. DERIVATIVES AND HEDGING ACTIVITIES (SPR, NPC, SPPC) Effective January 1, 2001, SPR, SPPC, and NPC adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, both issued by the Financial Accounting Standards Board. As amended, SFAS No. 133 requires that an entity recognize all derivatives as either 29 assets or liabilities in the statement of financial position, measure those instruments at fair value, and recognize changes in the fair value of the derivative instruments in earnings in the period of change unless the derivative qualifies as an effective hedge. SPR's and the Utilities' objective in using derivatives is to reduce exposure to energy price risk and interest rate risk. Energy price risks result from activities that include the generation, procurement and marketing of power and the procurement and marketing of natural gas. Derivative instruments used to manage energy price risk include forwards, options, and swaps. These contracts allow the Utilities to reduce the risks associated with volatile electricity and natural gas markets. Derivatives used to manage interest rate risk include interest rate swaps designed to moderate exposure to interest-rate changes and lower the overall cost of borrowing. On April 1, 2002, SPR paid $9.5 million to terminate an interest rate swap related to $200 million of SPR floating rate notes maturing April 20, 2003. At September 30, 2002, the fair value of the derivatives resulted in the recording of $74 million, $57 million and $17 million in risk management assets and $153 million, $64 million and $89 million in risk management liabilities in the Consolidated Balance Sheets of SPR, NPC and SPPC, respectively. Due to deferred energy accounting under which the Utilities operate, regulatory assets and liabilities are established to the extent that electricity and natural gas derivative gains and losses are recoverable or payable through future rates. Accordingly, at September 30, 2002, $78 million, $7 million and $71 million in net risk management regulatory assets were recorded in the Consolidated Balance Sheets of SPR, NPC, and SPPC, respectively. In addition, for the nine months ended September 30, 2002, the unrealized gains and losses resulting from the change in the fair value of derivatives designated and qualifying as cash flow hedges for SPR, NPC, and SPPC were recorded in Other Comprehensive Income. Such amounts are reclassified into earnings when the related transactions are settled or terminate. Accordingly, $1.3 million and $5.1 million relating to SPR's terminated interest rate swap were reclassified into earnings during the three- and nine-month periods ended September 30, 2002, respectively. The effects of SFAS No. 133 on comprehensive income and the components thereof at September 30, 2002, and 2001, are as follows (in thousands):
SPR NPC SPPC ------------- ------------- ------------ Net Loss for the nine months ended September 30, 2002 $ (268,024) $ (216,025) (1) $ (12,389) Change in market value of risk management assets and liabilities as of September 30, 2002, net of taxes 2,726 (403) (191) ------------- ------------- ------------ Total Comprehensive Loss for the nine months ended September 30, 2002 $ (265,298) $ (216,428) $ (12,580) ============= ============= ============ Net Income for the nine months ended September 30, 2001 $ 50,965 $ 56,459 (2) $ 36,572 Cumulative effect upon adoption of change in accounting principle, January 1, 2001, net of taxes (1,923) 444 212 Change in market value of risk management assets and liabilities as of September 30, 2001, net of taxes (5,048) 230 109 ------------- ------------- ------------ Total Comprehensive Income for the nine months ended September 30, 2001 $ 43,994 $ 57,133 $ 36,893 ============= ============= ============
(1) Does not include NPC's equity in SPR's losses of $(51,999). (2) Does not include NPC's equity in SPR's losses of $(5,494). NOTE 11. COMMITMENTS AND CONTINGENCIES (SPR, NPC, SPPC) NEVADA POWER COMPANY AND SIERRA PACIFIC POWER COMPANY In early May of 2002, Enron Power Marketing Inc. ("Enron"), Morgan Stanley Capital Group Inc. ("MSCG"), Reliant Energy Services, Inc. and several smaller suppliers terminated their power deliveries to NPC and SPPC. These terminating suppliers asserted their contractual right under the WSPP agreement to terminate deliveries based upon the Utilities' alleged failure to provide adequate assurances of their performance under the WSPP agreement to any of their suppliers. Each of these 30 terminating suppliers has asserted, or has indicated that it will assert claims for liquidated damages against the Utilities under the terminated power supply contracts. On June 5, 2002, Enron filed suit in its bankruptcy case in the Bankruptcy Court for the Southern District of New York asserting claims for liquidated damages related to the termination of its power supply agreements with the Utilities of approximately $216 million and $93 million against NPC and SPPC, respectively. NPC and SPPC have both filed claims in the Bankruptcy Court alleging, among other things, that NPC and SPPC were fraudulently induced to enter into the agreements with Enron. Enron's claims are also subject to the Utilities' defense, as raised in the Utilities' motions to dismiss and or to stay all proceedings, that such claims are already at issue in the Utilities' FERC proceeding against Enron and others under Section 206 of the Federal Power Act challenging the contract prices of the terminated power supply agreements. Enron initially filed a motion for partial summary judgment to require the Utilities to make immediate payment of the full amount of Enron's claim, pending final resolution of the lawsuit. Enron subsequently filed another motion for summary judgment seeking final payment of its damages claim. Hearings, including arguments regarding the issue of FERC's primary jurisdiction over the contract claims, were conducted in September, October, and early November 2002. On November 14, 2002, the judge is expected to rule on the Utilities' motion to dismiss or stay until the FERC rules on the Utilities' Section 206 filing. If the judge decides not to stay Enron's lawsuit pending the outcome of the FERC hearings, the judge would then schedule additional arguments with respect to Enron's motion for summary judgment. At this time, the outcome of a decision in this matter cannot be predicted. An adverse decision on Enron's motion for summary judgment or an adverse decision in the lawsuit would have a material adverse affect on the financial condition and liquidity of SPR and the Utilities and would render their ability to continue to operate outside of bankruptcy uncertain. In addition, on September 5, 2002, MSCG filed a Demand for Arbitration pursuant to the mediation and arbitration procedures of the WSPP agreement seeking a termination payment from NPC of approximately $25 million under its terminated power supply agreements with NPC. If this claim is not resolved by arbitration, NPC expects that MSCG will commence a lawsuit to recover liquidated damages under the terminated contract. On September 30, 2002, El Paso Merchant Energy Group ("EPME") notified NPC that it was terminating all transactions entered into with NPC under the WSPP agreement. On October 8, 2002, NPC received a letter from EPME seeking a termination payment of approximately $36 million with respect to the terminated WSPP agreement transactions. At the present time, NPC disagrees with EPME's calculation, and expects that net gains and losses relating to the terminated transactions, including a delayed payment amount of approximately $19 million owed to EPME for power deliveries through September 15, 2002, will result in a net payment due to NPC. In connection with the claims by these energy suppliers, the Utilities established reserves, included in their Balance Sheets in "Contract termination reserves," totaling approximately $316 million, and, pursuant to the deferred energy accounting provisions of AB 369, NPC and SPPC added approximately $229 million and $82 million, respectively, to their deferred energy balances for recovery in rates in future periods. NEVADA POWER COMPANY 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 (including NPC) of the Mohave Generation Station ("Mohave"), alleging violations of the Clean Air Act regarding emissions of sulfur dioxide and particulates. An additional plaintiff, National Parks and Conservation Association, later joined the suit. The plant owners and plaintiffs have had numerous settlement discussions and filed a proposed settlement with the court in October 1999. The consent decree, approved by the court in November 1999, established emission limits for sulfur dioxide and opacity and required installation of air pollution controls for sulfur dioxide, nitrogen oxides and particulate matter. The new emission limits must be met by January 1, 2006 and April 1, 2006 for the first and second units respectively. The estimated cost of new controls is $395 million. As a 14% owner in the Mohave Station, NPC's cost could be $55 million. NPC's ownership interest in Mohave comprises approximately 10% of NPC's peak generation capacity. Southern California Edison (SCE) is the operating partner of Mohave. On May 17, 2002, SCE filed with the California Public Utilities Commission (CPUC) an application to address the future disposition of SCE's share of Mohave. Mohave obtains all of its coal supply from a mine in northeast Arizona on lands of the Navajo Nation and the Hopi Tribe (the Tribes). This coal is delivered from the mine to Mohave by means of a coal slurry pipeline, which requires water that is obtained from groundwater wells located on lands of the Tribes in the mine vicinity. Due to the lack of progress in negotiations with the Tribes and other parties to resolve several coal and water supply issues, SCE's application states that it appears that it probably will not be possible for SCE to extend Mohave's operations beyond 2005. Due to the uncertainty over a post-2005 coal supply, SCE and the other Mohave co-owners have been prevented from starting to install extensive pollution control equipment that must be put in place if Mohave's operations are extended past 2005. NPC is currently evaluating and analyzing all of its options with regard to the Mohave project. 31 In May 1997, the Nevada Division of Environmental Protection (NDEP) ordered NPC to submit a plan to eliminate the discharge of Reid Gardner Station wastewater to groundwater. The NDEP order also required a hydrological assessment of groundwater impacts in the area. In June 1999, NDEP determined that wastewater ponds had degraded groundwater quality. In August 1999, NDEP issued a discharge permit to Reid Gardner Station and an order that requires all wastewater ponds to be closed or lined with impermeable liners over the next 10 years. This order also required NPC to submit a Site Characterization Plan to NDEP to ascertain impacts. This plan is under review by NDEP. After approval, an estimate of remediation costs will be determined by NPC. New pond construction and lining costs are estimated at $15 million. At the Reid Gardner Station, the NDEP has determined that there is additional groundwater contamination that resulted from oil spills at the facility. NDEP has required submitting a corrective action plan. The extent of contamination has been determined and remediation is occurring at a modest rate. A hydro-geologic evaluation of the current remediation was completed and a vacuum enhanced extraction remediation system will be constructed in the first quarter of 2003 at an estimated cost of approximately $150,000. In May 1999, NDEP issued an order to eliminate the discharge of NPC's Clark Station wastewater to groundwater. The order also required a hydrological assessment of groundwater impacts in the area. This assessment, submitted to NDEP in February 2001, warranted a Corrective Action Plan, which was approved in June 2002. Remediation costs are expected to be approximately $100,000. In addition to remediation, NPC will spend $789,000 to line existing ponds. After review and approval of the Corrective Action Plan by NDEP, NPC will implement remediation. In July 2000, NPC received a request from the EPA for information to determine the compliance of certain generation facilities at the Clark Station with the applicable State Implementation Plan. In November 2000, NPC and the Clark County Health District entered into a Corrective Action Order requiring, among other steps, capital expenditures at the Clark Station totaling approximately $3 million. In March 2001, the EPA issued an additional request for information that could result in remediation beyond that specified in the November 2000 Corrective Action Order. If the EPA prevails, capital expenditures and temporary outages of four of Clark Station's generation units could be required. Additionally, depending on the time of year that the compliance activity and corresponding generation outage would occur, the incremental cost to purchase replacement energy could be substantial. Nevada Electric Investment Company (NEICO), a wholly owned subsidiary of NPC, owns property in Wellington, Utah, which was the site of a coal washing and load out facility. The site now has a reclamation estimate supported by a bond of $4 million with the Utah Division of Oil and Gas Mining. The property was under contract for sale and the contract required the purchaser to provide $1.3 million in escrow towards reclamation. However, the sales contract was terminated and NEICO took title to the escrow funds. The property is currently leased with the intention to reclaim coal fines with subsequent reduction to the reclamation bond. SIERRA PACIFIC POWER COMPANY In September 1994, Region VII of EPA notified SPPC that it was being named as a potentially responsible party (PRP) regarding the past improper handling of Polychlorinated Biphenyls (PCBs) by PCB Treatment, Inc., located in Kansas City, Kansas, and Kansas City, Missouri (the Sites). The EPA is requesting that SPPC voluntarily pay an undefined, pro rata share of the ultimate clean-up costs at the Sites. A number of the largest PRP's formed a steering committee, which is chaired by SPPC. The responsibility of the Committee is to direct clean-up activities, determine appropriate cost allocation, and pursue actions against recalcitrant parties, if necessary. The EPA issued an administrative order on consent requiring signatories to perform certain investigative work at the Sites. The steering committee retained a consultant to prepare an analysis regarding the Sites. The Site evaluations have been completed. EPA is developing an allocation formula to allocate the remediation costs. SPPC has recorded a preliminary liability for the Sites of $650,000 of which approximately $136,000 has been spent through September 30, 2002. Once evaluations are completed, SPPC will be in a better position to estimate and record the ultimate liabilities for the Sites. SIERRA PACIFIC RESOURCES On September 30, 2002, a lawsuit was filed by two individuals in the District Court for Clark County, Nevada, on behalf of themselves and all holders of securities of SPR, against SPR and its directors named individually. The lawsuit alleges that the defendants violated their fiduciary duties to the securityholders as a result of SPR's response to letters from the Southern Nevada Water Authority ("SNWA") in which SNWA stated that it was prepared to enter into negotiations to acquire NPC's assets and assume certain of NPC's indebtedness. The lawsuit, which seeks certification as a class action, requests that the court: (1) declare that the directors have breached their fiduciary duties, (2) enjoin the defendants to undertake all reasonable efforts to maximize shareholder value including mandating due consideration of the SNWA proposal, (3) order the defendants to permit a stockholders' committee to ensure a fair procedure in connection with any disposition or retention of 32 assets, and (4) if SNWA's purported offer is withdrawn due to the actions or inactions of the defendants, to award compensatory and/or punitive damages in an unspecified amount against the defendants. Although SPR and its directors intend to vigorously defend against the lawsuit, SPR cannot predict the outcome at this time. OTHER SUBSIDIARIES OF SPR LOS, a wholly owned subsidiary of SPR, owns property in North Lake Tahoe, California, which is leased to independent condominium owners. The property has both soil and groundwater petroleum contaminate resulting from an underground fuel tank that has been removed from the property. Additional contaminate from a third party fuel tank on the property has also been identified and is undergoing remediation. A closure request is pending Lahontan Regional Water Quality Control Board approval. Estimated future remediation costs are not expected to be significant. In April 2000 Sierra Touch America, LLC, a partnership between Sierra Pacific Communications (SPC) and Touch America, was formed to construct a fiber optic line between Salt Lake City, Utah and Sacramento, California. On September 9, 2002, SPC purchased and leased certain telecommunications and fiber optic assets from Touch America in exchange for SPC's partnership units in Sierra Touch America and the execution of a $35 million promissory note for a total of $48.5 million. The assets are currently under construction and are scheduled for completion in May 2003. Of the $48.5 million total, $32.5 million relates to the purchase of a conduit from Sacramento to Salt Lake City, additional conduit in the Reno, Nevada metropolitan area, and real property in Utah. $16 million of the total was for the lease of two conduits from Reno to Spanish Fork, Utah and the lease of 60 strands of fiber from Sacramento to Salt Lake City. The promissory note accrues interest at 8% per annum. The first of twelve monthly payments of $3.3 million will commence on July 31, 2003 and continue until June 30, 2004, at which time all outstanding amounts will be due and payable. The promissory note is secured by all of SPC's assets, and prepayments will shorten the length of the loan, but not reduce the installment payments. Also, on September 11, 2002, SPC entered into an agreement to sell to a telecommunications carrier for $20 million the Sacramento to Salt Lake City conduit acquired from Touch America, and will convey all rights to the conduit when construction is completed in May 2003. NOTE 12. CHANGE IN ACCOUNTING FOR GOODWILL (SPR, NPC, SPPC) SFAS No. 142, adopted January 1, 2002, changed the accounting for goodwill from an amortization method to one requiring at least an annual review for impairment. Upon adoption, SPR ceased amortizing goodwill. SPR's Consolidated Balance Sheet as of September 30, 2002, includes approximately $325.6 million of goodwill resulting from the July 28, 1999 merger between SPR and NPC. Approximately $19.6 million of amortization of this goodwill has been deferred as a regulatory asset. The PUCN stipulation approving the merger allows for future recovery of this goodwill in rates charged to customers of SPR's regulated utility subsidiaries, NPC and SPPC, provided that NPC and SPPC demonstrate that merger savings exceed merger costs. The amount and timing of the recovery of this goodwill will be determined by the outcome of general rate cases expected to be filed by the Utilities with the PUCN in late 2003. SPR's Consolidated Balance Sheet as of December 31, 2001, also included approximately $6.2 million of goodwill related to unregulated operations. SFAS No. 142 provides that an impairment loss shall be recognized if the carrying value of each reporting unit's goodwill exceeds its fair value. For purposes of testing goodwill for impairment, a discounted cash flow model was used to determine the fair value of each reporting unit of SPR's unregulated operations. The reporting units included in SPR's unregulated operations evaluated for goodwill impairment were Lands of Sierra (LOS), Sierra Pacific Communications (SPC), Tuscarora Gas Pipeline Company (TGPC), and "Energy" (a reporting unit consisting of Sierra Energy Company dba e-three, Nevada Electric Investment Company, and Sierra Pacific Energy Company). As a result of the impairment testing, which included revenue forecasts and appraisal of assets, SPR recorded a transitional goodwill impairment charge of approximately $1.7 million ($1.6 million, net of applicable taxes) as a cumulative effect of a change in accounting principle on SPR's Condensed Consolidated Statements of Operations for the nine months ended September 30, 2002. The goodwill impairment recognized by reporting unit was approximately $131,000, $40,000 and $1.5 million for LOS, SPC and "Energy," respectively. Goodwill assigned to TGPC was determined not to be impaired. The changes in the carrying amount of goodwill for the nine-month period ended September 30, 2002 are as follows: 33
REGULATED UNREGULATED (IN $000'S) OPERATIONS OPERATIONS TOTAL -------------- ----------- ------------- Balance as of January 1, 2002 $ 305,982 $ 6,163 $ 312,145 Impairment loss - (1,704) (1,704) -------------- ------------ ------------- Balance as of September 30, 2002 $ 305,982 $ 4,459 $ 310,441 ============== ============ =============
A reconciliation of SPR's previously reported net (losses) income and (losses) earnings per share to the amounts adjusted for the adoption of SFAS No 142 net of the related income tax effect follows:
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- ------------------------- 2002 2001 2002 2001 --------- --------- ----------- --------- Net (losses) earnings: Reported net (loss) earnings $ 79,374 $ 80,409 $ (268,024) $ 50,965 Add back amortization of goodwill, net of tax - 48 - 144 --------- --------- ----------- --------- Adjusted net (losses) earnings 79,374 80,457 (268,024) 51,109 Add back cumulative effect of change in accounting principle, net of tax - - 1,566 - --------- --------- ----------- --------- Adjusted (losses) earnings before cumulative effect of change in accounting principle $ 79,374 $ 80,457 $ (266,458) $ 51,109 ========= ========= =========== ========= BASIC AND DILUTED (LOSSES) EARNINGS PER SHARE: Reported (losses) earnings per share $ 0.89 $ 0.62 Add back amortization of goodwill, net of tax - - - - --------- --------- ----------- --------- Adjusted (losses) earnings per share - 0.89 - 0.62 Add back cumulative effect of change in accounting principle, net of tax - - 0.01 - --------- --------- ----------- --------- Adjusted (losses) earnings per share before cumulative effect of change in accounting principle $ - $ 0.89 $ 0.01 $ 0.62 ========= ========= =========== =========
NOTE 13. PINON PINE (SPR, SPPC) SPPC, through its wholly owned subsidiaries, Pinon Pine Corp., Pinon Pine Investment Co., and GPSF-B, owns Pinon Pine Company, L.L.C. (the "LLC"). The LLC was formed to take advantage of federal income tax credits associated with the alternative fuel (syngas) produced by the coal gasifier available under Section 29 of the Internal Revenue Code. The entire project, which includes an LLC-owned gasifier and an SPPC-owned power island and post-gasification facility to partially cool and clean the syngas, is referred to collectively as the Pinon Pine Power Project ("Pinon Pine"). Construction of Pinon Pine was completed in June 1998. Pinon Pine is a project co-funded by the Department of Energy (DOE) under an agreement between SPPC and DOE that expired December 31, 2000. Through December 31, 2001, the DOE funded $167 million for construction, operation, and maintenance of the project. Included in the Consolidated Balance Sheets of SPR and SPPC is the net book value of the gasifier and related assets, which is approximately $105 million as of December 31, 2001, of which $50 million is included in Utility Plant, and $55 million is included in Investments in subsidiaries and other property. To date, SPPC has not been successful in obtaining sustained operation of the gasifier. In 2001 SPPC retained an independent engineering consulting firm, to complete a comprehensive study of the Pinon Pine gasification plant. The scope of the study included evaluation of the potential modifications required to make the facility operational and reliable using several technology scenarios. The evaluation of each scenario included an estimate of the additional capital expenditures necessary for reliable operation of the facility, and the risks associated with that technology. 34 SPPC received a draft report of the study in October 2002. The results of the study identified a number of potential modifications to the facility each with varying degrees of technical risk and cost. Modifications considered to provide the highest probability for successful operation of the facility generally were also estimated to be the highest cost options. SPPC is reviewing the various options outlined in the study. If after evaluating the options presented in the draft report, SPPC decides not to pursue modifications intended to make the facility operational, SPPC intends to seek recovery, net of salvage, through regulated rates in its next general rate case based, in part, on the PUCN's approval of Pinon Pine as a demonstration project in an earlier resource plan. However, if SPPC is unsuccessful in obtaining recovery, there could be a material adverse effect on SPPC's and SPR's financial condition and results of operations. NOTE 14. SUBSEQUENT EVENTS (SPPC) On October 29, 2002, SPPC paid a common stock dividend of $25 million to its parent, SPR. On November 8, 2002, a dividend of $975,000 ($0.4875 per share) was declared on SPPC's preferred stock. The dividend is payable on December 1, 2002, to holders of record as of November 22, 2002. On November 8, 2002, the Board of Directors of SPPC voted to declare a dividend to SPR of up to $25 million payable on or before February 1, 2003. 35 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS AND RISK FACTORS The information in this Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to anticipated financial performance, management's plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions and other matters. Words such as "anticipate," "believe," "estimate," "expect," "intend," "plan" and "objective" and other similar expressions identify those statements that are forward-looking. These statements are based on management's beliefs and assumptions and on information currently available to management. Actual results could differ materially from those contemplated by the forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such statements, factors that could cause the actual results of Sierra Pacific Resources (SPR), Nevada Power Company (NPC), or Sierra Pacific Power Company (SPPC) to differ materially from those contemplated in any forward-looking statement include, among others, the following: (1) unfavorable rulings in rate cases to be filed by NPC and SPPC (the "Utilities") with the Public Utilities Commission of Nevada (PUCN), including the periodic applications to recover costs for fuel and purchased power that have been recorded by the Utilities in their deferred energy accounts and deferred natural gas recorded by SPPC for its gas distribution business; (2) the outcome of the Utilities' pending lawsuits in Nevada state court seeking to reverse portions of the PUCN's orders denying the recovery of deferred energy costs, including the outcome of petitions filed by the Bureau of Consumer Protection of the Nevada Attorney General's Office seeking additional disallowances; (3) the ability of SPR, NPC and SPPC to access the capital markets to support their requirements for working capital, including amounts necessary to finance deferred energy costs, construction costs and the repayment of maturing debt, particularly in the event of additional unfavorable rulings by the PUCN, a further downgrade of the current debt ratings of SPR, NPC or SPPC and/or adverse developments with respect to NPC's or SPPC's power and fuel suppliers; (4) whether suppliers, such as Enron, which have terminated their power supply contracts with NPC and/or SPPC will be successful in pursuing their claims against the Utilities for liquidated damages under their power supply contracts, and whether Enron will be successful in its lawsuit against NPC and SPPC; (5) whether SPR, NPC and SPPC will be able to maintain sufficient stability with respect to their liquidity and relationships with suppliers to be able to continue to operate outside of bankruptcy; (6) whether current suppliers of purchased power, natural gas or fuel to NPC or SPPC will continue to do business with NPC or SPPC or will terminate their contracts and seek liquidated damages from the respective Utility; (7) whether NPC and SPPC will be able, either through Federal Energy Regulatory Commission ("FERC") proceedings or negotiation, to obtain lower prices on their longer-term purchased power contracts entered into during 2000 and 2001 that are priced above current market prices for electricity; (8) whether the PUCN will issue favorable orders in a timely manner to permit the Utilities to borrow money and issue additional securities to finance the Utilities' operations and to purchase power and fuel necessary to serve their respective customers; (9) whether SPR, NPC, and SPPC will have a significant funding obligation for 2002 in connection with their currently underfunded employee pension plan; (10) whether the Utilities will need to purchase additional power on the spot market to meet unanticipated power demands (for example, due to unseasonably hot weather) and whether suppliers will be willing to sell such power to the Utilities in light of their weakened financial condition; (11) wholesale market conditions, including availability of power on the spot market, which affect the prices the Utilities have to pay for power as well as the prices at which the Utilities can sell any excess power; 36 (12) the effect of a non-binding advisory question, which was included on the ballot in Clark County, Nevada in November 2002 and was approved by a 57% to 43% vote, asking voters whether "the Nevada Legislature should take appropriate action to enable the electrical energy provider for southern Nevada to be a locally controlled, not for profit public utility;" (13) the outcome of the proposal by the Southern Nevada Water Authority to enter into negotiations to acquire NPC; (14) the effect that any future terrorist attacks may have on the tourism and gaming industries in Nevada, particularly in Las Vegas, as well as on the economy in general; (15) the effect of existing or future Nevada, California or federal legislation or regulations affecting electric industry restructuring, including laws or regulations which could allow additional customers to choose new electricity suppliers or change the conditions under which they may do so; (16) unseasonable weather and other natural phenomena, which can have potentially serious impacts on the Utilities' ability to procure adequate supplies of fuel or purchased power to serve their respective customers and on the cost of procuring such supplies; (17) industrial, commercial and residential growth in the service territories of the Utilities; (18) the loss of any significant customers; (19) changes in the business of major customers, particularly those engaged in gold mining or gaming, which may result in changes in the demand for services of the Utilities, including the effect on the Nevada gaming industry of the opening of additional Indian gaming establishments in California and other states; (20) changes in environmental regulations, tax or accounting matters or other laws and regulations to which the Utilities are subject; (21) future economic conditions, including inflation or deflation rates and monetary policy; (22) financial market conditions, including changes in availability of capital or interest rate fluctuations; (23) unusual or unanticipated changes in normal business operations, including unusual maintenance or repairs; and (24) employee workforce factors, including changes in collective bargaining unit agreements, strikes or work stoppages. Other factors and assumptions not identified above may also have been involved in deriving these forward-looking statements, and the failure of those other assumptions to be realized, as well as other factors, may also cause actual results to differ materially from those projected. SPR, NPC and SPPC assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking statements. CRITICAL ACCOUNTING POLICIES The following items represent critical accounting policies that under different conditions or using different assumptions could have a material effect on the financial condition, liquidity and capital resources of SPR and the Utilities. Regulatory Accounting The Utilities' rates are currently subject to the approval of the PUCN and are designed to recover the cost of providing generation, transmission and distribution services. As a result, the Utilities qualify for the application of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation", issued by the Financial Accounting Standards Board (FASB). This statement recognizes that the rate actions of a regulator can provide reasonable assurance of the existence of an asset and requires the capitalization of incurred costs that would otherwise be charged to expense where it is probable that future revenue will be provided to recover these costs. SFAS No. 71 prescribes the method to be used to record the financial transactions of a regulated entity. The criteria for applying SFAS No. 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 37 regulated products or services, and (iii) rates that are set at levels that will recover costs can be charged to and collected from customers. Two of the most significant financial statement effects of regulatory accounting are deferred energy accounting and accounting for derivatives and hedging activities, which are discussed below. Deferred Energy Accounting On April 18, 2001, the Governor of Nevada signed into law Assembly Bill 369 (AB 369). The provisions of AB 369, which are described in greater detail in "Regulation and Rate Proceedings," later, include, among others, a reinstatement of deferred energy accounting for fuel and purchased power costs incurred by electric utilities. In accordance with the provisions of SFAS No. 71, the Utilities implemented deferred energy accounting on March 1, 2001, for their respective electric operations. Under deferred energy accounting, to the extent actual fuel and purchased power costs exceed fuel and purchased power costs recoverable through current rates, that excess is not recorded as a current expense on the statement of operations but rather is deferred and recorded as an asset on the balance sheet. Conversely, a liability is recorded to the extent fuel and purchased power costs recoverable through current rates exceed actual fuel and purchased power costs. These excess amounts are reflected in adjustments to rates and recorded as revenue or expense in future time periods, subject to PUCN review. AB 369 provides that the PUCN may not allow the recovery of any costs for purchased fuel or purchased power "that were the result of any practice or transaction that was undertaken, managed or performed imprudently by the electric utility." In reference to deferred energy accounting, AB 369 specifies that fuel and purchased power costs include all costs incurred to purchase fuel, to purchase capacity, and to purchase energy. The Utilities also record, and are eligible under the statute to recover, a carrying charge on such deferred balances. As described in more detail under "Regulatory Matters - Nevada Matters - - Nevada Power Company Deferred Energy Case" below, on November 30, 2001, NPC filed an application with the PUCN seeking to clear deferred balances for purchased fuel and power costs accumulated between March 1, 2001 and September 30, 2001. The application sought to establish a rate to clear accumulated purchased fuel and power costs of $922 million and spread the cost recovery over a period of not more than three years. On March 29, 2002, the PUCN issued its decision on the deferred energy application, disallowing $434 million of deferred purchased fuel and power costs and $10 million in carrying charges, and allowing NPC to collect the remaining $478 million over three years beginning April 1, 2002. As a result of this disallowance, NPC wrote off $465 million of deferred energy costs and related carrying charges, the two major national rating agencies immediately downgraded the credit rating on SPR's, NPC's and SPPC's debt securities (followed by further downgrades late in April), and the market price of SPR's common stock fell substantially. As described in more detail under "Regulatory Matters - Nevada Matters - - Sierra Pacific Power Company Deferred Energy Case" below, SPPC filed an application with the PUCN seeking to clear its deferred balances for purchased fuel and power costs accumulated between March 1, 2001 and November 30, 2001. The application sought to establish a rate to clear accumulated purchased fuel and power costs of $205 million and spread the cost recovery over a period of not more than three years. On May 28, 2002, the PUCN issued its decision on SPPC's deferred energy application, disallowing $53 million of deferred purchased fuel and power costs and $2 million in carrying charges, and allowing SPPC to collect the remaining $150 million over three years beginning June 1, 2002. As a result of this decision, SPPC wrote off $55 million of disallowed deferred energy costs and related carrying charges. Both Utilities have continued to be entitled under AB 369 to utilize deferred energy accounting for their electric operations. Because of contracts entered into during the Western energy crisis in 2001 to assure adequate supplies of electricity for their customers, the Utilities have continued to incur fuel and purchased power costs in excess of amounts they are permitted to recover in current rates. As a result, during the nine months ended September 30, 2002, both Utilities continued to record additional amounts in their deferral of energy costs accounts. If not for deferred energy accounting during the first nine months of 2002, SPR's, NPC's and SPPC's results of operations, financial condition, liquidity and capital resources would have been adversely affected. For example, without the deferred energy accounting provisions of AB 369, the reported net losses of SPR, NPC, and SPPC for the nine months ended September 30, 2002 of ($268.0) million, ($216.0) million(1), and ($12.4) million would have been (net of income tax) reported as net losses of ($469.0) million, ($370.8) million(1), and ($58.6) million, respectively. Similarly, the reported net income of SPR, NPC, and SPPC for the quarter ended September 30, 2002 of $79.4 million, $79.3 million(1), and $12.6 million would have been (net of income tax) reported as net income of $52.4 million, $51.2 million(1), and $13.7 million, respectively. A significant disallowance by the PUCN of costs currently deferred could have a material adverse affect on the future financial position, results of operations, and liquidity of - ---------------------------- (1) Excludes equity in losses of SPR 38 SPR, NPC and SPPC. See the Form 10-K for the year ended December 31, 2001 for a more detailed discussion of deferred energy accounting. Accounting for Derivatives and Hedging Activities Effective January 1, 2001, SPR, SPPC, and NPC adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138. As amended, SFAS No. 133 requires that an entity recognize all derivative instruments as either assets or liabilities in the statement of financial position and measure the instruments at fair value. In order to manage loads, resources and energy price risk, the Utilities buy fuel and power under forward contracts. In addition to forward fuel and power purchase contracts, the Utilities also use options and swaps to manage price risk. All of these instruments are considered to be derivatives under SFAS No. 133. The risk management assets and liabilities recorded in the balance sheets of the Utilities and SPR are primarily comprised of the fair value of these forward fuel and power purchase contracts and other energy related derivative instruments. Fuel and purchased power costs are subject to deferred energy accounting. Accordingly, the energy related risk management assets and liabilities and the corresponding unrealized gains and losses (changes in fair value) are offset with a regulatory asset or liability rather than recognized in the statements of income and comprehensive income. Upon settlement of a derivative instrument, actual fuel and purchased power costs are recognized if they are currently recoverable or deferred if they are recoverable or payable through future rates. The fair values of the forward contracts and swaps are determined based on quotes obtained from independent brokers and exchanges. The fair values of options are determined using a pricing model which incorporates assumptions such as the underlying commodity's forward price curve, time to expiration, strike price, interest rates, and volatility. The use of different assumptions and variables in the model could have a significant impact on the valuation of the instruments. SPR and the Utilities have other non-energy related derivative instruments such as interest rate swaps. The transition adjustment resulting from the adoption of SFAS No. 133 related to these types of derivative instruments was reported as the cumulative effect of a change in accounting principle in Other Comprehensive Income. Additionally, the changes in fair values of these non-energy related derivatives are also reported in Other comprehensive income until the related transactions are settled or terminate, at which time the amounts are reclassified into earnings. On April 1, 2002, SPR paid $9.5 million to terminate an interest rate swap of which $1.3 million and $5.1 million, respectively, were reclassified into earnings during the three- and nine-month periods ended September 30, 2002. No other amounts were reclassified into earnings during the three- and nine-month periods ended September 30, 2002 and 2001. See Note 22 of "Notes to Financial Statements" in the Form 10-K for the year ended December 31, 2001, and Note 10 of "Notes to Condensed Consolidated Financial Statements" and "Item 3 - Quantitative and Qualitative Disclosures about Market Risk" in this Report for additional information regarding derivatives and hedging activities. Provision for Uncollectible Accounts The Utilities reserve for doubtful accounts based on past experience writing off uncollectible customer accounts. The collapse of the energy markets in California, and the subsequent bankruptcy of the California Power Exchange and the financial difficulties of the Independent System Operator, resulted in the Utilities reserving for outstanding receivables for power purchases by these two entities of $19.9 million and $1.5 million (before taxes) for NPC and SPPC, respectively, for 2001. The weakening economy and the disruption to the leisure travel industry after September 11th also impacted the Utilities' customer delinquencies in 2001. As of December 31, 2001, additional amounts of $14.8 million and $6.1 million were reserved for delinquent retail customer accounts of NPC and SPPC, respectively. During the nine months ended September 30, 2002, $6.4 million and $2.1 million were added to the provisions for uncollectible retail customer accounts of NPC and SPPC, respectively. The adequacy of these reserves will vary to the extent that future collections differ from past experience. Uncollectible retail customer accounts amounting to $4.1 million and $3.3 million, respectively, for NPC and SPPC, were written off against these provisions during the nine months ended September 30, 2002. Significant collection efforts are underway to recover portions of the rest of the delinquent accounts. MAJOR FACTORS AFFECTING RESULTS OF OPERATIONS As discussed in the results of operations sections that follow, operating results for the nine months ended September 30, 2002 were severely affected by the PUCN's March 29, 2002 decision in NPC's deferred energy rate case to disallow $434 million of deferred purchased fuel and power costs. As a result of this disallowance, NPC wrote off $465 million of deferred energy costs and related carrying charges during that quarter. In addition, the decision of the PUCN on May 28, 2002 on SPPC's deferred energy application to disallow $53.1 million of deferred purchased fuel and power costs accumulated 39 between March 1, 2001 and November 30, 2001 had a significant negative impact on the results of operations of SPR and SPPC for the quarter and the nine-month period ended September 30, 2002. As a result of this disallowance, SPPC wrote off $55.1 million of deferred energy costs and related carrying charges during that quarter. The discussion below provides the context in which these decisions were made. In an effort to mitigate the effects of higher fuel and purchased power costs that developed in the Western United States in 2000,the Utilities entered into the Global Settlement with the PUCN in July 2000, which established a mechanism that initiated incremental rate increases for each Utility. Cumulative electric rate increases under the Global Settlement were $127 million and $65 million per year for NPC and SPPC, respectively. However, because the rate adjustment mechanism of the Global Settlement was subject to certain caps and could not keep pace with the continued escalation of fuel and purchased power prices, on January 29, 2001, the Utilities filed a Comprehensive Energy Plan (CEP) with the PUCN. The CEP included a request for emergency rate increases (CEP Riders). On March 1, 2001, the PUCN permitted the requested CEP Riders to go into effect subject to later review. The CEP Riders provided further rate increases of $210 million and $104 million per year, respectively, for NPC and SPPC. Notwithstanding the increases under the Global Settlement and the CEP Riders, the Utilities' revenues for fuel and purchased power recovery continued to be less than the related expenses. Accordingly, the Utilities sought additional relief pursuant to legislation. On April 18, 2001, the Governor of Nevada signed into law AB 369. The provisions of AB 369 include a moratorium on the sale of generation assets by electric utilities until 2003, the repeal of electric industry restructuring, and, beginning March 1, 2001, a reinstatement of deferred energy accounting for fuel and purchased power costs incurred by electric utilities. The stated purposes of this emergency legislation included, among others, to control volatility in the price of electricity in the retail market in Nevada and to ensure that the Utilities have the necessary financial resources to provide adequate and reliable electric service under present market conditions. As discussed above in "Critical Accounting Policies," deferred energy accounting allows the Utilities an opportunity to recover in future periods that portion of their costs for fuel and purchased power not covered by current rates and defers to future periods the expense associated with the amounts by which fuel and purchased power costs exceed the costs to be recovered in current rates. Recovery is subject to PUCN review as to prudency and other matters. AB 369 requires each Utility to file general rate applications and deferred energy applications with the PUCN by specific dates. NPC's deferred energy application, filed on November 30, 2001, sought to establish a Deferred Energy Accounting Adjustment ("DEAA") rate, effective on April 1, 2002, to clear accumulated purchased fuel and power costs of $922 million and spread the cost recovery over a period of not more than three years, resulting in an average net increase of 21%. SPPC's deferred energy application, filed on February 1, 2002, sought to establish a DEAA rate to clear accumulated purchased fuel and power costs of $205 million and spread the cost recovery over a period of not more than three years, resulting in an average net increase of 9.8%. See "Regulatory Matters," later, for a discussion of the Utilities' general rate case filings and decisions. The March 29, 2002 decision of the PUCN on NPC's deferred energy application to disallow $434 million of deferred purchased fuel and power costs accumulated between March 1, 2001 and September 30, 2001 had a significant negative impact on the results of operations of SPR and NPC for the nine months ended September 30, 2002. Several of the intervenors from NPC's deferred energy rate case filed petitions with the PUCN for reconsideration of its decision, seeking additional disallowances ranging from $12.8 million to $488 million. The petitions for reconsideration were granted in part and denied in part by the PUCN on May 24, 2002, but no additional disallowances to the deferred energy balance resulted from that decision. The Bureau of Consumer Protection (BCP) of the Nevada Attorney General's Office has since filed a petition in NPC's pending state court case seeking additional disallowances. Although the PUCN's March 29, 2002 decision on NPC's deferred energy application is being challenged by NPC in a lawsuit filed in Nevada state court, which is discussed below under "Regulatory Matters", the decision caused the two major national rating agencies to issue an immediate downgrade of the credit ratings on SPR's, NPC's and SPPC's debt securities (followed by further downgrades late in April). Following those events, the market price of SPR's common stock fell substantially, NPC and SPPC were obliged within 5 business days of the downgrades to issue general and refunding mortgage bonds to secure their bank lines of credit, NPC was obliged to obtain a waiver and amendment from its credit facility banks before it was permitted to draw down on the facility, NPC and SPPC were no longer able to issue commercial paper, a number of NPC's power suppliers contacted NPC regarding its ability to pay the purchase price of outstanding contracts, and several power suppliers, including a subsidiary of Enron Corp., terminated their power supply agreements with one or both of the Utilities. The separate decision of the PUCN on May 28, 2002 on SPPC's deferred energy application to disallow $53.1 million of deferred purchased fuel and power costs accumulated between March 1, 2001 and November 30, 2001 had a significant negative impact on the results of operations of SPR and SPPC for the quarter and the nine months ended September 30, 2002. 40 Several of the intervenors from SPPC's deferred energy rate case filed petitions with the PUCN for reconsideration of its decision, seeking an additional disallowance of $126 million. On July 18, 2002, the petitions for reconsideration were granted in part and denied in part by the PUCN, but no additional disallowances to the deferred energy balance resulted from that decision. The PUCN's May 28, 2002 decision on SPPC's deferred energy application is being challenged by SPPC in a lawsuit filed August 22, 2002 in Nevada state court, which is discussed below under "Regulatory Matters". The BCP of the Nevada Attorney General's Office has since filed a petition in SPPC's state action seeking additional disallowances. A significant disallowance in future deferred energy rate cases filed by either Utility could further weaken the financial condition, liquidity, and capital resources of SPR, NPC, and SPPC. In particular, such a decision or decisions could cause further downgrades of debt securities by the rating agencies, could make it impracticable to access the capital markets, and could cause additional power suppliers to terminate purchased power contracts and seek liquidated damages. Under such circumstances, there can be no assurance that SPR, NPC, or SPPC would be able to remain solvent or continue operations. Under such circumstances, there also can be no assurance that SPR, NPC, or SPPC would not seek protection under the bankruptcy laws. SIERRA PACIFIC RESOURCES During the first nine months of 2002, SPR incurred a loss of $265.1 million before preferred stock dividend requirements, and paid $20.6 million in common stock dividends on March 15, 2002. NPC declared and paid a common stock dividend of $10 million to its parent, SPR, in the first quarter of 2002. SPPC declared and paid common stock dividends of $10 million and $9.9 million to its parent, SPR, in the first and second quarter of 2002, respectively. SPPC also paid $2.9 million in dividends to holders of its preferred stock during the first nine months of 2002. NPC and SPPC each received a capital contribution of $10 million from SPR in March 2002. On July 7, 2002, the Board of County Commissioners of Clark County, Nevada, added an Electric Utility Advisory Question to its November 5, 2002 general election ballot, which asked voters whether "the Nevada Legislature should take appropriate action to enable the electrical energy provider for southern Nevada to be a locally controlled, not for profit public utility." NPC filed a lawsuit seeking to remove the question from the ballot, and the lawsuit was dismissed. Although the referendum is non-binding, the results of this advisory question, which was approved by a 57% to 43% vote, may impact future utility legislation by the Nevada Legislature in its next legislative session which may, in turn, directly or indirectly affect NPC and its operations. On August 22, 2002, SPR received a letter from the Southern Nevada Water Authority ("SNWA") stating that it was prepared to enter into good faith negotiation of definitive agreements to acquire all of NPC's assets and assume certain of NPC's existing indebtedness. On September 12, 2002, SPR responded with a letter stating that it did not view the SNWA's letter as an offer and expressing concerns with the SNWA's financing plans, certain significant legal issues with the proposal and the SNWA's lack of utility management experience. The SNWA has responded by reaffirming its purported offer to acquire NPC. On September 30, 2002, a lawsuit was filed by two individuals in the District Court for Clark County, Nevada, on behalf of themselves and all holders of securities of SPR, against SPR and its directors named individually. The lawsuit alleges that the defendants violated their fiduciary duties to the securityholders as a result of SPR's response to letters from the SNWA in which SNWA stated that it was prepared to enter into negotiations to acquire NPC's assets and assume certain of NPC's indebtedness. The lawsuit, which seeks certification as a class action, requests that the court: (1) declare that the directors have breached their fiduciary duties, (2) enjoin the defendants to undertake all reasonable efforts to maximize shareholder value including mandating due consideration of the SNWA proposal, (3) order the defendants to permit a stockholders' committee to ensure a fair procedure in connection with any disposition or retention of assets, and (4) if SNWA's purported offer is withdrawn due to the actions or inactions of the defendants, to award compensatory and/or punitive damages in an unspecified amount against the defendants. Although SPR and its directors intend to vigorously defend against the lawsuit, SPR cannot predict the outcome at this time. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES SPR, on a stand-alone basis, had cash and cash equivalents of approximately $5.6 million at September 30, 2002, and approximately $32.7 million at October 31, 2002. Since SPR is a holding company, substantially all of its cash flow is provided by dividends paid to SPR by NPC and SPPC on their common stock, all of which is owned by SPR. Since NPC and SPPC are public utilities, they are subject to regulation by state utility commissions which may impose limits on investment returns or otherwise impact the amount of dividends that the Utilities may declare and pay. In addition, certain agreements entered into by the Utilities set restrictions on the amount of dividends they may declare and pay and restrict the circumstances under which such dividends 41 may be declared and paid. The specific restrictions on dividends contained in agreements to which NPC and SPPC are party, as well as specific regulatory limitations on dividends, are summarized below. - NPC's first mortgage indenture limits the cumulative amount of dividends that NPC may pay on its capital stock to the cumulative net earnings of NPC since 1953. At the present time, this restriction precludes NPC from making further payments of dividends on NPC's common stock and will continue to bar such payments unless the restriction is waived, amended, or removed by the consent of the first mortgage bondholders, the first mortgage bonds are redeemed or defeased, or until, over the passage of time, NPC generates sufficient earnings to overcome the shortfall created by the write-off of $465 million in connection with the March 2002 decision in NPC's deferred energy rate case. - NPC's 10 7/8% General and Refunding Mortgage Notes, Series E, due 2009 limit the amount of dividends that NPC may pay to SPR. However, that limitation does not apply to payments by NPC to enable SPR to pay its reasonable fees and expenses (including, but not limited to, interest on SPR's indebtedness and payment obligations on account of SPR's premium income equity securities) provided that those payments do not exceed $60 million for any one calendar year, those payments comply with any regulatory restrictions then applicable to NPC, and the ratio of consolidated cash flow to fixed charges for NPC's most recently ended four full fiscal quarters immediately preceding the date of payment is at least 1.75 to 1. The terms of the Series E Notes also permit dividend payments to SPR in an aggregate amount not to exceed $15 million from the date of the issuance of the Notes. In addition, NPC may make dividend payments to SPR in excess of the amounts described above so long as, at the time of payment and after giving effect to the payment: there are no defaults or events of default with respect to the Series E Notes, NPC can meet a fixed charge coverage ratio test, and the total amount of such dividends is less than (i) the sum of 50% of NPC's consolidated net income measured on a quarterly basis cumulative of all quarters from the date of issuance of the Series E Notes, plus (ii) 100% of NPC's aggregate net cash proceeds from the issuance or sale of certain equity or convertible debt securities of NPC, plus (iii) the lesser of cash return of capital or the initial amount of certain restricted investments, plus (iv) the fair market value of NPC's investment in certain subsidiaries. If NPC's Series E Notes are upgraded to investment grade by both Moody's Investors Service, Inc. (Moody's) and Standard & Poor's Rating Group, Inc. (S&P), these dividend restrictions will be suspended and will no longer be in effect so long as the Series E Notes remain investment grade. - On October 29, 2002, NPC established an accounts receivables purchase facility. The agreements relating to the receivables purchase facility contain various conditions, including a limitation on the payment of dividends by NPC to SPR that is identical to the limitation contained in NPC's General and Refunding Mortgage Notes, Series E, described above. - The PUCN issued a Compliance Order, Docket No. 02-4037, on June 19, 2002, relating to NPC's request for authority to issue long-term debt. The PUCN order requires that, until such time as the order's authorization expires (December 31, 2003), NPC must either receive the prior approval of the PUCN or reach an equity ratio of 42% before paying any dividends to SPR. If NPC achieves a 42% equity ratio prior to December 31, 2003, the dividend restriction ceases to have effect. - The terms of NPC's preferred trust securities provide that no dividends may be paid on NPC's common stock if NPC has elected to defer payments on the junior subordinated debentures issued in conjunction with the preferred trust securities. At this time, NPC has not elected to defer payments on the junior subordinated debentures. - SPPC's Term Loan Agreement limits the amount of dividends that SPPC may pay to SPR. However, that limitation does not apply to payments by SPPC to enable SPR to pay its reasonable fees and expenses (including, but not limited to, interest on SPR's indebtedness and payment obligations on account of SPR's premium income equity securities) provided that those payments do not exceed $90 million, $80 million and $60 million in the aggregate for the twelve month periods ending on October 30, 2003, 2004 and 2005, respectively. The Term Loan Agreement also permits SPPC to make dividend payments to SPR in an aggregate amount not to exceed $10 million during the term of the Term Loan Agreement. In addition, SPPC may make dividend payments to SPR in excess of the amounts described above so long as, at the time of the payment and after giving effect to the payment, there are no defaults or events of default under the Term Loan Agreement, and such amounts, when aggregated with the amount of dividends paid to SPR by SPPC since the date of execution of the Term Loan Agreement, does not exceed the sum of (i) 50% of SPPC's Consolidated Net Income for the period commencing January 1, 2003 and ending with last day of fiscal quarter most recently completed prior to the date of the contemplated dividend payment plus (ii) the aggregate amount of cash received by SPPC from SPR as equity contributions on its common stock during such period. - On October 29, 2002, SPPC established an accounts receivables purchase facility. The agreements relating to the receivables purchase facility contain various conditions, including a limitation on the payment of dividends by SPPC to SPR that is identical to the limitation contained in SPPC's Term Loan Agreement, described above. - SPPC's Articles of Incorporation contain restrictions on the payment of dividends on SPPC's common stock in the event of a default in the payment of dividends on SPPC's preferred stock and prohibit SPPC from declaring or paying any dividends on any shares of common stock except from the net income of SPPC, and its predecessor, available for dividends on common stock accumulated subsequent to December 31, 1955, less preferred stock dividends, plus the sum of $500,000. The provisions that currently restrict dividends payable by NPC or SPPC have adversely affected SPR's liquidity and will continue to negatively impact SPR's liquidity until those provisions are no longer in effect. 42 On March 29 and April 1, 2002, S&P and Moody's lowered the unsecured debt ratings of SPR, NPC and SPPC to below investment grade in response to the decision of the PUCN with respect to NPC's rate cases. On April 23 and 24, 2002, the unsecured debt ratings of SPR and the Utilities were further downgraded by both rating agencies, and the Utilities' secured debt ratings were downgraded to below investment grade. The downgrades have affected SPR's, NPC's and SPPC's liquidity primarily in two principal areas: (1) their respective financing arrangements and (2) NPC's and SPPC's contracts for fuel, for purchase and sale of electricity and for transportation of natural gas. As a result of the ratings downgrades, SPR's ability to access the capital markets to raise funds is severely limited. On April 3, 2002, SPR terminated its $75 million unsecured revolving credit facility as a condition to the banks agreeing to an amendment of NPC's recently terminated $200 million unsecured revolving credit facility that would permit NPC to draw down funds under that facility. See "Nevada Power Company - Financial Condition, Liquidity and Capital Resources" for more information. In response to the decisions by the PUCN in NPC's rate cases, SPR has implemented certain measures that management expects will positively impact cash flow by $125 million in 2002. Two major transmission construction projects, discussed in the Form 10-K for the year ended December 31, 2001, have been delayed for a total capital preservation impact of $80.8 million. The delay in NPC's Centennial Plan has an impact of $46.4 million and the delay of SPPC's Falcon to Gonder Project has an impact of $34.4 million. An additional $28.9 million was reduced from the Utilities' capital budgets by curtailing or delaying other projects. Management expects that the balance of the $125 million cash flow enhancement will be obtained from various land sales. Additional cost-cutting actions by SPR may be necessary. With respect to NPC's and SPPC's contracts for purchased power, NPC and SPPC purchase and sell electricity with counterparties under the Western Systems Power Pool ("WSPP") agreement, which is an industry standard contract. The WSPP contract is posted on the WSPP website. These contracts provide that a material adverse change may give rise to a right to request collateral, which, if not provided within 3 business days, could cause a default. A default must be declared within 30 days of the event giving rise to the default becoming known. A default will result in a termination payment equal to the present value of the net gains and losses for the entire remaining term of all contracts between the parties aggregated to a single liquidated amount due within 3 business days following the date the notice of termination is received. The mark-to-market value, which is substantially based on quoted market prices, can be used to roughly approximate the termination payment at any point in time. The mark-to-market value as of November 1, 2002, for all suppliers continuing to provide power under a WSPP agreement was approximately 90.1 million and 59.9 million, respectively, for NPC and SPPC. Following the PUCN decisions, a number of power suppliers requested collateral from NPC and SPPC. On April 4, 2002, the Utilities sent a letter to their suppliers advising them that, assuming the Utilities could access the capital markets for secured debt and no other significant negative developments occurred, the Utilities expected to be able to honor their obligations under the power supply contracts. However, the Utilities noted that a simultaneous call for 100% mark-to-market collateral in the short-term would likely not be met. On April 24, 2002, the Utilities met with representatives of various suppliers to discuss SPR's and the Utilities' financial situation and plans, and indicated that they intended to propose extended payment terms for the above-market portions of NPC's existing power contracts. Such extended payment terms were proposed to NPC's suppliers in a letter dated May 2, 2002, and proposed paying less than contract prices, but more than market prices plus interest, for the period May 1 to September 15, 2002 and paying any balances remaining prior to December 2003. NPC also agreed to extend the suppliers' rights under the WSPP agreement. As of October 29, 2002, NPC paid all remaining outstanding balances owed to its continuing suppliers. In early May of 2002, Enron Power Marketing Inc. ("Enron"), Morgan Stanley Capital Group Inc. ("MSCG"), Reliant Energy Services, Inc. and several smaller suppliers terminated their power deliveries to NPC and SPPC. These terminating suppliers asserted their contractual right under the WSPP agreement to terminate deliveries based upon the Utilities' alleged failure to provide adequate assurance of their performance under the WSPP agreement to any of their suppliers. Each of these terminating suppliers has asserted, or has indicated that it will assert, claims for liquidated damages against the Utilities under the terminated power supply contracts. On June 5, 2002, Enron filed suit in its bankruptcy case in the Bankruptcy Court for the Southern District of New York asserting claims for liquidated damages related to the termination of its power supply agreements with the Utilities of approximately $216 million and $93 million against NPC and SPPC, respectively. NPC and SPPC have both filed claims in the Bankruptcy Court alleging, among other things, that NPC and SPPC were fraudulently induced to enter into the agreements with Enron. Enron's claims are also subject to the Utilities' defense, as raised in the Utilities' motions to dismiss and or to stay all proceedings, that such claims are already at issue in the Utilities' FERC proceeding against Enron and others under Section 206 of the Federal Power Act challenging the contract prices of the terminated power supply agreements. Enron initially filed a motion for partial summary judgment to require the Utilities to make immediate payment of the full amount of Enron's claim, pending final resolution of the lawsuit. Enron subsequently filed another motion for summary judgment seeking final payment of its damages claim. Hearings, including arguments regarding the issue of FERC's primary jurisdiction over the contract claims, were conducted in September, 43 October, and early November 2002. On November 14, 2002, the judge is expected to rule on the Utilities' motion to dismiss or stay until the FERC rules on the Utilities' Section 206 filing. If the judge decides not to stay Enron's lawsuit pending the outcome of the FERC hearings, the judge would then schedule additional arguments with respect to Enron's motion for summary judgment. At this time, the outcome of a decision in this matter cannot be predicted. An adverse decision on Enron's motion for summary judgment or an adverse decision in the lawsuit would have a material adverse affect on the financial condition and liquidity of SPR and the Utilities and would render their ability to continue to operate outside of bankruptcy uncertain. On June 10, 2002, Duke Energy Trading and Marketing ("Duke") entered into an agreement with SPR and the Utilities to supply up to 1,000 megawatts of electricity per hour, as well as natural gas, to fulfill the Utilities' power requirements during the peak summer period. The effect of the Duke agreement was to replace the amount of contracted power and natural gas that would have been supplied by the various terminating suppliers, including Enron. Duke also agreed to accept deferred payment for a portion of the amount due under its existing power contracts with NPC for purchases made through September 15, 2002. On October 25, 2002 Duke was paid the full amount of the deferred payments. On September 5, 2002, MSCG filed a Demand for Arbitration pursuant to the mediation and arbitration procedures of the WSPP agreement seeking a termination payment from NPC of approximately $25 million under its terminated power supply agreement with NPC. If this claim is not resolved by arbitration, NPC expects that MSCG will commence a lawsuit to recover liquidated damages under the terminated contract. On September 30, 2002, El Paso Merchant Energy Group ("EPME") notified NPC that it was terminating all transactions entered into with NPC under the WSPP agreement. On October 8, 2002, NPC received a letter from EPME seeking a termination payment of approximately $36 million with respect to the terminated WSPP agreement transactions. At the present time, NPC disagrees with EPME's calculation, and expects that net gains and losses relating to the terminated transactions, including a delayed payment amount of approximately $19 million that was owed to EPME for power deliveries through September 15, 2002, will result in a net payment due to NPC. With respect to the purchase and sale of natural gas, NPC and SPPC use several types of contracts. Standard industry sponsored agreements include: - the Gas Industry Standards Board ("GISB") agreement which is used for physical gas transactions, - the North American Energy Standards Board ("NAESB") agreement which is used for physical gas transactions, - the GasEDI Base Contract for Short Term Sale and Purchase of Natural Gas which is also used for physical gas transactions, - the International Swap Dealers Association (ISDA) agreement which is used for financial gas transactions. Alternatively, the gas transactions might be governed by a non-standard bilateral master agreement negotiated between the parties, or by the confirmation associated with the transaction. The natural gas contract terms and conditions are more varied than the electric contracts. Consequently, some of the contracts contain language similar to that found in the WSPP agreement and other agreements have unique provisions dealing with material adverse changes. Gas transmission services are provided under the FERC Gas Tariff or a custom agreement. These contracts require the entities to establish and maintain creditworthiness to obtain service. These contracts are subject to FERC approved tariffs which, under certain circumstances, require the Utilities to provide collateral to continue receiving service. To date, a letter of credit has been provided to one of SPPC's gas suppliers. In March 2002, NPC received a federal income tax refund of $79.3 million. Additionally, SPR and the Utilities received $105.7 million of refunds in the second quarter of 2002. These refunds were the result of income tax losses generated in 2001. Federal legislation passed in March 2002 changed the allowed carry-back of these losses from two years to five years. This change permitted SPR and the Utilities to accelerate the receipt of a portion of their income tax receivables sooner than expected. The income tax receivable of $266.7 million as of September 30, 2002, will be utilized in future periods to reduce taxes payable when SPR and the Utilities recognize taxable income. On October 29, 2002, NPC and SPPC established accounts receivables purchase facilities of up to $125 million and $75 million, respectively, which were arranged by Lehman Brothers. If NPC or SPPC elect to activate their receivables purchase facilities, they will sell all of their accounts receivable generated from the sale of electricity and natural gas to customers to their newly created bankruptcy remote special purpose subsidiaries. The receivables sales will be without recourse except for breaches of customary representations and warranties made at the time of sale. The subsidiaries will, in turn, sell these receivables to a bankruptcy-remote subsidiary of SPR. SPR's subsidiary will issue variable rate revolving notes backed by the purchased receivables. Lehman Brothers Holdings, Inc. will be the sole initial committed purchaser of all of the variable rate revolving notes. The agreements relating to the receivables purchase facilities contain various conditions to 44 purchase, covenants and trigger events, termination events and other provisions customary in receivables transactions. In connection with these facilities, SPR has agreed to guaranty the performance by NPC and SPPC of certain obligations as sellers and servicers under the accounts receivables facilities. NPC and SPPC intend to use their accounts receivables purchase facilities as back-up liquidity facilities and do not plan to activate these facilities in the foreseeable future. SPR has a qualified pension plan (the "Plan") that covers substantially all employees of SPR, NPC and SPPC. The annual net benefit cost for the Plan is expected to increase for 2003 by an amount between $12 million and $22 million over the 2002 cost of $18.4 million. Also, the Plan currently has assets with a fair value that is less than the present value of the accumulated benefit obligation under the Plan. While the amount of the deficiency has not yet been determined, SPR and the Utilities expect their combined minimum funding requirement for 2002 will be at least $24 million. However, SPR and the Utilities do not expect that their funding obligation for 2002 will have a material adverse effect on their liquidity. SPR has a substantial amount of debt and other obligations including, but not limited to: $200 million of its unsecured Floating Rate Notes due April 20, 2003; $300 million of its unsecured 8 3/4% Senior Notes due 2005; and $345 million of its unsecured 7.93% Senior Notes due 2007. In connection with the effects of the disallowance of a significant portion of the Utilities' deferred purchased power costs by the PUCN as stated above, SPR's credit ratings, along with those of NPC and SPPC, were downgraded to below investment grade. As a result of the downgrades, SPR's ability to service its debt obligations and refinance its maturing debt as it becomes due has become uncertain. In the event that SPR's financial condition does not improve or becomes worse, it may have to consider other options including the possibility of seeking protection in a bankruptcy proceeding. On October 29, 2002, SPPC paid a common stock dividend of $25 million to its parent, SPR. On November 8, 2002, the Board of Directors of SPPC voted to declare a dividend to SPR of up to $25 million payable on or before February 1, 2003. SPR's future liquidity depends, in part, on SPPC's ability to continue to pay dividends to SPR, on a restoration of NPC to financial stability including a restoration of its ability to pay dividends to SPR, and on SPR's ability to access the capital markets or otherwise refinance debt that matures in 2003 and thereafter. Further adverse developments at NPC or SPPC, including a material disallowance of deferred energy costs in future rate cases or an adverse decision in the pending lawsuit by Enron, could cause SPR to become insolvent and would render SPR's ability to continue to operate outside of bankruptcy uncertain. 45 NEVADA POWER COMPANY During the quarter ended September 30, 2002, NPC earned approximately $79.3 million (excluding NPC's equity in the losses of its parent, SPR) and paid no dividends on its common stock. During the nine months ended September 30, 2002, NPC incurred a loss of approximately $216.0 million (excluding NPC's equity in the losses of its parent, SPR), and paid $10 million in dividends on its common stock, all of which was reinvested in NPC as a contribution to capital. On July 7, 2002, the Board of County Commissioners of Clark County, Nevada, added an Electric Utility Advisory Question to its November 5, 2002 general election ballot, which asked voters whether "the Nevada Legislature should take appropriate action to enable the electrical energy provider for southern Nevada to be a locally controlled, not for profit public utility." NPC filed a lawsuit seeking to remove the question from the ballot, and the lawsuit was dismissed. Although the referendum is non-binding, the results of this advisory question, which was approved by a 57% to 43% vote, may impact future utility legislation by the Nevada Legislature in its next legislative session which may, in turn, directly or indirectly affect NPC and its operations. On August 22, 2002, SPR received a letter from the Southern Nevada Water Authority ("SNWA") stating that it was prepared to enter into good faith negotiation of definitive agreements to acquire all of NPC's assets and assume certain of NPC's existing indebtedness. On September 12, 2002, SPR responded with a letter stating that it did not view the SNWA's letter as an offer and expressing concerns with the SNWA's financing plans, certain significant legal issues with the proposal and the SNWA's lack of utility management experience. The SNWA has responded by reaffirming its purported offer to acquire NPC. The causes for significant changes in specific lines comprising the results of operations for NPC are as follows:
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, -------------------------------------- ----------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % ---------- ----------- ------------ ----------- ------------ ------------ ELECTRIC OPERATING REVENUES ($000): Residential $ 266,508 $ 253,631 5.1% $ 564,439 $ 529,330 6.6% Commercial 103,367 94,262 9.7% 263,425 233,391 12.9% Industrial 189,440 159,041 19.1% 413,602 349,866 18.2% ---------- ----------- ----------- ------------ Retail revenues 559,315 506,934 10.3% 1,241,466 1,112,587 11.6% Other (1) 153,221 888,562 -82.8% 304,401 1,450,362 -79.0% ---------- ----------- ----------- ------------ Total Revenues $ 712,536 $ 1,395,496 -48.9% $ 1,545,867 $ 2,562,949 -39.7% ========== =========== =========== ============ Retail sales in thousands of megawatt-hours (MWH) 5,814 5,540 4.9% 13,699 13,296 3.0% Average retail revenue per MWH $ 96.20 $ 91.50 5.1% $ 90.62 $ 83.68 8.3%
(1) Primarily wholesale, as discussed below Residential electric revenues increased for the three months ending September 30, 2002 compared to the same period last year due to increased rates in 2002 and an increase in cooling degree-days resulting in higher sales per residential customer. Residential electric revenues increased for the nine months ended September 30, 2002 due to an overall increase in rates resulting from an increase in rates effective March 1, 2001, pursuant to the Comprehensive Energy Plan (CEP), and a rate change effective April 1, 2002, that included a new Deferred Energy Accounting Adjustment (DEAA) rate. See NPC's Annual Report on Form 10-K for the year ended December 31, 2001 for a discussion of the Global Settlement and the CEP, and the Regulatory Matters section of this third quarter Form 10-Q for more detailed DEAA and rate information. Both commercial and industrial electric revenues increased for the three- and nine-month periods due, in part, to increases in the number of customers and rates. The opening of several new schools, commercial shopping centers and large casinos helped to increase 2002 revenues. The decreases in Electric Operating Revenues - Other for the three- and nine-month periods ended September 30, 2002, compared to the same periods in 2001 were due to the decrease in prices and sales volumes of wholesale electric power to other utilities, as a result of changing market conditions. See NPC's Annual Report on Form 10-K for the year ended December 31, 2001, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation, Purchased Power Procurement, for a discussion of NPC's purchased power procurement strategies. 46
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------------------------- ---------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % ---------- ------------- ------------ ----------- ------------ ------------ PURCHASED POWER ($000) $ 440,559 $ 1,686,816 -73.9% $ 1,102,55 $ 2,728,176 -59.6% Purchased Power in thousands of MWHs 5,330 8,330 -36.0% 11,112 16,015 -30.6% Average cost per MWH of Purchased Power (1) $ 82.66 $ 202.50 -59.2% $ 78.61 $ 170.35 -53.9%
(1) Not including contract termination costs, discussed below NPC's purchased power costs and volume were lower for both the three- and nine-month periods ended September 30, 2002 than for the same period of the prior year. These decreases were the result of lower volumes and prices of Short-Term Firm energy purchased. The decrease for the nine-month period was offset, in part, by a $229 million reserve recorded in the second quarter for terminated contracts, which are part of the power portfolio costs and which are described in more detail in "Financial Condition, Liquidity, and Capital Resources." Purchases associated with risk management activities, which are included in Short-Term Firm energy, also decreased significantly in 2002, for both the current quarter and year-to-date. Risk management activities include transactions entered into for hedging purposes and to minimize purchased power costs. See NPC's Annual Report on Form 10-K for the year ended December 31, 2001, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation, Purchased Power Procurement, for a discussion of NPC's purchased power procurement strategies.
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------------------------- ---------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % ---------- ---------- ------------ ----------- ----------- ------------ FUEL FOR POWER GENERATION ($000) $ 87,864 $ 131,023 -32.9% $ 245,060 $ 348,633 -29.7% Thousands of MWHs generated 2,936 2,436 20.5% 7,592 7,510 1.1% Average cost per MWH of Generated Power $ 29.93 $ 53.79 -44.4% $ 32.28 $ 46.42 -30.5%
Fuel for generation costs for both the three and nine months ended September 30, 2002, were significantly lower than the prior year due to the substantial decrease in natural gas prices. For the three months ended September 30, 2002, the decrease was offset, in part, by higher volumes, because it was more economical to generate power than to purchase power.
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ----------------------------------------- ----------------------------------------- Change from Change from DEFERRAL OF ENERGY COSTS-NET ($000) 2002 2001 Prior Year % 2002 2001 Prior Year % ---------- ----------- ------------ ---------- ---------- ------------ Deferred energy costs - net $ (43,224) $ (638,571) -93.2% $ (238,059) $ (908,408) -73.8% Deferred energy costs disallowed - - N/A 434,123 - N/A ---------- ----------- ---------- ---------- $ (43,224) $ (638,571) -93.2% $ 196,064 $ (908,408) N/A ========== =========== ========== ==========
Deferral of energy costs-net for the three- and nine-month periods ended September 30, 2002, reflects deferrals of electric energy costs, reflecting the extent to which actual fuel and purchased power costs exceeded the fuel and purchased power costs recovered through current rates. These deferrals are offset in part by the amortization of prior deferred costs resulting from an increase in rates beginning April 1, 2002, pursuant to the PUCN's March 29, 2002, decision on NPC's deferred energy rate case, and the one-time rate increase of $0.01 per kilowatt-hour for the month of June 2002. Deferral of energy costs-net for the nine-months ended September 30, 2002, also reflects the deferral in the second quarter of 2002 of approximately $229 million for contract termination costs, as described in more detail in "Financial Condition, Liquidity, and Capital Resources," and reflects the write-off of $434 million of deferred energy costs for the seven months ended 47 September 30, 2001, that were disallowed by the PUCN in their decision on NPC's deferred energy rate case. For both the three- and nine-month periods ended September 30, 2001, NPC recorded large deferrals of electric energy costs, as shown in the table above.
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ----------------------------------- --------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % -------- ------ ------------ ------- ------- ------------ ALLOWANCE FOR OTHER FUNDS USED DURING CONSTRUCTION ($000) $ (262) $ (87) $ 239 $ (560) ALLOWANCE FOR BORROWED FUNDS USED DURING CONSTRUCTION ($000) $ 208 $ 657 $ 2,169 $ 570 ------- ------ ------- ------- $ (54) $ 570 -109.5% $ 2,408 $ 10 23980.0% ======= ====== ======= =======
NPC's total allowance for funds used during construction (AFUDC) is lower for the three-month period ended September 30, 2002 as a result of adjustments in 2002 to refine amounts assigned to specific components of facilities that were completed in different periods and a decrease in the AFUDC rate. The decrease was offset in part due to an increase in capital expenditures for the Centennial Plan. AFUDC is higher for the nine-month period ended September 30, 2002 as a result of an increase in capital expenditures for the Centennial Plan and adjustments in 2001 to refine amounts assigned to specific components of facilities that were completed in different periods. The increase is offset in part by a decrease in the AFUDC rate in 2002 as a result of an increase in short-term debt.
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------------------------- ----------------------------------------- Change from Change from ($000) 2002 2001 Prior Year % 2002 2001 Prior Year % ---------- ----------- ------------ ------------ ---------- ------------ OTHER OPERATING EXPENSE $ 39,250 $ 45,670 -14.1% $ 116,520 $ 130,192 -10.5% MAINTENANCE EXPENSE $ 8,050 $ 10,331 -22.1% $ 31,576 $ 36,789 -14.2% DEPRECIATION AND AMORTIZATION $ 24,975 $ 23,042 8.4% $ 72,924 $ 67,345 8.3% INCOME TAXES $ 39,944 $ 36,197 10.4% $ (116,536) $ 21,979 -630.2% INTEREST CHARGES ON LONG-TERM DEBT $ 23,714 $ 20,545 15.4% $ 70,668 $ 55,504 27.3% INTEREST CHARGES-OTHER $ 7,251 $ 3,269 121.8% $ 14,133 $ 10,982 28.7% OTHER INCOME (EXPENSE) - NET $ 4,933 $ 11,021 -55.2% $ (839) $ 14,189 -105.9%
Other operating expense for the three-month period ending September 30, 2002 was lower, compared with the same period in the prior year, primarily due to a third quarter 2001 increase in the provision for uncollectible accounts of approximately $10 million offset, in part, by a decrease in the provision for uncollectible accounts in 2001 related to the California Power Exchange. The decrease in Other operating expense for the nine-month period ending September 30, 2002, compared with the same period in the prior year, reflects the third quarter 2001 increase in the provision for uncollectible accounts, a $12.5 million increase in the provision for uncollectible accounts in 2001 related to the California Power Exchange, and the 2002 reversal of a $3 million reserve provision established in 2001 as a result of the conclusion of electric industry restructuring in Nevada. These decreases were offset, in part, by increased expenses related to a new Credit and Collections Action Plan, and legal fees associated with the PUCN's Deferred Energy Rate Case decision. Maintenance costs for the three- and nine- month periods ending September 30, 2002, decreased from the prior year due to delayed planned outages at Reid Gardner and Clark Station. Depreciation and amortization is higher for the three- and nine-month periods ended September 30, 2002 compared to the same periods in 2001 as a result of an increase in the computer depreciation rate and additions to plant-in-service. This increase was offset in part by plant-in-service asset reconciliations pursuant to a PUCN order. NPC's income tax expense for the three months ended September 30, 2002, increased compared to the same period in 2001, due to a corresponding increase in third quarter 2002 pre-tax income compared to the prior year. For the nine months ended September 30, 2002, NPC recorded a significant income tax benefit reflecting a large 2002 pre-tax loss; NPC recorded income tax expense for the nine months ended September 30, 2001, corresponding to the pre-tax income for the period. 48 Interest charges on long-term debt for the three- and nine- month periods ending September 30, 2002, increased over the same periods in 2001 due net increases in long-term debt outstanding between the comparable periods. Interest charges-other for the three- and nine-month periods ended September 30, 2002, increased from the prior year due primarily to interest expense on deferred payments to energy suppliers in the current year. Other income (expense) - net for the three months ended September 30, 2002, decreased compared to the same period in the prior year primarily due to a $6 million decrease, net of taxes, in carrying charges for deferred energy. The decrease in Other income (expense) - net for the nine months ended September 30, 2002, compared to the prior year also reflects the first quarter 2002 write-off of approximately $20.1 million, net of taxes, of carrying charges on deferred energy costs that were disallowed by the PUCN in their March 29, 2002 decision on NPC's deferred energy rate case. The write-off was offset in part by the recording of current year carrying charges on deferred energy costs. ANALYSIS OF CASH FLOWS NPC's cash flows improved during the nine months ended September 30, 2002, compared to the same period in 2001, resulting primarily from an increase in cash flows from operating activities offset in part by a decrease in cash flows from financing activities. Although NPC recorded a substantial loss for the nine months ended September 30, 2002, compared to net income for the same period in 2001, the current year's loss resulted largely from the write-off of disallowed deferred energy costs for which the cash outflow had occurred in 2001. Current year cash flows from operating activities also benefited from improved collections on accounts receivable compared to the prior year and from lower energy prices. Cash flows from operating activities in the current year also reflect the receipt of an income tax refund. Cash flows from financing activities were lower because of decreases in both net long-term debt issued and cash invested by NPC's parent, SPR, during the nine months ended September 30, 2002 compared to the same period in 2001. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES NPC had cash and cash equivalents of approximately $207.7 million at September 30, 2002, and $146.7 million at October 31, 2002. As discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Nevada Power Company - Construction Expenditures and Financing" and " - Capital Structure" in the Annual Report on Form 10-K for the year ended December 31, 2001, NPC anticipated external capital requirements for construction costs and for the repayment of maturing short-term and long-term debt during 2002 totaling approximately $403 million, which NPC planned to fund through a combination of (i) internally generated funds, (ii) the issuance of short-term debt and preferred stock, and (iii) capital contributions from SPR. On March 29 and April 1, 2002, following the decision by the PUCN in NPC's deferred energy rate case, S&P and Moody's lowered NPC's unsecured debt ratings to below investment grade. On April 23 and 24, 2002, NPC's unsecured debt ratings were further downgraded and its secured debt ratings were downgraded to below investment grade. As a result of these downgrades, NPC's ability to access the capital markets to raise funds is severely limited. Since SPR's credit ratings were similarly downgraded, SPR's ability to make capital contributions to NPC also became severely limited. In connection with the credit downgrades by S&P and Moody's, NPC lost its A2/P2 commercial paper ratings and can no longer issue commercial paper. NPC had a commercial paper balance outstanding of $198.9 million at the time with a weighted average interest rate of 2.52%. Since NPC was no longer able to roll over its commercial paper, it paid off its maturing commercial paper with the proceeds of borrowings under its credit facility and terminated its commercial paper program on May 28, 2002. NPC does not expect to have direct access to the commercial paper market for the foreseeable future. NPC's $200 million unsecured revolving credit facility was also affected by the decision in the deferred energy rate case. Following the announcement of that decision, the banks participating in NPC's credit facility determined that a material adverse event had occurred with respect to NPC, thereby precluding NPC from borrowing funds under its credit facility. The banks agreed to waive the consequences of the material adverse event in a waiver letter and amendment that was executed on April 4, 2002. As required under the waiver letter and amendment, NPC issued and delivered its General and Refunding Mortgage Bond, Series C, due November 28, 2002, in the principal amount of $200 million, to the Administrative Agent as security for the credit facility. This facility was paid in full and terminated on October 30, 2002 with proceeds from the issuance of NPC's $250 million 10 7/8% General and Refunding Mortgage Notes, Series E, due 2009. On October 29, 2002, NPC established an accounts receivables purchase facility of up to $125 million, which was arranged by Lehman Brothers. If NPC elects to activate the receivables purchase facility, NPC will sell all of its accounts receivable generated from the sale of electricity to customers to its newly created bankruptcy remote special purpose 49 subsidiary. The receivables sales will be without recourse except for breaches of customary representations and warranties made at the time of sale. The subsidiary will, in turn, sell these receivables to a bankruptcy-remote subsidiary of SPR. SPR's subsidiary will issue variable rate revolving notes backed by the purchased receivables. Lehman Brothers Holdings, Inc. will be the sole initial committed purchaser of all of the variable rate revolving notes. The agreements relating to the receivables purchase facility contain various conditions to purchase, covenants and trigger events, termination events and other provisions customary in receivables transactions. In addition, the agreements contain a limitation on the payment of dividends by NPC to SPR that is identical to the limitation contained in NPC's General and Refunding Mortgage Notes, Series E, described below. In connection with NPC's receivables facility, SPR has agreed to guaranty NPC's performance of certain obligations as a seller and servicer under the facility. NPC has agreed to issue $125 million principal amount of its General and Refunding Mortgage Bonds upon activation of the accounts receivables purchase facility. The full principal amount of the Bond would secure certain of NPC's obligations as seller and servicer, plus certain interest, fees and expenses thereon to the extent not paid when due, regardless of the actual amounts owing with respect to the secured obligations. As a result, in the event of an NPC bankruptcy or liquidation, the holder of the Bond securing the receivables facility may recover more on a pro rata basis than the holders of other General and Refunding Mortgage securities, who could recover less on a pro rata basis, than they otherwise would recover. However, in no event will the holder of the Bond recover more than the amount of obligations secured by the Bond. NPC intends to use the accounts receivables purchase facility as a back-up liquidity facility and does not plan to activate this facility in the foreseeable future. NPC may activate the facility within five days upon the delivery of certain customary funding documentation and the delivery of the $125 million General and Refunding Mortgage Bond. NPC's first mortgage indenture creates a first priority lien on substantially all of NPC's properties. As of September 30, 2002, $372.5 million of NPC's first mortgage bonds were outstanding. Although the first mortgage indenture allows NPC to issue additional mortgage bonds on the basis of (i) 60% of net utility property additions and/or (ii) the principal amount of retired mortgage bonds, NPC agreed in connection with its $250 million 10 7/8% General and Refunding Mortgage Notes, Series E, due 2009 that it would not issue any more first mortgage bonds. NPC's General and Refunding Mortgage Indenture creates a lien on substantially all of NPC's properties in Nevada that is junior to the lien of the first mortgage indenture. As of September 30, 2002, $820 million of NPC's General and Refunding Mortgage securities were outstanding. Additional securities may be issued under the General and Refunding Mortgage Indenture on the basis of (1) 70% of net utility property additions, (2) the principal amount of retired General and Refunding Mortgage bonds, and/or (3) the principal amount of first mortgage bonds retired after delivery to the indenture trustee of the initial expert's certificate under the General and Refunding Mortgage Indenture. As of October 1, 2002, NPC had the capacity to issue approximately $871 million of additional General and Refunding Mortgage securities, not including the issuance of $250 million Series E Notes and the retirement of $200 million of General and Refunding Mortgage Bonds that secured NPC's terminated credit facility. However, the financial covenants contained in the Series E Notes limits NPC ability to issue additional General and Refunding Mortgage bonds or other debt. NPC has reserved $125 million of General and Refunding Mortgage Bonds for issuance upon the initial funding of NPC's receivables facility and $50 million of its General and Refunding Mortgage Bonds to secure a proposed 364-day facility, discussed below. NPC also has the ability to release property from the liens of the two mortgage indentures on the basis of net property additions, cash and/or retired bonds. To the extent NPC releases property from the lien of its General and Refunding Mortgage Indenture, it will reduce the amount of bonds issuable under that indenture. On June 19, 2002, the PUCN issued a Compliance Order, Docket No. 02-4037, authorizing NPC to issue $300 million of long-term debt. The PUCN order requires NPC, if it is able, to issue the $50 million of remaining authorized short-term debt, before it issues any long-term debt authorized by the order. Moreover, the order provides that, if NPC is able to issue short-term debt at any point prior to September 1, 2002 (whether or not the issuance of short-term debt actually occurs), the amount of long-term debt authorized by the order will be automatically reduced to $250 million. The PUCN order also provides that NPC will bear the burden of demonstrating that any financings undertaken pursuant to the order, including any determination made regarding the length of such commitment, the type of security or rate, is reasonable. Finally, the order requires that, until such time as the order's authorization expires (December 31, 2003), NPC must either receive the prior approval of the PUCN or reach an equity ratio of 42% before paying any dividends to SPR. If NPC achieves a 42% equity ratio prior to December 31, 2003, the dividend restriction ceases to have effect. On July 3, 2002, the BCP of the Nevada Attorney General's Office filed a petition with the PUCN requesting that the hearing in Docket No. 02-4037 be reopened to allow for the introduction of additional evidence or for the PUCN to reconsider its decision granting NPC the authority to issue long-term debt. On September 11, 2002, the PUCN denied the petition to reopen the proceeding and rescinded the portion of its Compliance Order that had previously required NPC to immediately issue $50 million to $100 million of debt. 50 In early May of 2002, Enron, MSCG, Reliant Energy Services, Inc. and several smaller suppliers terminated their power deliveries to NPC. These terminating suppliers asserted their contractual right under the WSPP agreement to terminate deliveries based upon NPC's alleged failure to provide adequate assurance of its performance under the WSPP agreement to any of its suppliers. Each of these terminating suppliers has asserted, or has indicated that it will assert, a claim for liquidated damages under the terminated power supply contracts. On June 5, 2002, Enron filed suit in its bankruptcy case in the Bankruptcy Court for the Southern District of New York asserting claims for liquidated damages related to the termination of its power supply agreements with NPC of approximately $216 million. NPC has filed claims in the Bankruptcy Court alleging, among other things, that NPC was fraudulently induced to enter into the agreements with Enron. Enron's claims are also subject to NPC's defense, as raised in NPC's motions to dismiss and or to stay all proceedings, that such claims are already at issue in NPC's FERC proceeding against Enron and others under Section 206 of the Federal Power Act challenging the contract prices of the terminated power supply agreements. Enron initially filed a motion for partial summary judgment to require NPC to make immediate payment of the full amount of Enron's claim, pending final resolution of the lawsuit. Enron subsequently filed another motion for summary judgment seeking final payment of its damages claim. Hearings, including arguments regarding the issue of FERC's primary jurisdiction over the contract claims, were conducted in September, October, and early November 2002. On November 14, 2002, the judge is expected to rule on the Utilities' motion to dismiss or stay until the FERC rules on the Utilities' Section 206 filing. If the judge decides not to stay Enron's lawsuit pending the outcome of the FERC hearings, the judge would then schedule additional arguments with respect to Enron's motion for summary judgment. At this time, the outcome of a decision in this matter cannot be predicted. An adverse decision on Enron's motion for summary judgment or an adverse decision in the lawsuit would have a material adverse affect on the financial condition and liquidity of NPC and would render its ability to continue to operate outside of bankruptcy uncertain. On June 10, 2002, Duke Energy Trading and Marketing ("Duke") entered into an agreement with NPC, SPR and SPPC to supply up to 1,000 megawatts of electricity per hour, as well as natural gas, to fulfill NPC's customers' power requirements during the peak summer period. The effect of the Duke agreement was to replace the amount of contracted power and natural gas that would have been supplied by the various terminating suppliers, including Enron. Duke also agreed to accept deferred payment for a portion of the amount due under its existing power contracts with NPC for purchases made through September 15, 2002. On October 25, 2002, Duke was paid in full with respect to these delayed payment amounts. On September 5, 2002, MSCG filed a Demand for Arbitration pursuant to the mediation and arbitration procedures of the WSPP agreement seeking a termination payment of approximately $25 million under its terminated power supply agreement. If this claim is not resolved by arbitration, NPC expects that MSCG will commence a lawsuit to recover liquidated damages under the terminated contract. On September 30, 2002, EPME notified NPC that it was terminating all transactions entered into with NPC under the WSPP agreement. On October 8, 2002, NPC received a letter from EPME seeking a termination payment of approximately $36 million with respect to the terminated WSPP agreement transactions. At the present time, NPC disagrees with EPME's calculation, and expects that net gains and losses relating to the terminated transactions, including a delayed payment amount of approximately $19 million owed to EPME for power deliveries through September 15, 2002, will result in a net payment due to NPC. On October 25, 2002 NPC redeemed its 7 5/8% Series L, First Mortgage Bonds in the aggregate principal amount of $15 million. On October 29, 2002, NPC issued and sold $250 million of its 10 7/8% General and Refunding Mortgage Notes, Series E, due 2009 for a purchase price of $235.6 million. The Series E Notes were issued with registration rights. The proceeds of the issuance were used to pay off NPC's $200 million credit facility and for general corporate purposes. The Series E Notes limit the amount of dividends that NPC may pay to SPR. However, that limitation does not apply to payments by NPC to enable SPR to pay its reasonable fees and expenses (including, but not limited to, interest on SPR's indebtedness and payment obligations on account of SPR's premium income equity securities) provided that those payments do not exceed $60 million for any one calendar year, those payments comply with any regulatory restrictions then applicable to NPC, and the ratio of consolidated cash flow to fixed charges for NPC's most recently ended four full fiscal quarters immediately preceding the date of payment is at least 1.75 to 1. The terms of the Series E Notes also permit dividend payments to SPR in an aggregate amount not to exceed $15 million from the date of the issuance of the Series E Notes. In addition, NPC may make dividend payments to SPR in excess of the amounts described above so long as, at the time of payment and after giving effect to the payment: there are no defaults or events of default with respect to the Series E Notes, NPC can meet a fixed charge coverage ratio test, and the total amount of such dividends is less than (i) the sum of 50% of NPC's consolidated net income measured on a quarterly basis cumulative of all quarters from the date of issuance of the Series E Notes, plus (ii) 100% of NPC's aggregate net cash proceeds from the issuance or sale of certain equity or convertible debt securities of NPC, plus (iii) the lesser of cash return of capital or the initial amount of certain restricted investments, plus (iv) the fair market value of NPC's investment in certain subsidiaries. 51 The terms of the Series E Notes also restrict NPC from incurring any additional indebtedness unless (i) at the time the debt is incurred, the ratio of consolidated cash flow to fixed charges for NPC's most recently ended four quarter period on a pro forma basis is at least 2 to 1, or (ii) the debt incurred is specifically permitted, which includes certain credit facility or letter of credit indebtedness, obligations incurred to finance property construction or improvement, indebtedness incurred to refinance existing indebtedness, certain intercompany indebtedness, hedging obligations, indebtedness incurred to support bid, performance or surety bonds, and certain letters of credit issued to support NPC's obligations with respect to energy suppliers. If NPC's Series E Notes are upgraded to investment grade by both Moody's and S&P, the dividend restrictions and the restrictions on indebtedness applicable to the Series E Notes will be suspended and will no longer be in effect so long as the Series E Notes remain investment grade. Among other things, the Series E Notes also contain restrictions on liens (other than permitted liens, which include liens to secure certain permitted debt) and certain sale and leaseback transactions. In the event of a change of control of NPC, the holders of Series E Notes are entitled to require that NPC repurchase the Series E Notes for a cash payment equal to 101% of the aggregate principal amount plus accrued and unpaid interest. The Series E Notes will mature October 15, 2009. NPC is in the process of negotiating a 364-day credit facility of up to $50 million. The 364-day credit facility will be secured by $50 million aggregate principal amount of NPC's General and Refunding Mortgage Bonds. The closing of the 364-day credit facility will be subject to the completion of the lender's due diligence, the negotiation and finalization of documentation and other customary closing conditions. Although NPC has commenced negotiations of the terms of the 364-day credit facility, it cannot give assurances that it will enter into the credit facility or any similar arrangement. SPR has a qualified pension plan (the "Plan") that covers substantially all employees of SPR, NPC and SPPC. The annual net benefit cost for the Plan is expected to increase for 2003 by an amount between $12 million and $22 million over the 2002 cost of $18.4 million. Also, the Plan currently has assets with a fair value that is less than the present value of the accumulated benefit obligation under the Plan. While the amount of the deficiency has not yet been determined, SPR and the Utilities expect their combined minimum funding requirement for 2002 will be at least $24 million. However, SPR and the Utilities do not expect that their funding obligation for 2002 will have a material adverse effect on their liquidity. NPC's liquidity would also be significantly affected by an adverse decision in the lawsuit by Enron, or by unfavorable rulings by the PUCN in future NPC or SPPC rate cases. Both S&P and Moody's have NPC's credit ratings on "watch negative" or "possible downgrade," and any further downgrades could further preclude NPC's access to the capital markets, and could adversely affect NPC's ability to continue to purchase power and fuel. Adverse developments with respect to any one or a combination of the foregoing could cause NPC to become insolvent and would render NPC's ability to continue to operate outside of bankruptcy uncertain. 52 SIERRA PACIFIC POWER COMPANY During the quarter ended September 30, 2002, SPPC earned approximately $13.5 million before preferred stock dividends. During this period, SPPC paid $975,000 in dividends to holders of its preferred stock and paid no dividends on its common stock, all of which is held by its parent, SPR. During the nine months ended September 30, 2002, SPPC incurred a loss of approximately $9.5 million before preferred stock dividends. During this period, SPPC paid $2.9 million in dividends to holders of its preferred stock and paid $19.9 million in dividends on its common stock, $10 million of which was reinvested in SPPC as a contribution to capital. On October 29, 2002, SPPC paid a common stock dividend of $25 million to its parent, SPR. The components of SPPC's gross margin are set forth below (dollars in thousands):
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------------------------------- ------------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % ------------ ----------- ------------ ----------- ------------ ------------ Operating Revenues: Electric $ 285,023 $ 581,957 -51.0% $ 705,946 $ 1,175,228 -39.9% Gas 18,473 18,831 -1.9% 99,139 104,725 -5.3% ------------ ----------- ----------- ------------ Total Revenues 303,496 600,788 -49.5% 805,085 1,279,953 -37.1% ------------ ----------- ----------- ------------ Energy Costs: Electric 198,727 498,513 -60.1% 536,824 972,897 -44.8% Gas 14,165 12,387 14.4% 76,234 81,654 -6.6% ------------ ----------- ----------- ------------ Total Energy Costs 212,892 510,900 -58.3% 613,058 1,054,551 -41.9% ------------ ----------- ----------- ------------ Gross Margin $ 90,604 $ 89,888 0.8% $ 192,027 $ 225,402 -14.8% ============ =========== =========== ============ Gross Margin by Segment: Electric $ 86,296 $ 83,444 3.4% $ 169,122 $ 202,331 -16.4% Gas 4,308 6,444 -33.1% 22,905 23,071 -0.7% ------------ ----------- ----------- ------------ Total $ 90,604 $ 89,888 0.8% $ 192,027 $ 225,402 -14.8% ============ =========== =========== ============
The causes for significant changes in specific lines comprising the results of operations for SPPC are as follows:
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ---------------------------------------- ---------------------------------------- Change from Change from 2002 2001 Prior year % 2002 2001 Prior year % --------- --------- ------------ ---------- ---------- ------------ ELECTRIC OPERATING REVENUES ($000): Residential $ 59,145 $ 58,670 0.8% $ 164,598 $ 157,144 4.7% Commercial 81,856 71,387 14.7% 203,211 182,681 11.2% Industrial 76,776 67,590 13.6% 199,902 187,498 6.6% --------- --------- ---------- ---------- Retail revenues 217,777 197,647 10.2% 567,711 527,323 7.7% Other (1) 67,246 384,310 -82.5% 138,235 647,905 -78.7% --------- --------- ---------- ---------- TOTAL REVENUES $ 285,023 $ 581,957 -51.0% $ 705,946 $1,175,228 -39.9% ========= ========= ========== ========== Retail sales in thousands of megawatt-hours (MWH) 2,327 2,309 0.8% 6,607 6,538 1.1% Average retail revenue per MWH $ 93.59 $ 85.60 9.3% $ 85.93 $ 80.66 6.5%
(1) Primarily wholesale, as discussed below Retail electric revenues were higher for the three months ending September 30, 2002, compared to the same period the previous year. The increase was primarily a result of an overall rate increase that was effective June 1, 2002 (refer to Note 9, Regulatory Events), and, to a lesser extent, warmer than normal weather in July. Retail electric revenues increased for the nine months ended September 30, 2002, compared to the prior year primarily due to rate increases resulting from the 2001 Global Settlement and 2001 Comprehensive Energy Plan (CEP). During the first quarter 2001, these rate increases were being phased in on a monthly basis whereas retail revenues for the first quarter of 2002 reflect the cumulative impact of those increases. The third quarter 2002 weather effects resulted in a minimal revenue impact for the nine months ending September 30, 2002. 53 The decreases in Electric Operating Revenues - Other for the three- and nine-month periods ended September 30, 2002, compared to the same periods in 2001 were due to the decrease in prices and sales volume of wholesale electric power to other utilities, as a result of changing market conditions. See SPPC's Annual Report on Form 10-K for the year ended December 31, 2001, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation, Purchased Power Procurement, for a discussion of SPPC's purchased power procurement strategies.
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------------------------- -------------------------------------- Change from Change from 2002 2001 Prior year % 2002 2001 Prior year % ---------- ---------- ------------ ---------- ---------- ------------ GAS OPERATING REVENUES ($000): Residential $ 6,627 $ 7,861 -15.7% $ 49,735 $ 39,615 25.5% Commercial 4,027 4,267 -5.6% 26,112 20,331 28.4% Industrial 3,436 6,333 -45.7% 14,996 12,962 15.7% Miscellaneous 219 (542) -140.4% 1,627 86 1791.9% ---------- ---------- ---------- ---------- Total retail revenue 14,309 17,919 -20.1% 92,470 72,994 26.7% Wholesale revenue 4,164 912 356.6% 6,669 31,731 -79.0% ---------- ---------- ---------- ---------- TOTAL REVENUES $ 18,473 $ 18,831 -1.9% $ 99,139 $ 104,725 -5.3% ========= ========== ========== ========== Retail sales in thousands of decatherms 1,311 1,336 -1.9% 9,550 8,819 8.3% Average retail revenues per decatherm $ 10.91 $ 13.41 -18.6% $ 9.68 $ 8.28 16.9%
Retail gas revenues for the three-month period ended September 30, 2002 are lower than the same period in the prior year largely due to the refinement of revenue amounts from the first and second quarters of 2001 in the third quarter of 2001. The result caused the revenues for the third quarter of 2001 to be higher than in the current year. The decrease in third quarter 2002 revenues is also minimally due to large customers with alternative fuel capability using oil instead of natural gas in 2002. Retail gas revenues for the nine-month period ended September 30, 2002 were significantly higher than the same period in the prior year primarily due to PUCN-authorized rate increases effective on February 1 and November 5, 2001. Wholesale gas revenues for the nine-month period ended September 30, 2002 were significantly lower than the same period in 2001, primarily due to lower wholesale sales. The three months ended September 30, 2002 reflect higher wholesale gas revenues over the same period last year due to SPPC utilizing idle transportation to move gas from Canada and resell it in California in order to mitigate costs.
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, -------------------------------------- --------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % --------- ---------- ------------ ---------- ----------- ------------ PURCHASED POWER ($000): $ 164,124 $ 508,235 -67.7% $ 443,843 $ 907,830 -51.1% Purchased Power in thousands of MWHs 2,318 2,688 -13.8% 5,642 5,838 -3.4% Average cost per MWH of Purchased Power (1) $ 70.80 $ 189.08 -62.6% $ 63.29 $ 155.50 -59.3%
(1) Not including contract termination costs, discussed below Purchased power costs were lower for the three- and nine-month periods ended September 30, 2002, than the prior year because the majority of SPPC's total energy requirements utilize Short-Term Firm purchased power for which costs have significantly decreased from those a year ago. The nine-month decrease for the period ended September 30, 2002 was offset, in part, by an $86.8 million reserve recorded in the second quarter for terminated contracts, which are described in more detail in "Financial Condition, Liquidity, and Capital Resources." Prices for SPPC's risk management activities also decreased substantially. Risk management activities include transactions entered into for hedging purposes and to minimize purchased power costs. See SPPC's Annual Report on Form 10-K for the year ended December 31, 2001, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation, Purchased Power Procurement, for a discussion of SPPC's purchased power procurement strategies. 54
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, -------------------------------------- ------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % --------- ----------- ------------ ----------- ---------- ------------- FUEL FOR POWER GENERATION ($000) $32,804 $ 88,980 -63.1% $ 111,024 $ 237,504 -53.3% Thousands of MWHs generated 1,264 1,593 -20.7% 3,605 4,668 -22.8% Average fuel cost per MWH of Generated Power $ 25.95 $ 55.86 -53.5% $ 30.80 $ 50.88 -39.5%
Fuel for Power Generation costs for the three- and nine-month periods ended September 30, 2002 were significantly lower than the same period of the prior year as both volumes generated and natural gas prices decreased significantly.
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, -------------------------------------- ------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % --------- ----------- ------------ ----------- ---------- ------------- GAS PURCHASED FOR RESALE ($000) $ 9,884 $ 9,294 6.3% $ 61,585 $ 105,008 -41.4% Gas Purchased for Resale (thousands of decatherms) 2,882 1,660 73.6% 11,384 11,610 -1.9% Average cost per decatherm $ 3.43 $ 5.60 -38.8% $ 5.41 $ 9.04 -40.2%
Gas Purchased for Resale increased significantly for the three-month period ended September 30, 2002, compared to the prior year as an increase wholesale activity more than offset the decrease in gas prices. Gas Purchased for Resale decreased significantly for the nine months ended September 30, 2002, compared to the prior year because of much lower natural gas prices.
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------------------------- ---------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % ---------- ----------- ------------- ------------ ------------ ------------ DEFERRAL OF ENERGY COSTS-NET ($000) Deferred energy costs - electric - net $ 1,799 $ (98,702) N/A $ (71,144) $ (172,437) -58.7% Deferred energy costs disallowed - electric - - N/A 53,101 - N/A Deferred energy costs - gas - net 4,281 3,093 38.4% 14,649 (23,354) N/A --------- --------- ---------- ----------- Total $ 6,080 $ (95,609) N/A $ (3,394) (195,791) -98.3% ========= ========= ========== ===========
The change in Deferral of energy costs electric - net for the three- and nine-month periods ended September 30, 2002, compared to the same periods the prior year reflects the amortization in 2002 of prior deferred costs pursuant to the PUCN's decision on SPPC's deferred energy rate case, which resulted in increased rates beginning June 1, 2002. The amortization was offset, in part, by the recording of current year deferrals of electric energy costs, reflecting the extent to which actual fuel and purchased power costs exceeded the fuel and purchased power costs recovered through current rates. Deferral of energy costs-net for the nine months ended September 30, 2002, also reflects the deferral in the second quarter of 2002 of approximately $82 million for contract termination costs, as described in more detail in "Financial Condition, Liquidity, and Capital Resources" and the second quarter write-off of $53 million of electric deferred energy costs incurred in the nine months ended November 30, 2001, that were disallowed by the PUCN in their May 28, 2002, decision on SPPC's deferred energy rate case. For both the three- and nine-month periods ended September 30, 2001, SPPC recorded large deferrals of electric energy costs, as shown in the table above. SPPC's deferred energy costs gas - net for the three- and nine-month periods ended September 30, 2002 reflects the amortization of prior deferred costs due to the PUCN-authorized recovery of those costs. Deferred energy costs gas - net for the three-and nine-month periods ended September 30, 2002 also reflects additional expense to the extent natural gas costs recovered through current rates exceeded actual natural gas costs, which had decreased significantly. Deferral of energy costsnet for gas for the nine months ended September 30, 2001 reflects undercollections of such costs because revenue received from 2001 base purchased gas rates did not cover the increased cost of natural gas experienced by SPPC. 55
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------------------------- ------------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % ---------- ----------- ------------ ------------ ------------ ------------- ALLOWANCE FOR OTHER FUNDS USED DURING CONSTRUCTION ($000) $ (10) $ (19) $ 143 $ (233) ALLOWANCE FOR BORROWED FUNDS USED DURING CONSTRUCTION ($000) 694 566 1,314 943 --------- ---------- ------------ ----------- $ 684 $ 547 25.0% $ 1,457 $ 710 105.2% ========= ========== ============ ===========
Total allowance for funds used during construction (AFUDC) increased for the three-month period ended September 30, 2002, compared to the prior year due to an increase in Construction Work-in-Progress (CWIP). Total AFUDC for the nine-month period ended September 30, 2002, increased over the prior year due to an increase in CWIP and because AFUDC in 2001 reflected an adjustment to refine amounts assigned to specific components of facilities that were completed in different periods. This increase was offset, in part, by a decrease in the AFUDC rate.
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ----------------------------------------- -------------------------------------- Change from Change from (000's) 2002 2001 Prior Year % 2002 2001 Prior Year % ------------ ----------- ------------ ----------- ---------- ------------ Other operating expense $ 25,064 $ 28,222 -11.2% $ 75,687 $ 79,090 -4.3% Maintenance expense $ 4,854 $ 5,143 -5.6% $ 15,250 $ 17,143 -11.0% Depreciation and amortization $ 18,592 $ 17,620 5.5% $ 55,861 $ 52,328 6.8% Income taxes $ 7,601 $ 8,630 -11.9% $ (9,037) $ 7,974 -213.3% Interest charges on long-term debt $ 16,173 $ 15,380 5.2% $ 48,638 $ 38,479 26.4% Interest charges - other $ 2,943 $ 1,455 102.3% $ 7,051 $ 7,437 -5.2% Other income (expense) - net $ 1,954 $ 4,309 -54.7% $ 4,631 $ 5,322 -13.0%
Other operating expense for the three-month period ending September 30, 2002 was lower than the same period in the prior year due to a third quarter 2001 increase in the provision for uncollectible accounts of approximately $4 million, and the reversal in 2002 of SPPC's Short-term Incentive Plan accrual offset, in part, by a 2001 decrease in the provision for uncollectible accounts related to the California Power Exchange and increased legal fees in 2002 associated with the PUCN's Deferred Energy Rate Case decision. The decrease in Other operating expense for the nine-month period ending September 30, 2002, compared with the same period in the prior year, reflects the third quarter 2001 increase in the provision for uncollectible accounts, a $2.7 million increase in the provision for uncollectible accounts in 2001 related to the California Power Exchange, and the 2002 reversal of a $3.5 million reserve provision established in 2001 as a result of the conclusion of electric industry restructuring in Nevada. These decreases were offset, in part, by increased expenses in 2002 related to a new Credit and Collections Action Plan, insurance premiums, and costs associated with obtaining a tax refund. Maintenance costs for the three- and nine- month periods ended September 30, 2002 were less than the same period last year as the 2001 costs included turbine repairs on Unit 1 at Valmy. Depreciation and amortization increased for the three-month period ended September 30, 2002, compared to the same period in 2001 as a result of additions to plant-in-service assets. Depreciation and amortization increased for the nine-month period ended September 30, 2002, compared to the same period in 2001 as a result of additions to plant-in-service assets and an increase to depreciation of $1.8 million to reflect an adjustment to depreciation rates related to combustion turbines. These increases were offset in part by a PUCN-ordered reduction in depreciation rates that was implemented June 1, 2002. SPPC recorded lower operating income tax expense for the three months ended September 30, 2002, compared to the same period in 2001. This decrease resulted from a 2001 reclassification of income taxes included in other income to operating income taxes that more than offset taxes on higher pre-tax income in 2002. For the nine months ended September 30, 2002, SPPC recorded an income tax benefit compared to income tax expense for the same period in 2001, as a result of a pre-tax loss in the current year compared to pre-tax income in the prior year. Interest charges on long-term debt for the three-month period ending September 30, 2002, increased over the same period in 2001 due to debt incurred at higher interest rates. An increased level of long-term debt at higher rates was also responsible for the increase in interest for the nine months ended September 30, 2002, over the comparable period in 2001. 56 Interest charges-other increased during the three-month period ending September 30, 2002, compared to 2001 due to higher short-term borrowings in the 2002 period. However, the decrease for the nine months ended September 30, 2002, as compared to the same period in 2001 was attributable to lower commercial paper and short-term debt balances during the nine-month period in 2002. Other income (expense) - net for the three months ended September 30, 2002, decreased compared to the same period in the prior year primarily due to a decrease in carrying charges for deferred energy. The decrease in Other income (expense) - net for the nine months ended September 30, 2002, compared to the prior year also reflects the second quarter 2002 write-off of approximately $2 million, net of taxes, of carrying charges on deferred energy costs that were disallowed by the PUCN in their May 28, 2002 decision on SPPC's deferred energy rate case. The write-off was offset in part by the recording of current year carrying charges on deferred fuel and purchased power costs. ANALYSIS OF CASH FLOWS SPPC's cash flows during the nine months ended September 30, 2002, improved compared to the same period in 2001, as increases in cash flows from operating and financing activities were offset in part by cash used for investing activities. Although SPPC recorded a loss for the nine months ended September 30, 2002, compared to net income for the same period in 2001, the current year's loss resulted largely from the write-off of disallowed deferred energy costs for which the cash outflow had occurred in 2001. Other factors contributing to 2002's improved cash flows from operating activities include lower energy prices and improved collections on accounts receivable, offset in part by lower accounts payable balances. Also, cash flows from operating activities in the current year reflect the receipt of an income tax refund. Cash flows from investing activities decreased in 2002 because 2001 investing activities included cash provided from the sale of the assets of SPPC's water business. Cash flows from financing activities increased due to an increase in short-term borrowings and a decrease in common dividends paid in 2002, offset in part by a decrease in net long-term debt issued in 2002, compared to the same period in 2001. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES SPPC had cash and cash equivalents of approximately $143.9 million at September 30, 2002, and approximately $56.2 million at October 31, 2002. As discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Sierra Pacific Power Company - Construction Expenditures and Financing" and " - Capital Structure" in the Annual Report on Form 10-K for the year ended December 31, 2001, SPPC anticipated having capital requirements for construction costs and for the repayment of maturing short-term and long-term debt during 2002 totaling approximately $189 million, which SPPC would need to fund through a combination of (i) internally generated funds, (ii) the issuance of short-term debt, and (iii) capital contributions from SPR. On March 29 and April 1, 2002, following the decision by the PUCN in NPC's deferred energy rate case, S&P and Moody's lowered SPPC's unsecured debt ratings to below investment grade. On April 23 and 24, 2002, SPPC's unsecured debt ratings were further downgraded and its secured debt ratings were downgraded to below investment grade. The decision of the PUCN on May 29, 2002 on SPPC's deferred energy application to disallow $53.1 million of deferred purchased fuel and power costs accumulated between March 1, 2001 and November 30, 2001 did not result in any further downgrades of SPPC's securities. As a result of the downgrades, SPPC's ability to access the capital markets to raise funds is severely limited. Since SPR's credit ratings were similarly downgraded, SPR's ability to make capital contributions to SPPC also became severely limited. In connection with the credit ratings downgrades referenced above, SPPC lost its A2/P2 commercial paper ratings and can no longer issue commercial paper. At the time, SPPC had a commercial paper balance outstanding of $47.7 million with a weighted average interest rate of 2.49%. SPPC paid off its maturing commercial paper with the proceeds of borrowings under its credit facility and terminated its commercial paper program on May 28, 2002. SPPC does not expect to have direct access to the commercial paper market for the foreseeable future. SPPC's $150 million unsecured revolving credit facility was also affected by the downgrade in SPPC's credit rating. Under this facility, SPPC was required, in the event of a ratings downgrade of its senior unsecured debt, to secure the facility with General and Refunding Mortgage Bonds. In satisfaction of its obligation to secure the credit facility, on April 8, 2002, SPPC issued and delivered its General and Refunding Mortgage Bond, Series B, due November 28, 2002, in the principal amount of $150 million, to the Administrative Agent for the credit facility. As of May 10, 2002, SPPC had borrowed the entire $150 million of funds available under its credit facility to, in part, pay off maturing commercial paper, maintaining a cash balance at SPPC. This facility was paid in full and terminated on October 31, 2002 with available cash and proceeds from SPPC's $100 million Term Loan Facility. On October 29, 2002, SPPC established an accounts receivables purchase facility of up to $75 million, which was arranged by Lehman Brothers. If SPPC elects to activate the receivables purchase facility, SPPC will sell all of its accounts 57 receivable generated from the sale of electricity to customers to its newly created bankruptcy remote special purpose subsidiary. The receivables sales will be without recourse except for breaches of customary representations and warranties made at the time of sale. The subsidiary will, in turn, sell these receivables to a bankruptcy-remote subsidiary of SPR. SPR's subsidiary will issue variable rate revolving notes backed by the purchased receivables. Lehman Brothers Holdings, Inc. will be the sole initial committed purchaser of all of the variable rate revolving notes. The agreements relating to the receivables purchase facility contain various conditions to purchase, covenants and trigger events, termination events and other provisions customary in receivables transactions. In addition, the agreements contain a limitation on the payment of dividends by SPPC to SPR that is identical to the limitation contained in SPPC's Term Loan Agreement, described below. In connection with SPPC's receivables facility, SPR has agreed to guaranty SPPC's performance of certain obligations as a seller and servicer under the facility. SPPC has agreed to issue $75 million principal amount of its General and Refunding Mortgage Bonds upon activation of the accounts receivables purchase facility. The full principal amount of the Bond would secure certain of SPPC's obligations as seller and servicer, plus certain interest, fees and expenses thereon to the extent not paid when due, regardless of the actual amounts owing with respect to the secured obligations. As a result, in the event of an SPPC bankruptcy or liquidation, the holder of the Bond securing the receivables facility may recover more on a pro rata basis than the holders of other General and Refunding Mortgage securities, who could recover less on a pro rata basis, than they otherwise would recover. However, in no event will the holder of the Bond recover more than the amount of obligations secured by the Bond. SPPC intends to use the accounts receivables purchase facility as a back-up liquidity facility and does not plan to activate this facility in the foreseeable future. SPPC may activate the facility within five days upon the delivery of certain customary funding documentation and the delivery of the $75 million General and Refunding Mortgage Bond. SPPC's first mortgage indenture creates a first priority lien on substantially all of SPPC's properties in Nevada and California. As of September 30, 2002, $505.3 million of SPPC's first mortgage bonds were outstanding. Although the first mortgage indenture allows SPPC to issue additional mortgage bonds on the basis of (i) 60% of net utility property additions and/or (ii) the principal amount of retired mortgage bonds, SPPC agreed in its General and Refunding Mortgage Indenture that it would not issue any additional first mortgage bonds. SPPC's General and Refunding Mortgage Indenture creates a lien on substantially all of SPPC's properties in Nevada that is junior to the lien of the first mortgage indenture. As of September 30, 2002, $470 million of SPPC's General and Refunding Mortgage bonds were outstanding. Additional securities may be issued under the General and Refunding Mortgage Indenture on the basis of (i) 70% of net utility property additions, (ii) the principal amount of retired General and Refunding Mortgage bonds, and/or (iii) the principal amount of first mortgage bonds retired after delivery to the indenture trustee of the initial expert's certificate under the General and Refunding Mortgage Indenture. At September 30, 2002, SPPC had the capacity to issue approximately $363 million of additional General and Refunding Mortgage securities, not including the issuance of SPPC's $100 million Series C General and Refunding Mortgage Bond which secures SPPC's Term Loan Facility and the retirement of $150 million of Series B General and Refunding Mortgage Bonds that secured SPPC's terminated credit facility. However, the financial covenants contained in SPPC's Term Loan Agreement and Receivable Purchase Facility Agreements limit SPPC's ability to issue additional General and Refunding Mortgage Securities or other debt. SPPC will reserve $75 million of General and Refunding Mortgage Bonds for issuance upon the initial funding of its receivables purchase facility. SPPC also has the ability to release property from the liens of the two mortgage indentures on the basis of net property additions, cash and/or retired bonds. To the extent SPPC releases property from the lien of its General and Refunding Mortgage Indenture, it will reduce the amount of bonds issuable under that indenture. In early May of 2002, Enron, MSCG, Reliant Energy Services, Inc. and several smaller suppliers terminated their power deliveries to SPPC. These terminating suppliers asserted their contractual right under the WSPP agreement to terminate deliveries based upon SPPC's alleged failure to provide adequate assurance of its performance under the WSPP agreement to any of its suppliers. Each of these terminating suppliers has asserted, or has indicated that it will assert, a claim for liquidated damages under the terminated power supply contracts. On June 5, 2002, Enron filed suit in its bankruptcy case in the Bankruptcy Court for the Southern District of New York asserting claims for liquidated damages related to the termination of its power supply agreements with SPPC of approximately $93 million. SPPC has filed claims in the Bankruptcy Court alleging, among other things, that SPPC was fraudulently induced to enter into the agreements with Enron. Enron's claims are also subject to SPPC's defense, as raised in SPPC's motions to dismiss and or to stay all proceedings, that such claims are already at issue in SPPC's FERC proceeding against Enron and others under Section 206 of the Federal Power Act challenging the contract prices of the terminated power supply agreements. Enron initially filed a motion for partial summary judgment to require SPPC to make immediate payment of the full amount of Enron's claim, pending final resolution of the lawsuit. Enron subsequently filed another motion for summary judgment seeking final payment of its damages claim. Hearings, including arguments regarding the issue of FERC's primary jurisdiction over the contract claims, were conducted in September, October, and early November 2002. On November 14, 2002, the judge is expected to rule on the Utilities' motion to dismiss or stay until the FERC rules on the Utilities' Section 206 filing. If the judge decides not to stay Enron's lawsuit pending the outcome 58 of the FERC hearings, the judge would then schedule additional arguments with respect to Enron's motion for summary judgment. At this time, the outcome of a decision in this matter cannot be predicted. An adverse decision on Enron's motion for summary judgment or an adverse decision in the lawsuit would have a material adverse affect on the financial condition and liquidity of SPPC and would render its ability to continue to operate outside of bankruptcy uncertain. On May 23, 2002, SPPC defeased its 2% First Mortgage Bonds due 2011, 5% Series Y First Mortgage Bonds due 2024, and 2% Series Z First Mortgage Bonds due 2004 by depositing $1.2 million, $3.1 million, and $45,000, respectively, with its First Mortgage Trustee. These First Mortgage Bonds were issued to secure loans made to SPPC by the United States under the Rural Electrification Act of 1936, as amended. On October 30, 2002, SPPC entered into a $100 million Term Loan Agreement with several lenders and Lehman Commercial Paper Inc., as Administrative Agent. The net proceeds of $97 million from the Term Loan Facility, along with available cash, were used to pay off SPPC's $150 million credit facility, which was secured by a Series B General and Refunding Mortgage Bond. SPPC's Term Loan Agreement limits the amount of dividends that SPPC may pay to SPR. However, that limitation does not apply to payments by SPPC to enable SPR to pay its reasonable fees and expenses (including, but not limited to, interest on SPR's indebtedness and payment obligations on account of SPR's premium income equity securities) provided that those payments do not exceed $90 million, $80 million and $60 million in the aggregate for the twelve month periods ending on October 30, 2003, 2004 and 2005, respectively. The Term Loan Agreement also permits SPPC to make dividend payments to SPR in an aggregate amount not to exceed $10 million during the term of the Term Loan Agreement. In addition, SPPC may make dividend payments to SPR in excess of the amounts described above so long as, at the time of the payment and after giving effect to the payment, there are no defaults or events of default under the Term Loan Agreement, and such amounts, when aggregated with the amount of dividends paid to SPR by SPPC since the date of execution of the Term Loan Agreement, does not exceed the sum of (i) 50% of SPPC's Consolidated Net Income for the period commencing January 1, 2003 and ending with last day of fiscal quarter most recently completed prior to the date of the contemplated dividend payment plus (ii) the aggregate amount of cash received by SPPC from SPR as equity contributions on its common stock during such period. SPPC's Term Loan Agreement requires that SPPC maintain a ratio of consolidated total debt to consolidated total capitalization at all times during each of the following quarters in an amount not to exceed (i) .650 to 1.0 for the fiscal quarters ended December 31, 2002 through December 31, 2003, (ii) .625 to 1.0 for the fiscal quarters ended March 31, 2004 through December 31, 2004, and (iii) .600 to 1.0 for the fiscal quarter ended March 31, 2005 and for each fiscal quarter thereafter. SPPC's Term Loan Agreement also requires that SPPC maintain a consolidated interest coverage ratio for any four consecutive fiscal quarters ending with the fiscal quarter set forth below of not less than (i) 1.75 to 1.00 for the fiscal quarters ended December 31, 2002 and March 31, 2003, (ii) 2.50 to 1.0 for the fiscal quarters ended June 30, 2003 through December 31, 2003, (iii) 2.75 to 1.0 for the fiscal quarters ended March 31, 2004 through September 30, 2004, and (iv) 3.00 to 1.0 for the fiscal quarter ended December 31, 2004 and for each fiscal quarter thereafter. The Term Loan Facility, which is secured by a $100 million Series C General and Refunding Mortgage Bond, will expire October 31, 2005. SPR has a qualified pension plan (the "Plan") that covers substantially all employees of SPR, NPC and SPPC. The annual net benefit cost for the Plan is expected to increase for 2003 by an amount between $12 million and $22 million over the 2002 cost of $18.4 million. Also, the Plan currently has assets with a fair value that is less than the present value of the accumulated benefit obligation under the Plan. While the amount of the deficiency has not yet been determined, SPR and the Utilities expect their combined minimum funding requirement for 2002 will be at least $24 million. However, SPR and the Utilities do not expect that their funding obligation for 2002 will have a material adverse effect on their liquidity. SPPC's Washoe County, Nevada, Water Facilities Refunding Revenue Bonds, Series 2001 in the aggregate principal amount of $80,000,000, will be subject to remarketing on May 1, 2003. In the event that these bonds cannot be successfully remarketed on that date, SPPC will be required to purchase the outstanding bonds at a price of 100% of the principal amount, plus accrued interest. SPPC's future liquidity could be significantly affected by unfavorable rulings by the PUCN in future SPPC or NPC rate cases. Both S&P and Moody's have SPPC's credit ratings on "watch negative" or "possible downgrade," and any further downgrades could further preclude SPPC's access to the capital markets and could adversely affect SPPC's ability to continue purchasing power and fuel. Adverse developments with respect to any one or a combination of the factors and contingencies set forth above could cause SPPC to become insolvent and could render SPPC's ability to continue to operate outside of bankruptcy uncertain. SIERRA PACIFIC RESOURCES (HOLDING COMPANY) The Condensed Consolidated Statements of Operations of SPR include the operating results of the holding company. For the nine months ending September 30, 2002, the holding company recognized higher interest costs, $53.8 million in 2002 compared to $40.3 million in 2001, due primarily to the issuance of $345 million of additional debt associated with its issuance of Premium Income Equity Securities in November of 2001. 59 TUSCARORA GAS PIPELINE COMPANY The Condensed Consolidated Statements of Operations of SPR include the operating results of Tuscarora Gas Pipeline Company (TGPC), a wholly owned subsidiary of SPR. For the three-and nine-month periods ended September 30, 2002, TGPC contributed $.7 million and $2.3 million, respectively, in net income. For the three-and nine-month periods ended September 30, 2001, TGPC contributed $.6 million and $1.9 million, respectively, in net income. E-THREE The Condensed Consolidated Statements of Operations of SPR include the operating results of e-three, a wholly owned subsidiary of SPR. For the three-and nine-month periods ended September 30, 2002, e-three incurred net losses of $14,000 and $.8 million, respectively. For the three-and nine-month periods ended September 30, 2001, e-three contributed $.3 million and $.2 million in net income, respectively. SIERRA PACIFIC COMMUNICATIONS The Condensed Consolidated Statements of Operations of SPR include the operating results of Sierra Pacific Communications (SPC), a wholly owned subsidiary of SPR. For the three- and nine-month periods ended September 30, 2002, SPC incurred net losses of $1.1 million and $2.4 million, respectively. SPC incurred net losses of $1.7 million and $2.4 million, respectively, for the three- and nine-month periods ended September 30, 2001. In April 2000 Sierra Touch America, LLC, a partnership between SPC and Touch America, was formed to construct a fiber optic line between Salt Lake City, Utah and Sacramento, California. On September 9, 2002, SPC purchased and leased certain telecommunications and fiber optic assets from Touch America in exchange for SPC's partnership units in Sierra Touch America and the execution of a $35 million promissory note for a total of $48.5 million. The assets are currently under construction and are scheduled for completion in May 2003. Of the $48.5 million total, $32.5 million relates to the purchase of a conduit from Sacramento to Salt Lake City, additional conduit in the Reno, Nevada metropolitan area, and real property in Utah. $16 million of the total was for the lease of two conduits from Reno to Spanish Fork, Utah and the lease of 60 strands of fiber from Sacramento to Salt Lake City. The promissory note accrues interest at 8% per annum. The first of twelve monthly payments of $3.3 million will commence on July 31, 2003 and continue until June 30, 2004, at which time all outstanding amounts will be due and payable. The promissory note is secured by all of SPC's assets, and prepayments will shorten the length of the loan, but not reduce the installment payments. Also, on September 11, 2002, SPC entered into an agreement to sell to a telecommunications carrier for $20 million the Sacramento to Salt Lake City conduit acquired from Touch America, and will convey all rights to the conduit when construction is completed in May 2003. REGULATORY MATTERS Substantially all of the utility operations of both NPC and SPPC are conducted in Nevada. As a result both Utilities are subject to utility regulation within Nevada and therefore deal with many of the same regulatory issues. NEVADA MATTERS NEVADA POWER COMPANY GENERAL RATE CASE (NPC) On October 1, 2001, NPC filed an application with the PUCN seeking an electric general rate increase. This application was mandated by AB 369. On December 21, 2001, NPC filed a Certification to its general rate filing updating costs and revenues pursuant to Nevada regulations. In the certification filing, NPC requested an increase in its general rates charged to all classes of electric customers designed to produce an increase in annual electric revenues of $22.7 million, which is an overall 1.7% rate increase. The application also sought a return on common equity ("ROE") for Nevada Power's total electric operations of 12.25% and an overall rate of return ("ROR") of 9.30%. On March 27, 2002, the PUCN issued its decision on the general rate application, ordering a $43 million revenue decrease with an ROE of 10.1% and ROR of 8.37%. The effective date for the decision was April 1, 2002. The decision also resulted in adverse adjustments to depreciation aggregating $7.9 million, and the adverse treatment of approximately $5 million of revenues related to SO2 Allowances. On April 15, 2002, NPC filed a petition for reconsideration with the PUCN. In the petition, NPC raised six issues for reconsideration: the treatment of revenues related to SO2 Allowances, in particular the 60 calculation of the annual amortization amount, which appears to be in error; the adjustment for "excess" capital investment related to common facilities at the Harry Allen generating station; the rejection of adjustments to accumulated depreciation reserves related to the establishment of revised depreciation rates for transmission, distribution and common facilities; the delay in allowing NPC to recover its merger costs without the benefit of carrying charges; the finding that NPC has no need for and is entitled to zero funds cash working capital; and the establishment of a 10.1% ROE. On May 24, 2002, the PUCN issued an order on the petition for reconsideration. In its order the PUCN reaffirmed its findings in the original order for the issues related to "excess" capital investment at the Harry Allen generating station, merger costs, cash working capital, and the 10.1% ROE. The PUCN, however, did modify its original order to include adjustments related to SO2 Allowances and depreciation issues. Revised rates for these changes went into effect on June 1, 2002. NEVADA POWER COMPANY DEFERRED ENERGY CASE (NPC) On November 30, 2001, NPC filed an application with the PUCN seeking to clear deferred balances for purchased fuel and power costs accumulated between March 1, 2001 through September 30, 2001,as mandated by AB 369. The application sought to establish a Deferred Energy Accounting Adjustment ("DEAA") rate to clear accumulated purchased fuel and power costs of $922 million and spread the recovery of the deferred costs, together with a carrying charge, over a period of not more than three years. On March 29, 2002, the PUCN issued its decision on the deferred energy application, allowing NPC to recover $478 million over a three-year period, but disallowing $434 million of deferred purchased fuel and power costs and $10 million in carrying charges. The order states that the disallowance was based on alleged imprudence in incurring the disallowed costs. On April 11, 2002, NPC filed a lawsuit in the First District Court of Nevada seeking to reverse portions of the PUCN's decision. NPC asserts that, as a result of the PUCN's decision, NPC's credit rating was reduced to below investment grade, SPR suffered a reduction in its equity market capitalization by approximately 41%, and the disallowed costs are effectively imposed upon SPR's shareholders. In its lawsuit, NPC alleges that the order of the PUCN is: in violation of constitutional and statutory provisions; made upon unlawful procedure; affected by other error of law; clearly erroneous in view of the reliable, probative and substantial evidence on the whole record; arbitrary and capricious and characterized by abuse of discretion. NPC also states that its decisions with respect to the purchase of power during the energy crisis in the western United States were made prudently, as required under AB 369. In early 2001, the PUCN and the Nevada State Legislature expressly required that NPC secure sufficient, safe and reliable power for anticipated summer loads and needs for the summer of 2001. Prior to the April 2001 enactment of AB 369, which prohibits until July 2003 all divestiture of generation assets, NPC was operating under an order of the PUCN to divest itself of its electric generating plants. To meet this requirement, NPC had engaged in an open auction process that led to the signing of asset sale agreements for a number of its plants, in connection with which, NPC entered into long-term purchase power contracts with the potential buyers that would have availed NPC of reasonably priced purchase power over a long-term period. In its petition, NPC challenges the disallowance by the PUCN of $180 million of its deferred energy costs relating to an informal offer made by an agent for Merrill Lynch for the delivery of energy from January 2001 to March 2003. In addition to certain procedural questions relating to the PUCN's finding with respect to the Merrill Lynch informal offer, NPC asserts that the energy being negotiated was not firm (uninterruptible), the obligations, costs and arrangements for delivery in the informal offer were not specified, the cost of the energy proposed under the informal offer was above then-current market price, and that the supplier was a minor market participant and the magnitude of the transaction proposed was more than 45 times its previously combined annual transactions. NPC's lawsuit requests that the District Court reverse portions of the PUCN's order and remand the matter to the PUCN with direction that the PUCN authorize NPC to immediately establish rates that would allow NPC to recover its entire deferred energy balance of $922 million, with a carrying charge, over three years. A hearing on this matter has been scheduled for February 2003. At this time, NPC is not able to predict the outcome or the timing of a decision in this matter. Various interveners in NPC's deferred energy case before the PUCN filed petitions with the PUCN for reconsideration of the PUCN's order, seeking additional disallowances of between $12.8 million and $488 million. On May 24, 2002, the PUCN issued an order denying any further disallowances and granted NPC the authority to increase the deferred energy cost recovery charge for the month of June 2002 by one cent per kilowatt-hour. This increase accelerated the recovery of the deferred balance by approximately $16 million for the month of June 2002 only. The BCP of the Nevada Attorney General's Office has since filed a petition in NPC's pending state court case seeking additional disallowances. SIERRA PACIFIC POWER COMPANY GENERAL RATE CASE (SPPC) On November 30, 2001, SPPC filed an application with the PUCN seeking an electric general rate increase. This application was mandated by AB 369. On February 28, 2002, SPPC filed a certification to its general rate filing, updating costs and revenues pursuant to Nevada regulations. In the certification filing, SPPC requested an increase in its general rates charged to all classes of electric customers, which were designed to produce an increase in annual electric revenues of 61 $15.9 million representing an overall 2.4% rate increase. The application also sought an ROE for SPPC's total electric operations of 12.25% and an overall ROR of 9.42%. On May 28, 2002, the PUCN issued its decision on the general rate application, ordering a $15.3 million revenue decrease with an ROE of 10.17% and ROR of 8.61%. The effective date of the decision was June 1, 2002. Various parties to the case had filed petitions for reconsideration of the order. On July 18, 2002, the PUCN issued a final decision on the petitions for reconsideration, clarifying issues contained its original order. As a result of the clarifications, SPPC was ordered to change the total annual electric revenue decrease from $15.3 million to $15.8 million. On August 19, 2002, Barrick filed a lawsuit in the First District Court of Nevada seeking to reverse portions of the decision related to the High Voltage Distribution facilities contained in the general rate case order. Barrick alleges that the order of the PUCN is: in violation of constitutional and statutory provisions; in excess of the statutory authority of the PUCN; affected by error of law: clearly erroneous in view of the reliable, probative and substantial evidence on the whole record; and arbitrary or capricious or characterized by abuse of discretion. A hearing date has not yet been scheduled. At this time, SPPC is not able to predict the outcome or the timing of a decision in this matter. SIERRA PACIFIC POWER COMPANY DEFERRED ENERGY (SPPC) On February 1, 2002, SPPC filed an application with the PUCN seeking to clear deferred balances for purchased fuel and power costs accumulated between March 1, 2001 and November 30, 2001. This application was mandated by AB 369. The application sought to establish a DEAA rate to clear accumulated purchased fuel and power costs of $205 million and spread the cost recovery over a period of not more than three years. It also sought to recalculate the Base Tariff Energy Rate to reflect anticipated ongoing purchased fuel and power costs. The total rate increase resulting from the requested DEAA would have amounted to 9.8%. Various parties intervened in SPPC's deferred energy rate case including the Staff of the PUCN, the BCP from the Nevada Attorney General's office, and Barrick, among others. Interveners proposed disallowances ranging from $40.4 million to $361 million. On May 28, 2002, the PUCN issued its decision on the deferred energy application, allowing SPPC three years to collect $150 million but disallowing $53 million of deferred purchased fuel and power costs and $2 million in carrying charges. Several of the interveners from SPPC's deferred energy rate case filed petitions with the PUCN for reconsideration of its decision, seeking an additional disallowance of $126 million. On July 18, 2002, the petitions for reconsideration were granted in part and denied in part by the PUCN, but no additional disallowances to the deferred energy balance resulted from that decision. On August 22, 2002, SPPC filed a lawsuit in the First District Court of Nevada seeking to reverse portions of the decision of the PUCN denying the recovery of deferred energy costs incurred by SPPC on behalf of its customers in 2001 on the grounds that such power costs were not prudently incurred. In its lawsuit, SPPC alleges that the order of the PUCN is: in violation of constitutional and statutory provisions; in excess of the statutory authority of the PUCN; made upon unlawful procedure; affected by other error of law; clearly erroneous in view of the reliable, probative and substantial evidence on the whole record; arbitrary and capricious and characterized by abuse of discretion. SPPC's lawsuit requests that the District Court reverse portions of the order of the PUCN and remand the matter to the PUCN with direction that the PUCN authorize SPPC to immediately establish rates that would allow SPPC to recover its entire deferred energy balance of $205 million, with a carrying charge, over three years. A hearing date has not yet been scheduled. On August 22, 2002, the BCP from the Nevada Attorney General's office also filed a lawsuit in the First District Court of Nevada seeking to set aside the decision of the PUCN so that SPPC is not authorized to reflect in rates any costs for fuel and purchased power which may have been imprudently incurred. A hearing date has not yet been scheduled. At this time, SPPC is not able to predict the outcome or the timing of a decision in these matters. CUSTOMERS FILE UNDER AB 661 (NPC, SPPC) Assembly Bill 661 (AB 661), passed by the Nevada legislature in 2001, allows commercial and governmental customers with an average demand greater than 1 MW to select new energy suppliers. The Utilities would continue to provide transmission, distribution, metering and billing services to such customers. AB 661 requires customers wishing to choose a new supplier to receive the approval of the PUCN and meet public interest standards. In particular, departing customers must secure new energy resources that are not under contract to the Utilities, the departure must not burden the Utilities with increased costs or cause any remaining customers to pay increased costs, and the departing customers must pay their portion of any deferred energy balances. The PUCN adopted regulations prescribing the criteria that will be used to determine if there will be negative impacts to remaining customers or the Utility. These regulations place certain limits upon the departure of NPC customers until 2003; most significantly, the amount of load departing is limited to approximately 1100 MW in peak conditions. Customers wishing to choose a new supplier must provide 180-day notice to the Utilities. AB 661 permitted 62 customers to file applications with the PUCN beginning in the fourth quarter of 2001, and customers could begin to receive service from new suppliers by mid-2002. On January 10, 2002, Barrick, an approximately 130 MW SPPC customer, filed an application with the PUCN to exit the system of SPPC and to purchase energy, capacity and ancillary services from a provider other than SPPC. A stipulation filed on March 8, 2002 by SPPC and Barrick was rejected by the PUCN on March 29, 2002. The PUCN indicated a desire for more information regarding transmission access, the definition of a new electric resource, and the computation of exit fees. Subsequently, a second application was filed and later withdrawn by Barrick. Barrick has filed a new application with the PUCN. Barrick could receive service from a new supplier as early as May 1, 2003. A hearing date on this application has not yet been scheduled. During May 2002, Rouse Fashion Show Management LLC, Coast Hotels and Casinos Inc., Station Casinos, Inc., Gordon Gaming Corporation, MGM Mirage, and Park Place Entertainment filed separate applications with the PUCN to exit the system of NPC and to purchase energy, capacity and ancillary services from a provider other than NPC. The loads of these customers aggregate 260 MW on peak. Hearings on the applications of all the customers except Park Place Entertainment were completed on July 19, and the PUCN issued its decision on July 31, 2002. In its decision, the PUCN approved the applications of these customers to choose an energy supplier other than NPC. The earliest any of these customers could have begun taking energy from an alternative provider was November 1, 2002. If all five customers whose applications were approved were to leave its system, NPC would incur an annual loss in revenue of $48 million, which would be offset by a reduction in costs, primarily for fuel and purchased power, of $46 million with the difference being paid by exit fees from the departing customers. These customers will also be responsible for their share of balances in NPC's deferred energy accounts until the time they leave and must continue to pay their share of these balances after they leave. For example, if all five customers whose applications were approved had left the system on November 1, 2002, their remaining share of NPC's previously approved deferred energy balance is estimated to have been $27 million. Additionally, these departing customers would be responsible for paying their share of the yet to be approved accumulated deferred energy balances from October 1, 2001 to their date of departure. They will also remain accountable to any rulings made by the District Court on legal actions brought in NPC's past deferred energy case. They could also benefit from any refunds that might be granted on power contracts under review with the FERC. A hearing on the application of Park Place Entertainment was held on August 2, 2002, and on August 12, 2002, the PUCN approved the application with terms and conditions similar to those described above for the aforementioned five customers. All of the customers approved for departure are addressing compliance items in their PUCN orders. To date, none of these customers has provided official notice of departure. Other customers are continuing to express an interest, and additional gaming properties, including Monte Carlo, Riviera, and Imperial Palace, have indicated intent to potentially procure energy sources from a new supplier. Any customer who departs NPC's system and later decides to return to NPC as their energy provider will be charged for their energy at a rate equivalent to NPC's incremental cost of service. A stipulation regarding the incremental cost of service tariff is currently pending before the PUCN. NEVADA POWER COMPANY ADDITIONAL FINANCE AUTHORITY (NPC) On April 26, 2002, Nevada Power filed with the PUCN an application seeking additional finance authority. In the application NPC asked for authority to issue secured long-term debt in an aggregate amount not to exceed $450 million through the period ending 2003. On June 19, 2002, the PUCN issued a Compliance Order, Docket No. 02-4037, authorizing NPC to issue $300 million of long-term debt. The PUCN order requires NPC, if it is able, to issue the $50 million of remaining authorized short-term debt, before it issues any long-term debt authorized by the order. Moreover, the order provides that, if NPC is able to issue short-term debt at any point prior to September 1, 2002 (whether or not the issuance of short-term debt actually occurs), the amount of long-term debt authorized by the order will be automatically reduced to $250 million. Other provisions of the PUCN's order are discussed in NPC's "Financial Condition, Liquidity, and Capital Resources." ANNUAL PURCHASED GAS COST ADJUSTMENT (SPPC) On July 1, 2002, SPPC filed a Purchased Gas Cost Adjustment application for its natural gas local distribution company. In the application SPPC has asked for a reduction of $0.05421 to its Base Purchased Gas Rate (BPGR) and an increase in its Balancing Account Adjustment charge (BAA) by the same amount. This request would result in no change to revenues or customer rates. Hearings have been scheduled to begin November 18, 2002. This docket was consolidated for hearing purposes with the Liquid Petroleum Gas Cost Adjustment below. LIQUID PETROLEUM GAS COST ADJUSTMENT (SPPC) On July 1, 2002, SPPC filed an application to adjust rates for its liquid petroleum gas (LPG) distribution company. In the application SPPC has asked for an increase of $0.04133 to its current LPG rate and a decrease in its Balancing Account 63 Adjustment charge (BAA) by the same amount. This request would result in no change to revenues or customer rates. Hearings have been scheduled to begin November 18, 2002. This docket was consolidated for hearing purposes with the annual Purchased Gas Cost Adjustment above. CALIFORNIA MATTERS (SPPC) RATE STABILIZATION PLAN SPPC serves approximately 44,500 customers in California. On June 29, 2001, SPPC filed with the California Public Utilities Commission (CPUC) a Rate Stabilization Plan, which includes two phases. Phase One, which was also filed June 29, 2001, is an emergency electric rate increase of $10.2 million annually or 26%. If granted, the typical residential monthly electric bill for a customer using 650 kilowatt-hours would increase from approximately $47.12 to $60.12. On August 14, 2001, a pre-hearing conference was held, and a procedural order was established. On September 27, 2001, the Administrative Law Judge issued an order stating that no interim or emergency relief could be granted until the end of the "rate freeze" period mandated by the California restructuring law for recovery of stranded costs. In accordance with the judge's request, on October 26, 2001, SPPC filed an amendment to its application declaring the rate freeze period to be over. On December 5 and 11, 2001, hearings were held and on January 11, 2002 and January 25, 2002 opening briefs and reply briefs were filed. On July 17, 2002, the CPUC approved the requested 2-cent per kilowatt-hour surcharge, subject to refund and interest pending the outcome of Phase Two. The increase of $10 million or 26% is applicable to all customers except those eligible for low-income and medical-needs rates and went into effect July 18, 2002. Phase Two of the Rate Stabilization Plan was filed with the CPUC on April 1, 2002, and includes a general rate case and requests the CPUC to reinstate the Energy Cost Adjustment Clause, which would allow SPPC to file for periodic rate adjustments to reflect its actual costs for wholesale energy supplies. Phase Two also includes a proposal to terminate the 10% rate reduction mandated by AB 1890, but does not include a performance -based rate-making proposal. This request was for an additional overall increase in revenues of 17.1%, or $8.9 million annually. Hearings are scheduled for February 25 through March 3, 2003, and a decision by the CPUC is expected in the third quarter of 2003. CALIFORNIA ASSEMBLY BILL 1235 (SPPC) On September 24, 2002, the Governor of California signed into law Assembly Bill 1235 (AB 1235), which allows the transfer of hydroelectric plants along the Truckee River from SPPC to the Truckee Meadows Water Authority (TMWA). AB 1235 effectively amends previous California legislation (AB 6X) that prevented until 2006 private utilities from selling any power plants that provide energy to California customers. AB 1235 provides an exemption for the four "run-of-the-river" hydroelectric plants that SPPC sold to TMWA as part of the sale of its water business in June 2001. AB 1235 was effective September 24, 2002, and the process to transfer the plants from SPPC to TMWA has begun. The CPUC must now review and approve the transfer of the plants. FERC MATTERS (SPPC, NPC) FERC 206 COMPLAINTS In December 2001, the Utilities filed ten wholesale purchased power complaints with the FERC under Section 206 of the Federal Power Act seeking their review of certain forward power purchase contracts that the Utilities entered into prior to the price caps established by the FERC during the western United States utility crisis. The Utilities believe the prices under these purchased power contracts are unjust and unreasonable. The FERC ordered the case set for hearing and assigned an administrative law judge. A primary issue is whether or not the dysfunctional short-term market, which was previously declared by the FERC, impacted the forward market. The Utilities negotiated a settlement with Duke Energy Trading and Marketing and have engaged in bilateral settlement discussions with other respondents as well. Written direct and rebuttal testimony have been filed by the parties that have not negotiated settlements with the Utilities. Hearings concluded on October 24, 2002, and a draft decision is expected in December 2002. At this time, the Utilities are not able to predict the outcome of a decision in this matter. OPEN ACCESS TRANSMISSION TARIFF On September 27, 2002, the Utilities filed with the FERC a revised Open Access Transmission Tariff. The purpose of the filing was to implement changes that are required to implement retail open access in Nevada. The Utilities have requested the changes to become effective November 1, 2002, the date retail access is scheduled to commence in Nevada in accordance with provisions of AB 661, passed in the 2001 session of the Nevada Legislature. 64 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK SPR has evaluated its risk related to financial instruments whose values are subject to market sensitivity, such as fixed and variable rate debt and preferred trust securities obligations. As shown in SPR's Form 10-K for the year ended December 31, 2001, the fair market value of SPR's consolidated long-term debt and preferred trust securities was $3.684 billion, as of December 31, 2001. Due to the credit ratings downgrades by S&P and Moody's, SPR's valuations for its market-sensitive financial instruments show a decline of approximately 23% in the fair market value of these financial instruments to $2.85 billion from December 31, 2001 to September 30, 2002, as shown in the table below. Fair market value is determined using quoted market price for the same or similar issues or on the current rates offered for debt of the same remaining maturities. Long-term debt (dollars in thousands): Expected Maturity Date
- ------------------------------------------------------------------------------------------------------------------------------- Expected Maturities Amounts Weighted Avg Int Rate Fair Market Value - ------------------------------------------------------------------------------- --------------------------------------------- Fixed Rate NPC SPPC SPR Consolidated Consolidated Consolidated - ------------------------------------------------------------------------------- ----------------------- ----------------- 2002 $ 15,000 $ - $ - $ 15,000 7.63% 2003 210,000 20,400 - 230,400 5.97% 2004 130,000 2,400 - 132,400 6.20% 2005 - 2,400 300,000 302,400 8.73% 2006 - 51,963 - 51,963 6.72% Thereafter 938,835 843,242 345,000 2,127,077 6.88% - ------------------------------------------------------------------------------- ----------------------- ----------------- Total Fixed Rate $ 1,293,835 $ 920,405 $ 645,000 $ 2,859,240 $ 2,350,527 - ------------------------------------------------------------------------------- ----------------------- ----------------- Variable Rate 2002 $ - $ - $ - $ - 2003 140,000 - 200,000 340,000 2.94% 2004 - - - - 2005 - - - - 2006 - - - - Thereafter 115,000 - - 115,000 1.74% - ------------------------------------------------------------------------------- ----------------------- ----------------- $ 255,000 $ - $ 200,000 $ 455,000 $ 381,850 - ------------------------------------------------------------------------------- ----------------------- ----------------- Preferred securities (fixed rate) After 2006 $ 188,872 $ - $ - $ 188,872 8.03% - ------------------------------------------------------------------------------- ----------------------- ----------------- $ 188,872 $ - $ - $ 188,872 $ 117,866 - ------------------------------------------------------------------------------- ----------------------- ----------------- Total $ 1,737,707 $ 920,405 $ 845,000 $ 3,503,112 $ 2,850,243 =============================================================================== ======================= =================
See the combined Form 10-K of SPR, NPC, and SPPC for the year ended December 31, 2001, for a discussion of Commodity Price Risk. ITEM 4. CONTROLS AND PROCEDURES SPR, NPC, and SPPC maintain disclosure controls and procedures as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") designed to ensure that they are able to collect the information required to be disclosed in the reports they file with the Securities and Exchange Commission (SEC), and to process, summarize and disclose this information accurately and within the time periods specified in the rules of the SEC. The chief executive officer and chief financial officer of each of SPR, NPC, and SPPC have reviewed and evaluated SPR's, NPC's and SPPC's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, these disclosure controls and procedures of SPR, NPC, and SPPC are effective in bringing to their attention on a timely basis material information relating to SPR, NPC, and SPPC required to be included in periodic filings under the Exchange Act. Since the Evaluation Date, there have not been any significant changes in the internal controls of SPR, NPC, and SPPC, or in other factors that could significantly affect these controls subsequent to the Evaluation Date. 65 PART II ITEM 1. LEGAL PROCEEDINGS Refer to SPR's, NPC's, and SPPC's Combined Annual Report on Form 10-K for the year ended December 31, 2001, and to Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operation, in this Quarterly Report on Form 10-Q, for a discussion of current legal matters. Although SPR, NPC, and SPPC are involved in ongoing litigation on a variety of other matters, in management's opinion, none of these other matters individually or collectively is material to SPR's, NPC's, or SPPC's financial position, results of operations, or liquidity. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 2002 Annual Meeting of the Shareholders of Sierra Pacific Resources was held on July 22, 2002. SPR solicited proxies pursuant to Regulation 14 under the Securities and Exchange Act of 1934. There was no solicitation in opposition to the nominees for Director listed in the proxy statement, and all such nominees were elected to the classes indicated in the proxy statement pursuant to the vote of shareholders as follows. Reelected to SPR's Board of Directors to serve until the Annual Meeting in 2005, or until their successors are elected, were: Krestine M. Corbin Votes For: 84,745,644 Votes Against or Withheld: 1,943,949 Clyde T. Turner Votes For: 79,486,897 Votes Against or Withheld: 7,258,696 Dennis E. Wheeler Votes For: 83,479,848 Votes Against or Withheld: 3,265,745
ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits filed with this Form 10-Q: NEVADA POWER COMPANY Exhibit 4.1 Officer's Certificate establishing the terms of Nevada Power Company's 10 7/8% General and Refunding Mortgage Notes, Series E, due 2009 Exhibit 4.2 Form of Nevada Power Company's 10 7/8% General and Refunding Mortgage Notes, Series E, due 2009 SIERRA PACIFIC POWER COMPANY Exhibit 4.3 Officer's Certificate establishing the terms of Sierra Pacific Power Company's General and Refunding Mortgage Bonds, Series C, due October 31, 2005 Exhibit 4.4 Form of Sierra Pacific Power Company's General and Refunding Mortgage Bonds, Series C, due October 31, 2005 SIERRA PACIFIC RESOURCES Exhibit 10.1 Donald L. Shalmy Employment Letter dated May 21, 2002 Exhibit 10.2 John F. Young Employment Letter dated May 22, 2002 66 SIERRA PACIFIC POWER COMPANY Exhibit 10.3 Term Loan Agreement, dated as of October 30, 2002, by and among Sierra Pacific Power Company, the several banks and other financial institutions or entities from time to time parties to the Agreement, Lehman Brothers Inc., as advisor, sole lead arranger and sole bookrunner, Lehman Commercial Paper Inc., as syndication agent, and Lehman Commercial Paper Inc., as administrative agent SIERRA PACIFIC COMMUNICATIONS Exhibit 10.4 Unit Redemption, Release, and Sale Agreement entered into by and among Touch America, Inc., Sierra Pacific Communications, and Sierra Touch America LLC, dated as of September 9, 2002 Exhibit 10.5 Amended And Restated Conduit Sale Agreement dated September 11, 2002, made by and between Sierra Pacific Communications and Qwest Communications Corporation. SIERRA PACIFIC RESOURCES, NEVADA POWER COMPANY AND SIERRA PACIFIC POWER COMPANY Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K: Form 8-K dated August 14, 2002, filed by SPR- Item 9, Regulation FD Disclosure Disclosed, and included as exhibits, the sworn statements of SPR's Chief Executive Officer and Chief Financial Officer in accordance with Securities and Exchange Commission Order No. 4-460. Form 8-K dated August 14, 2002, filed by SPR, NPC and SPPC - Item 5, Other Events Disclosed, and included as an exhibit, SPR's press release dated August 14, 2002, reporting financial results for the quarter ended June 30, 2002, and included as an exhibit a transcript of the August 14, 2002 conference call by senior management of SPR, NPC, and SPPC discussing those financial results. Form 8-K dated August 22, 2002, filed by SPR and SPPC - Item 5, Other Events Disclosed, and included as an exhibit, the petition for judicial review filed on August 22, 2002, by SPPC in District Court in Nevada seeking to reverse portions of the May 28, 2002 decision of the PUCN denying the recovery of $55.8 million of deferred energy costs incurred by SPPC on behalf of its customers in 2001. Form 8-K dated August 22, 2002, filed by SPR and NPC - Item 5, Other Events Disclosed, and included as an exhibit, SPR's press release dated August 22, 2002, announcing that SPR had received from the Southern Nevada Water Authority (SNWA) a letter stating that SNWA is prepared to enter into good faith negotiation of definitive agreements to acquire all of the assets and assume certain existing publicly disclosed indebtedness of NPC. Form 8-K dated September 12, 2002, filed by SPR and NPC - Item 5, Other Events Disclosed, and included as an exhibit, SPR's press release dated September 12, 2002, announcing that SPR had delivered a letter to the SNWA in response to their letter regarding the agency's proposal to enter into negotiations for the possible purchase of NPC. Form 8-K dated September 30, 2002, filed by SPR and NPC - Item 5, Other Events Disclosed that El Paso Merchant Energy Group (EPME) had notified NPC that EPME was terminating all transactions entered into between NPC and EPME under the Western Systems Power Pool Agreement, and that NPC believes it has adequate power and fuel supplies and availability to meet current needs despite the EPME termination. Also separately disclosed that NPC had reached delayed payment agreements for summer 2002 power deliveries with BP Energy, Mirant, Constellation, and Tractabel. Previously, NPC and Duke Energy Trading and Marketing had reached a delayed payment agreement for summer 2002 deliveries. 67 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. SIERRA PACIFIC RESOURCES (REGISTRANT) Date: November 14, 2002 By: /s/ Dennis D. Schiffel ----------------- ---------------------------------- Dennis D. Schiffel Senior Vice President Chief Financial Officer (Principal Financial Officer) Date: November 14, 2002 By: /s/ John E. Brown ----------------- ---------------------------------- John E. Brown Controller (Principal Accounting Officer) NEVADA POWER COMPANY (Registrant) Date: November 14, 2002 By: /s/ Dennis D. Schiffel ----------------- ---------------------------------- Dennis D. Schiffel Senior Vice President Chief Financial Officer (Principal Financial Officer) Date: November 14, 2002 By: /s/ John E. Brown ------------------ ---------------------------------- John E. Brown Controller (Principal Accounting Officer) SIERRA PACIFIC POWER COMPANY (Registrant) Date: November 14, 2002 By: /s/ Dennis D. Schiffel ----------------- ---------------------------------- Dennis D. Schiffel Senior Vice President Chief Financial Officer (Principal Financial Officer) Date: November 14, 2002 By: /s/ John E. Brown ------------------ ----------------------------------- John E. Brown Controller (Principal Accounting Officer) 68 QUARTERLY CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER REQUIRED BY SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002 I, Walter M. Higgins III, certify that: 1. I have reviewed the combined quarterly report on Form 10-Q of Sierra Pacific Resources, Nevada Power Company and Sierra Pacific Power Company; 2. Based on my knowledge, the combined quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the combined quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in the combined quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in the combined quarterly report; 4. The chief financial officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrants and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the combined quarterly report is being prepared; b) evaluated the effectiveness of the registrants' disclosure controls and procedures as of a date within 90 days prior to the filing date of the combined quarterly report (the "Evaluation Date"); and c) presented in the combined quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The chief financial officer and I have disclosed, based on our most recent evaluation, to the registrants' auditors and the audit committee of registrants' board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants' ability to record, process, summarize and report financial data and have identified for the registrants' auditors any material weaknesses in internal controls; and 69 b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants' internal controls; and 6. The chief financial officer and I have indicated in this combined quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. November 14, 2002 /s/ Walter M. Higgins III -------------------------------- Walter M. Higgins III Chief Executive Officer 70 QUARTERLY CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER REQUIRED BY SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002 I, Dennis Schiffel, certify that: 1. I have reviewed the combined quarterly report on Form 10-Q of Sierra Pacific Resources, Nevada Power Company and Sierra Pacific Power Company; 2. Based on my knowledge, the combined quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the combined quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in the combined quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in the combined quarterly report; 4. The chief executive officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrants and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the combined quarterly report is being prepared; b) evaluated the effectiveness of the registrants' disclosure controls and procedures as of a date within 90 days prior to the filing date of the combined quarterly report (the "Evaluation Date"); and c) presented in the combined quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The chief executive officer and I have disclosed, based on our most recent evaluation, to the registrants' auditors and the audit committee of registrants' board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants' ability to record, process, summarize and report financial data and have identified for the registrants' auditors any material weaknesses in internal controls; and 71 b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants' internal controls; and 6. The chief executive officer and I have indicated in this combined quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. November 14, 2002 /s/ Dennis Schiffel ------------------------------ Dennis Schiffel Chief Financial Officer 72 EX-4.1 3 b44528spexv4w1.txt OFFICER'S CERTIFICATE (NEVADA POWER CO.) Exhibit 4.1 NEVADA POWER COMPANY OFFICER'S CERTIFICATE October 29, 2002 I, the undersigned officer of Nevada Power Company (the "Company"), do hereby certify that I am an Authorized Officer of the Company as such term is defined in the Indenture (as defined herein). I am delivering this certificate pursuant to the authority granted in the Board Resolutions of the Company dated September 10, 2002, and Sections 1.04, 2.01, 3.01, 4.01(a) and 4.02(b)(i) of the General and Refunding Mortgage Indenture dated as of May 1, 2001, as heretofore amended and supplemented to the date hereof (as heretofore amended and supplemented, the "Indenture"), between the Company and The Bank of New York, as Trustee (the "Trustee"). Section 1(u)(xviii) of this Officer's Certificate sets forth definitions of capitalized terms used herein. Terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Indenture. Regarding the use of the terms "subordinated" and "pari passu" herein, see Section 1(u)(i)(D). Based upon the foregoing, I hereby certify on behalf of the Company as follows: 1. The terms and conditions of the Securities described in this Officer's Certificate are as follows (the lettered subdivisions set forth in this Paragraph 1 corresponding to the lettered subdivisions of Section 3.01 of the Indenture): (a) The Securities of the fifth series to be issued under the Indenture shall be designated "10 7/8% General and Refunding Mortgage Notes, Series E, due 2009" (the "Series E Notes"). (b) There shall be no limit upon the aggregate principal amount of the Series E Notes that may be authenticated and delivered under the Indenture. The Series E Notes shall be initially authenticated and delivered in the aggregate principal amount of $250,000,000. (c) Interest on the Series E Notes shall be payable to the Persons in whose names such Securities are registered at the close of business on the Regular Record Date for such interest, except as otherwise expressly provided in the form of such Securities attached hereto as Exhibit A. (d) The Series E Notes shall mature and the principal thereof shall be due and payable together with all accrued and unpaid interest thereon on October 15, 2009. (e) The Series E Notes shall bear interest as provided in the form of such Securities attached hereto as Exhibit A. (f) If a Holder of Series E Notes has given wire transfer instructions to the Company and the Paying Agent prior to the fifth day preceding the related record date (or, in the case of principal or premium, the fifth day preceding the date such principal or premium is due), the Company shall pay all principal, interest and premium and Liquidated Damages (as such term is defined herein), if any, on that Holder's Series E Notes in accordance with such instructions. The Corporate Trust Office of The Bank of New York in New York, New York shall be the place at which (i) the principal, interest and premium and Liquidated Damages, if any, on the Series E Notes shall be payable (other than payments made in accordance with the first sentence of this paragraph (f)), (ii) registration of transfer of the Series E Notes may be effected, (iii) exchanges of the Series E Notes may be effected and (iv) notices and demands to or upon the Company in respect of the Series E Notes and the Indenture may be served; and The Bank of New York shall be the Security Registrar for the Series E Notes; provided, however, that the Company reserves the right to change, by one or more Officer's Certificates, any such place or the Security Registrar; and provided, further, that the Company reserves the right to designate, by one or more Officer's Certificates, its principal office in Las Vegas, Nevada as any such place or itself as the Security Registrar; provided, however, that there shall be only a single Security Registrar for the Series E Notes. (g) Optional Redemption. (i) Optional Redemption. Except as set forth in clause (ii) of this Section 1(g), the Series E Notes shall not be redeemable at the Company's option prior to October 15, 2006. On and after October 15, 2006, the Company may redeem all or a part of the Series E Notes upon not less than 30 nor more than 60 days' notice, at the Redemption Prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, on the Series E Notes redeemed, to the applicable Redemption Date, if redeemed during the twelve-month period beginning on October 15 of the years indicated below:
Year Percentage - ---- ---------- 2006 105.438% 2007 102.719% 2008 and thereafter 100.000%
(ii) Equity Claw-back. Notwithstanding the foregoing, at any time prior to October 15, 2005, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the Series E Notes at a Redemption Price of 110.875% of the principal amount, plus accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date, with the net cash proceeds of any public or private offering of its Equity Interests (other than Disqualified Stock) or a capital contribution to the Company's equity made with net cash proceeds of an offering by Sierra Pacific Resources, provided that at least 65% of the aggregate principal amount of Series E Notes remains outstanding immediately after the occurrence of such redemption (excluding Series E Notes held by the Company and its Subsidiaries); and provided further, that any such redemption shall occur within 120 days of the date of the closing of such offering. 2 (iii) Notice of Redemption. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the Redemption Date to each Holder of Series E Notes to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a Redemption Date if the notice is issued in connection with a defeasance of the Series E Notes or a satisfaction and discharge of the Series E Notes under the Indenture. Notices of redemption may not be conditional. (iv) Selection of Series E Notes to be Redeemed. In accordance with Section 5.03 of the Indenture, the following method is provided for the selection of Series E Notes to be redeemed and these procedures shall be followed by the Security Registrar in the event of a redemption of the Series E Notes pursuant to the provisions of this Officer's Certificate. If less than all of the Series E Notes are to be redeemed at any time, the Security Registrar shall select Series E Notes for redemption as follows: (A) if the Series E Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Series E Notes are listed; or (B) if the Series E Notes are not listed on any national securities exchange, on a pro rata basis, by lot or by such method as the Trustee deems fair and appropriate. No Series E Notes of $1,000 principal amount or less can be redeemed in part. (h) Mandatory Redemption/Redemption at Option of Holders/Offers to Purchase. (i) Mandatory Redemption. (A) Except as provided in Section 1(h)(i)(B) below or Section 1(h)(ii) below, the Company is not required to make mandatory redemption or sinking fund payments with respect to the Series E Notes. (B) Upon the occurrence of the events described below in clauses (1) or (2) of this Section 1(h)(i)(B), the Company shall be required to redeem the Series E Notes immediately, at a Redemption Price equal to 100% of the aggregate principal amount of the Series E Notes plus accrued and unpaid interest and Liquidated Damages, if any, on the Series E Notes to the date of redemption, without further action or notice on the part of the Trustee or the Holders of the Series E Notes: (1) the Company or any of its Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (I) commences a voluntary case, 3 (II) consents to the entry of an order for relief against it in an involuntary case, (III) consents to the appointment of a custodian of it or for all or substantially all of its property, (IV) makes a general assignment for the benefit of its creditors, or (V) admits in writing of its inability to pay its debts generally as they become due; or (2) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (I) is for relief against the Company or any of its Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (II) appoints a custodian of the Company or any of its Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (III) orders the liquidation of the Company or any of its Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days. (ii) Redemption at the Option of the Holders. (A) Upon the occurrence of any of the following events (each a "Triggering Event"): (1) failure for 30 days to pay when due interest on, or Liquidated Damages with respect to, the Series E Notes; (2) failure to pay when due the principal of, or premium, if any, on the Series E Notes; (3) failure by the Company or any of its Restricted Subsidiaries to comply with the provisions described in Sections 1(u)(i), 1(u)(ii) or 1(u)(vi) of this 4 Officer's Certificate (under the headings "Certain Covenants and Definitions--Restricted Payments," "Certain Covenants and Definitions--Incurrence of Indebtedness and Issuance of Preferred Stock" or "Certain Covenants and Definitions--Merger, Consolidation or Sale of Assets"); (4) failure by the Company or any of its Restricted Subsidiaries for 30 days after notice to comply with the provisions described in Section 1(h)(iii) or (iv) of this Officer's Certificate (under the headings "Offer to Purchase Upon Change of Control" or "Offer to Purchase by Application of Excess Proceeds"); (5) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice to comply with any of the other agreements in this Officer's Certificate or the Series E Notes; (6) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the original issue date of the Series E Notes, if that default: (I) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (II) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $15.0 million or more; (7) failure by the Company or any of its Subsidiaries to pay final judgments aggregating in excess of $15.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; or (8) an event of default under the First Mortgage Indenture (other than any such matured event of default which (i) is of similar kind or character to the Triggering Event described in (3) or (5) above and (ii) has not resulted in the acceleration of the securities outstanding under the First Mortgage Indenture); provided, however, that, anything in this Officer's Certificate to the contrary notwithstanding, the waiver or cure of such event of default under the First Mortgage Indenture and the rescission and annulment of the consequences thereof under the First Mortgage Indenture shall 5 constitute a cure of the corresponding Triggering Event and a rescission and annulment of the consequences thereof, the Holders of Series E Notes of at least 25% in principal amount of the Series E Notes then Outstanding may deliver a notice to the Company requiring the Company to redeem the Series E Notes immediately at a Redemption Price equal to 100% of the aggregate principal amount of the Series E Notes plus accrued and unpaid interest and Liquidated Damages, if any, on the Series E Notes to the Redemption Date. (B) The Holders of a majority in aggregate principal amount of the Series E Notes then outstanding by notice to the Company and the Trustee may on behalf of the Holders of all of the Series E Notes waive any existing Triggering Event and its consequences except a continuing Triggering Event related to the payment of interest or Liquidated Damages on, or the principal of, the Series E Notes. (C) In the case of any Triggering Event occurring on or after October 15, 2006 by reason of any willful action or inaction taken or not taken by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Series E Notes pursuant to the provisions of Section 1(g)(i) of this Officer's Certificate relating to redemption at the option of the Company, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the redemption of the Series E Notes at the option of the Holders thereof. If a Triggering Event occurs prior to October 15, 2006, by reason of any willful action or inaction taken or not taken by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Series E Notes prior to October 15, 2006, then the premium specified in Section 1(g)(i) of this Officer's Certificate shall also become immediately due and payable to the extent permitted by law upon the redemption of the Series E Notes at the option of the Holders thereof. (D) Upon becoming aware of any Triggering Event, the Company shall deliver to the Trustee a statement specifying such Triggering Event. (iii) Offer to Purchase Upon Change of Control. (A) Upon the occurrence of a Change of Control, each Holder of Series E Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that Holder's Series E Notes pursuant to the offer described below (the "Change of Control Offer") on the terms set forth in this Officer's Certificate. In the Change of Control Offer, the Company shall offer an amount in cash (the "Change of Control Payment") equal to 101% of the aggregate principal amount of Series E Notes repurchased plus accrued and unpaid interest and Liquidated Damages, if any, on the Series E Notes repurchased, to Change of Control Payment Date (as defined below). (B) Within ten days following any Change of Control, the Company shall mail a notice to each Holder of Series E Notes stating: 6 (1) the description of the transaction or transactions that constitute the Change of Control, that the Change of Control Offer is being made pursuant to this Section 1(h)(iii), and that all Series E Notes validly tendered and not withdrawn shall be accepted for payment; (2) the purchase price and the purchase date, which shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); (3) that any Series E Note not tendered or accepted for payment shall continue to accrue interest and Liquidated Damages, if any; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Series E Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest and Liquidated Damages, if any, after the Change of Control Payment Date; (5) that Holders of Series E Notes electing to have any Series E Notes purchased pursuant to a Change of Control Offer shall be required to surrender the Series E Notes properly endorsed, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Series E Notes properly completed, together with other customary documents as the Company may reasonably request, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (6) that Holders of Series E Notes shall be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Series E Notes delivered for purchase, and a statement that such Holder of Series E Notes is withdrawing its election to have the Series E Notes purchased; and (7) that Holders of Series E Notes whose Series E Notes are being purchased only in part shall be issued new Series E Notes equal in principal amount to the unpurchased portion of the Series E Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. (C) If any of the Series E Notes subject to a Change of Control Offer are in the form of a Global Note, then the Company shall modify such notice to the extent necessary to accord with the Applicable Procedures of the Depositary applicable to offers to purchase. (D) On the Change of Control Payment Date, the Company shall, to the extent lawful, (1) accept for payment all Series E Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent in 7 immediately available funds an amount equal to the Change of Control Payment in respect of all Series E Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Series E Notes so accepted together with an Officer's Certificate stating the aggregate principal amount of Series E Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Series E Notes so tendered the Change of Control Payment for such Series E Notes, and the Trustee shall promptly authenticate and make available for delivery to each Holder of Series E Notes a new Series E Note equal in principal amount to any unpurchased portion of the Series E Notes surrendered, if any; provided that each such new Series E Note shall be in a principal amount of $1,000 or an integral multiple thereof. Any Series E Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (E) The Change of Control provisions described above that require the Company to make a Change of Control Offer following a Change of Control shall be applicable whether or not any other provisions of this Officer's Certificate are applicable. (F) The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth herein applicable to a Change of Control Offer made by the Company and purchases all Series E Notes validly tendered and not withdrawn under such Change of Control Offer. (iv) Offer to Purchase by Application of Excess Proceeds. (A) In the event that, pursuant to Section 1(u)(v)(D) of this Officer's Certificate (under the heading "Certain Covenants and Definitions--Asset Sales"), the Company shall be required to commence an Asset Sale Offer, it shall make an offer (an "Asset Sale Offer") to all Holders of Series E Notes, and all holders of other Indebtedness that is pari passu with the Series E Notes containing provisions similar to those set forth in this Officer's Certificate with respect to offers to purchase or redeem with the proceeds of sales of assets, to purchase the maximum principal amount of the Series E Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer shall be equal to 100% of principal amount plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, and shall be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess Proceeds for any purpose not otherwise prohibited by this Officer's Certificate. If the aggregate principal amount of Series E Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the Series E Notes and such other pari passu Indebtedness to be purchased on a pro rata basis. The Company shall advise the Trustee of such other pari passu Indebtedness and the Trustee shall have no duty or responsibility to determine the accuracy or correctness of such advice and shall be fully protected in relying on such advice. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. 8 (B) Any Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Series E Notes required to be purchased pursuant to paragraph (A) above (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Series E Notes validly tendered in response to the Asset Sale Offer. (C) Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to each of the Holders of Series E Notes, with a copy to the Trustee, stating: (1) that the Asset Sale Offer is being made pursuant to this Section 1(h)(iv) and Section 1(u)(v) of this Officer's Certificate (under the heading "Certain Covenants and Definitions--Asset Sales") and the length of time the Asset Sale Offer shall remain open; (2) the Offer Amount, the purchase price and the Purchase Date; (3) that any Series E Note not tendered or accepted for payment shall continue to accrue interest and Liquidated Damages, if any; (4) that, unless the Company defaults in making such payment, any Series E Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest and Liquidated Damages, if any, after the Purchase Date; (5) that Holders of Series E Notes electing to have a Series E Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Series E Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Series E Note properly completed, together with other customary documents as the Company may reasonably request, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Purchase Date; (6) that Holders of Series E Notes shall be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Series E Notes delivered for purchase, and a statement that such Holder of Series E Notes is withdrawing its election to have the Series E Notes purchased; (7) that, if the aggregate principal amount of Series E Notes surrendered by Holders of Series E Notes exceeds the Offer Amount, the Trustee shall select the Series E Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Trustee so that only Series E Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and 9 (8) that Holders of Series E Notes whose Series E Notes are being purchased only in part shall be issued new Series E Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. (D) If any of the Series E Notes subject to an Asset Sale Offer is in the form of a Global Note, then the Company shall modify such notice to the extent necessary to accord with the Applicable Procedures of the Depositary applicable to offers to purchase. (E) On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Series E Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Series E Notes tendered, and shall deliver to the Trustee an officer's certificate stating that such Series E Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 1(h)(iv). The Paying Agent shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder of Series E Notes an amount equal to the purchase price of the Series E Notes tendered by such Holder of Series E Notes and accepted by the Company for purchase, and the Company shall promptly issue a new Series E Note, and the Trustee, upon written request from the Company, shall authenticate and make available for delivery such new Series E Note to such Holder of Series E Notes, in a principal amount equal to any unpurchased portion of the Series E Note surrendered; provided that each such new Series E Note shall be in a principal amount of $1,000 or an integral multiple thereof. Any Series E Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. (F) The provisions of this Section 1(h)(iv)("Offer to Purchase by Application of Excess Proceeds") is subject to the provisions of Section 1(u)(xiv)("Certain Covenants and Definitions--Suspension of Certain Covenants"). (v) Offers to Purchase - General. (A) If the Change of Control Payment Date or Purchase Date is on or after a Regular Record Date and on or before the related Interest Payment Date, any accrued and unpaid interest and Liquidated Damages, if any, shall be paid to the Person in whose name a Series E Note is registered at the close of business on such Regular Record Date, and no additional interest or Liquidated Damages shall be payable to Holders of Series E Notes who tender Series E Notes pursuant to the Change of Control Offer or the Asset Sale Offer. (B) The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with a Change of Control Offer or an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations 10 conflict with the Change of Control Offer or Asset Sale Offer provisions of this Officer's Certificate, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the Change of Control Offer or Asset Sale Offer provisions of this Officer's Certificate by virtue of such conflict. (i) The Series E Notes are issuable only in denominations of $1,000 and integral multiples of $1,000 in excess thereof. (j) Not applicable. (k) Not applicable. (l) Not applicable. (m) See subsection (e) above. (n) Not applicable. (o) Not applicable. (p) Not applicable. (q) Book-entry; Delivery and Form. (i) Form and Dating. The Series E Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Series E Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Series E Note shall be dated the date of its authentication. The Series E Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Series E Notes shall constitute, and are hereby expressly made, a part of this Officer's Certificate, and the Company, by its execution and delivery of this Officer's Certificate, expressly agrees to such terms and provisions and to be bound thereby. However, to the extent any provision of any Series E Note conflicts with the express provisions of this Officer's Certificate or the Indenture, the provisions of this Officer's Certificate or the Indenture, as applicable, shall govern and be controlling. Series E Notes issued in global form shall be substantially in the form of Exhibit A attached hereto (including the Global Note Legend and the "Schedule of Exchanges in the Global Note" attached thereto). Series E Notes issued in definitive form shall be substantially in the form of Exhibit A attached hereto (but without the Global Note Legend and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such aggregate principal amount of the outstanding Series E Notes as shall be specified therein and each shall provide that it 11 shall represent the aggregate principal amount of outstanding Series E Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Series E Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Series E Notes represented thereby shall be made by the Trustee, the Depositary or the Note Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 1(q)(v) of this Officer's Certificate. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Clearstream Bank" and "Customer Handbook" of Clearstream shall be applicable to transfers of beneficial interests in the Regulation S Global Notes that are held by members of, or Participants, in DTC through Euroclear or Clearstream. (ii) Authentication. The Trustee or an Authenticating Agent shall authenticate by delivery and execution of a Trustee's Certificate of Authentication in the form set forth in Section 2.02 of the Indenture (A) the Series E Notes for original issue on the Issue Date in the aggregate principal amount of $250,000,000 (the "Original Notes"), (B) additional Series E Notes for original issue from time to time after the Issue Date in such principal amounts as may be set forth in a Company Order (such additional Series E Notes, together with the Original Notes, the "Initial Notes") and (C) any Exchange Notes from time to time for issue only in exchange for a like principal amount of Initial Notes, in each case, upon a Company Order, which Company Order shall specify (x) the amount of Series E Notes to be authenticated and the date of original issue thereof, (y) whether the Series E Notes are Initial Notes or Exchange Notes and (z) the amount of Series E Notes to be issued in global form or definitive form. The aggregate principal amount of Series E Notes outstanding at any time may not exceed $250,000,000 plus such additional principal amounts as may be issued and authenticated pursuant to clause (B) of this paragraph, except as provided in Section 1(q)(vii) of this Officer's Certificate. (iii) Security Registrar, Paying Agent and Depositary. The Company initially appoints the Trustee to act as the Security Registrar and Paying Agent for the Series E Notes. Upon the occurrence of a Triggering Event set forth under Sections 1(h)(i)(B)(1) or 1(h)(i)(B)(2) herein or an Event of Default set forth in Sections 10.01(d) or 10.01(e) of the Indenture, the Trustee shall serve as Paying Agent for the Series E Notes. The Company shall maintain a Place of Payment for the Series E Notes within the City and State of New York pursuant to Section 6.02 of the Indenture. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Trustee has been appointed by DTC to act as Note Custodian with respect to the Global Notes. (iv) Liquidated Damages, if any, to be Held in Trust. 12 Payments of Liquidated Damages, if any, shall be subject to the provisions of Section 6.03 of the Indenture to the same extent as any payments of principal of or premium or interest on the Series E Notes. (v) Transfer and Exchange. (A) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes shall be exchanged by the Company for Definitive Notes if: (1) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary for the Global Notes or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 90 days after the date of such notice from the Depositary or (2) the Company in its sole discretion notifies the Trustee in writing that it elects to cause issuance of the Series E Notes in certificated form. Upon the occurrence of either of the preceding events in (1) or (2) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 3.06 and 3.09 of the Indenture. Every Series E Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to Sections 3.06 and 3.09 of the Indenture, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Series E Note other than as provided in this Section 1(q)(v)(A), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 1(q)(v)(B), (C) or (F) of this Officer's Certificate. (B) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Officer's Certificate and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (1) or (2) below, as applicable, as well as one or more of the other following subparagraphs as applicable: (1) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same 13 Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period transfers of beneficial interests in the Regulation S Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interests in any Unrestricted Global Note may be transferred only to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Security Registrar to effect the transfers described in this Section 1(q)(v)(B)(1). (2) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests (other than a transfer of a beneficial interest in a Global Note to a Person who takes delivery thereof in the form of a beneficial interest in the same Global Note), the transferor of such beneficial interest must deliver to the Security Registrar either: (a) both (i) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (ii) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (b) both (i) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (ii) instructions given by the Depositary to the Security Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (i) above. Upon an Exchange Offer by the Company in accordance with Section 1(q)(v)(F) of this Officer's Certificate, the requirements of this Section 1(q)(v)(B)(2) shall be deemed to have been satisfied upon receipt by the Security Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon notification from the Security Registrar that all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Officer's Certificate, the Series E Notes and otherwise applicable under the Securities Act have been satisfied, the Trustee shall adjust the principal amount of the relevant Global Notes pursuant to Section 1(q)(v)(H) of this Officer's Certificate. 14 (3) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of clause (2) above and the Security Registrar receives the following: (a) if the transferee shall take delivery in the form of a beneficial interest in the Rule 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in Item (1) thereof; or (b) if the transferee shall take delivery in the form of a beneficial interest in the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in Item (2) thereof. (4) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in the Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of clause (2) above and: (a) such exchange or transfer is effected pursuant to an Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, is not (i) a broker-dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (b) any such transfer is effected pursuant to a Shelf Registration Statement in accordance with the Registration Rights Agreement; (c) any such transfer is effected by a Broker-Dealer pursuant to an Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (d) the Security Registrar receives the following: (i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in Item (1)(a) thereof; or 15 (ii) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in Item (4) thereof; and, in each such case set forth in this subparagraph (d), an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (b) or (d) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an authentication order in accordance with Section 1(q)(ii) of this Officer's Certificate, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of beneficial interests transferred pursuant to subparagraph (b) or (d) above. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note. (C) Transfer or Exchange of Beneficial Interests for Definitive Notes. (1) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon receipt by the Security Registrar of the following documentation: (a) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in Item (2)(a) thereof; (b) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (1) thereof; (c) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (2) thereof; (d) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in 16 accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (3)(a) thereof; (e) if such beneficial interest is being transferred to an Institutional Accredited Investor or in reliance on any other exemption from the registration requirements of the Securities Act, in either case other than those listed in subparagraphs (b) through (d) above, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and any Opinion of Counsel required by Item (3) thereof, if applicable; (f) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (3)(b) thereof; or (g) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (3)(c) thereof, the Trustee, upon notice of receipt of such documentation by the Security Registrar, shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 1(q)(v)(H) of this Officer's Certificate, and the Company shall execute and the Trustee shall authenticate and make available for delivery to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 1(q)(v)(C) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Security Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall make available for delivery such Definitive Notes to the Persons in whose names such Series E Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 1(q)(v)(C)(1) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. Notwithstanding Sections 1(q)(v)(C)(1)(a) and (c) hereof, a beneficial interest in the Regulation S Global Note may not be (a) exchanged for a Definitive Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Security Registrar of any certificates required pursuant to Rule 903(c)(3)(B) under the Securities Act or (b) transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to the conditions set forth in clause (a) above or unless the transfer is pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (2) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. Notwithstanding Section 1(q)(v)(C)(1) hereof, a holder of a 17 beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if: (a) such exchange or transfer is effected pursuant to an Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, is not (i) a broker-dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (b) any such transfer is effected pursuant to a Shelf Registration Statement in accordance with the Registration Rights Agreement; (c) any such transfer is effected by a Broker- Dealer pursuant to an Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (d) the Security Registrar receives the following: (i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C hereto, including the certifications in Item (1)(b) thereof; or (ii) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit B hereto, including the certifications in Item (4) thereof; and, in each such case set forth in this subparagraph (d), an Opinion of Counsel in form reasonably acceptable to the Company, to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act. (3) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon notice by the Security Registrar of satisfaction of the conditions set forth in Section 1(q)(v)(B)(2) of this Officer's Certificate, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 1(q)(v)(H) of this Officer's Certificate, and the Company shall execute and the Trustee shall authenticate and 18 make available for delivery to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 1(q)(v)(C)(3) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Security Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall make available for delivery such Definitive Notes to the Persons in whose names such Series E Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 1(q)(v)(C)(3) shall not bear the Private Placement Legend. A beneficial interest in an Unrestricted Global Note cannot be exchanged for a Definitive Note bearing the Private Placement Legend or transferred to a Person who takes delivery thereof in the form of a Definitive Note bearing the Private Placement Legend. (D) Transfer and Exchange of Definitive Notes for Beneficial Interests. (1) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Series E Note for a beneficial interest in a Restricted Global Note or to transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Security Registrar of the following documentation: (a) if the Holder of such Restricted Definitive Note proposes to exchange such Series E Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in Item (2)(b) thereof; (b) if such Definitive Note is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (1) thereof; (c) if such Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (2) thereof; (d) if such Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (3)(a) thereof; (e) if such Definitive Note is being transferred to an Institutional Accredited Investor or in reliance on any other exemption 19 from the registration requirements of the Securities Act, in either case, other than those listed in subparagraphs (b) through (d) above, a certificate in the form of Exhibit B hereto, including certifications, certificates, and any Opinion of Counsel required by Item (3) thereof, if applicable; (f) if such Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (3)(b) thereof; or (g) if such Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (3)(c) thereof, the Trustee, upon notice of receipt of such documentation by the Security Registrar, shall cancel the Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of subparagraph (a) above, the appropriate Restricted Global Note and, in the case of subparagraph (b) above, the Rule 144A Global Note, and, in the case of subparagraph (c) above, the Regulation S Global Note. (2) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange such Series E Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: (a) such exchange or transfer is effected pursuant to an Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, is not (i) a broker-dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (b) any such transfer is effected pursuant to a Shelf Registration Statement in accordance with the Registration Rights Agreement; (c) any such transfer is effected by a Broker-Dealer pursuant to an Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (d) the Security Registrar receives the following: (i) if the Holder of such Definitive Notes proposes to exchange such Series E Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in Item (1)(c) thereof; or 20 (ii) if the Holder of such Definitive Notes proposes to transfer such Series E Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in Item (4) thereof; and, in each such case set forth in this subparagraph (d), an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act, that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act, and such Definitive Notes are being exchanged or transferred in compliance with any applicable blue sky securities laws of any State of the United States. Upon satisfaction of the conditions of any of the subparagraphs in this Section 1(q)(v)(D)(2), the Trustee shall cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. (3) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Series E Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to Sections 1(q)(v)(D)(2)(b) or (d) or the first paragraph of this Section 1(q)(v)(D)(3) at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an authentication order in accordance with Section 1(q)(ii) of this Officer's Certificate, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of beneficial interests transferred pursuant to Sections 1(q)(v)(D)(2)(b) or (d) or the first paragraph of this Section 1(q)(v)(D)(3). (E) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 1(q)(v)(E), the Security Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Security Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Security Registrar duly executed by such Holder or by his attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, pursuant to the provisions of this Section 1(q)(v)(E). 21 (1) Restricted Definitive Notes to Restricted Definitive Notes. Restricted Definitive Notes may be transferred to and registered in the name of Persons who take delivery thereof if the Security Registrar receives the following: (a) if the transfer shall be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in Item (1) thereof; (b) if the transfer shall be made pursuant to Rule 903 or Rule 904 of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in Item (2) thereof; and (c) if the transfer shall be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by Item (3) thereof, if applicable. (2) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (a) such exchange or transfer is effected pursuant to an Exchange Offer in accordance with the Registration Rights Agreement and the Holder of such Series E Notes, in the case of an exchange, or the transferee, in the case of a transfer, is not (i) a broker-dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (b) any such transfer is effected pursuant to a Shelf Registration Statement in accordance with the Registration Rights Agreement; (c) any such transfer is effected by a Broker-Dealer pursuant to an Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (d) the Security Registrar receives the following: (i) if the Holder of such Restricted Definitive Notes proposes to exchange such Series E Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in Item (1)(b) thereof; or (ii) if the Holder of such Restricted Definitive Notes proposes to transfer such Series E Notes to a Person who shall take delivery thereof in the form of an 22 Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in Item (4) thereof; and, in each such case set forth in this subparagraph (d), an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act, that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act, and such Restricted Definitive Note is being exchanged or transferred in compliance with any applicable blue sky securities laws of any State of the United States. (3) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Series E Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request for such a transfer, the Security Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. Unrestricted Definitive Notes cannot be exchanged for or transferred to Persons who take delivery thereof in the form of a Restricted Definitive Note. (F) Exchange Offer. Upon the occurrence of an Exchange Offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of (a) an authentication order in accordance with Section 1(q)(ii) of this Officer's Certificate and (b) an Opinion of Counsel opining as to the enforceability of the Exchange Notes and the guarantees thereof, if any, the Trustee shall authenticate (1) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes tendered for acceptance by Persons that are not (i) broker-dealers, (ii) Persons participating in the distribution of the Exchange Notes or (iii) Persons who are affiliates (as defined in Rule 144) of the Company and accepted for exchange in such Exchange Offer and (2) Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in such Exchange Offer, unless the Holders of such Restricted Definitive Notes shall request the receipt of Definitive Notes, in which case the Company shall execute and the Trustee shall authenticate and deliver to the Persons designated by the Holders of such Restricted Definitive Notes one or more Definitive Notes without the Private Placement Legend in the appropriate principal amount. Concurrent with the issuance of such Unrestricted Global Notes, the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall authenticate and make available for delivery to the Persons designated by the Holders of Definitive Notes so accepted Definitive Notes in the appropriate principal amount. (G) Legends. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Officer's Certificate. (1) Private Placement Legend. 23 (a) Except as permitted by subparagraph (b) below, each Global Note and each Definitive Note (and all Series E Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR OTHER SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING ITS NOTE IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT SHALL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS NOTE) OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A INSIDE THE UNITED STATES, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE TRUSTEE AND THE SECURITY REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/ OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND 24 (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS NOTE IS COMPLETED AND DELIVERED BY THIS TRANSFEROR TO THE TRUSTEE. THIS LEGEND SHALL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT." (b) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraph (B)(4), (C)(2), (D)(2), (D)(3), (E)(2), (E)(3) or (F) of this Section 1(q)(v) (and all Series E Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend. (2) Global Note Legend. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE OFFICER'S CERTIFICATE UNDER THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO ARTICLE III OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 1(q)(v)(A) OF THE OFFICER'S CERTIFICATE UNDER THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 3.09 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY OR ANY SUCCESSOR THERETO." Additionally, for so long as DTC is the Depositary with respect to any Global Note, each such Global Note shall also bear a legend in substantially the following form: "UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AS DEFINED IN THE OFFICER'S CERTIFICATE UNDER THE INDENTURE GOVERNING THIS NOTE), TO THE COMPANY OR ANY SUCCESSOR THERETO OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN." 25 (H) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 3.09 of the Indenture. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who shall take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Series E Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note, by the Trustee, the Note Custodian or the Depositary at the direction of the Trustee, to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who shall take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note, by the Trustee, the Note Custodian or by the Depositary at the direction of the Trustee, to reflect such increase. (I) General Provisions Relating to Transfers and Exchanges. (1) To permit registrations of transfers and exchanges, subject to Section 1(q)(v) of this Officer's Certificate, the Company shall execute and, upon the Company's order, the Trustee or an Authenticating Agent shall authenticate Global Notes and Definitive Notes at the Security Registrar's request. (2) All certifications, certificates and Opinions of Counsel required to be submitted to the Security Registrar pursuant to this Section 1(q)(v) to effect a transfer or exchange may be submitted by facsimile. (3) The Trustee and the Security Registrar shall have no obligation or duty to monitor, determine or inquire as to whether any Person is or is not a Person described in clauses (i), (ii) and (iii) of each of Sections 1(q)(v)(B)(4)(a), 1(q)(v)(C)(2)(a), 1(q)(v)(D)(2)(a), 1(q)(v)(E)(2)(a) and 1(q)(v)(F) of this Officer's Certificate or under applicable law (other than the Trust Indenture Act) with respect to any transfer of any interest in any Series E Note (including any transfers between or among Participants or beneficial owners of interests in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. (vi) Outstanding Series E Notes. Notwithstanding the definition of "Outstanding" in Section 1.01 of the Indenture, Series E Notes that the Company, a Subsidiary of the Company or an Affiliate of the Company offers to purchase or acquires pursuant to an offer, exchange offer, tender offer or otherwise shall not be deemed to be owned by the Company, such Subsidiary or such Affiliate until legal title to such Series E Notes passes to the Company, such Subsidiary or such Affiliate, as the case may be. 26 (r) Not applicable. (s) The Series E Notes have not been registered under the Securities Act and may not be offered, sold or otherwise transferred in the absence of such registration or an applicable exemption therefrom. No service charge shall be made for the registration of transfer or exchange of the Series E Notes; provided, however, that the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection with the exchange or transfer (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 1.06(f), 3.04, 5.06 or 14.06 of the Indenture and Sections 1(h)(iii) and 1(h)(iv) of this Officer's Certificate not involving any transfer). (t) For purposes of the Series E Notes, "Business Day" shall mean any day, other than Saturday or Sunday, on which commercial banks are open for business, including dealings in deposits in U.S. dollars, in New York. (u) Certain Covenants and Definitions. (i) Restricted Payments. (A) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company) or to the Company or a Restricted Subsidiary of the Company; (2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Series E Notes, except a payment of interest or principal at the Stated Maturity thereof; or (4) make any Restricted Investment (all such payments and other actions set forth in these clauses (1) through (4) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: 27 (1) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment; and (2) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 1(u)(ii)(A) of this Officer's Certificate (under the heading "Incurrence of Indebtedness and Issuance of Preferred Stock"); and (3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the original issue date of the Series E Notes (excluding Restricted Payments permitted by clauses 1(u)(i)(B)(2), 1(u)(i)(B)(3) and 1(u)(i)(B)(4)), is less than the sum, without duplication, of: (a) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the original issue date of the Series E Notes to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (b) 100% of the aggregate net cash proceeds received by the Company (including the fair market value of any Permitted Business or assets used or useful in a Permitted Business to the extent acquired in consideration of Equity Interests (other than Disqualified Stock) of the Company) since the original issue date of the Series E Notes as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock and other than sales to a Restricted Subsidiary of the Company) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Disqualified Stock or debt securities sold to a Subsidiary of the Company), plus (c) to the extent that any Restricted Investment that was made after the original issue date of the Series E Notes is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment, plus 28 (d) to the extent that any Unrestricted Subsidiary of the Company is redesignated as a Restricted Subsidiary after the original issue date of the Series E Notes, the lesser of (i) the fair market value of the Company's Investment in such Subsidiary as of the date of such redesignation and (ii) the fair market value of the Company's Investment in such Subsidiary as of the date on which such Subsidiary was originally designated as an Unrestricted Subsidiary. (B) Notwithstanding the foregoing, this Section 1(u)(i) shall not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of the dividend, if at the date of declaration the dividend payment would have complied with the provisions of this Officer's Certificate; (2) the redemption, repurchase, retirement, defeasance or other acquisition of Indebtedness of the Company or any Subsidiary Guarantor that is subordinate or junior in right of payment or of any Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause 1(u)(i)(A)(3)(b); (3) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness of the Company with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (4) the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its Equity Interests on a pro rata basis; (5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any member of the Company's (or any of its Restricted Subsidiaries') management pursuant to any management equity subscription agreement, stock option agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $1.5 million in any twelve-month period; (6) the payment of any distribution by a Trust Preferred Vehicle to holders of such trust's preferred beneficial interests, to the extent such distribution does not exceed the amount that is contemporaneously received by such trust as a payment of interest at its Stated Maturity on the subordinated Indebtedness of the Company held by such trust; (7) payments to Sierra Pacific Resources to enable Sierra Pacific Resources to pay its reasonable fees and expenses (including but not limited to, interest 29 on Sierra Pacific Resources' Indebtedness and payment obligations on account of Sierra Pacific's' Premium Income Equity Securities) incurred in the ordinary course of business, which fees and expenses shall not be greater than $60.0 million for any one calendar year; provided that (a) any such payment complies with any regulatory restrictions then applicable to the Company and (b) the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which any such payment is made was at least 1.75 to 1; and (8) other Restricted Payments in an aggregate amount since the original issue date of the Series E Notes not to exceed $15.0 million; provided that, with respect to clauses (2), (3), (5), (7) and (8) above, no Default or Event of Default shall have occurred and be continuing immediately after such transaction. (C) The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee. The Board of Directors' determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the fair market value exceeds $15.0 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officer's Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 1(u)(i) ("Restricted Payments") were computed, together with a copy of any fairness opinion or appraisal required under this Officer's Certificate. The Trustee shall have no duty or responsibility to determine the accuracy or correctness of this calculation and shall be fully protected in relying on such Officer's Certificate. The Trustee shall make such fairness opinion available for inspection by Holders of Series E Notes upon reasonably prior written request during regular business hours. (D) For purpose of clarification of the terms "subordinated" and "pari passu" as used in this Officer's Certificate, no Indebtedness of the Company shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Company solely by virtue of being secured on a junior basis or by virtue of being unsecured. All Indebtedness that is not subordinated Indebtedness shall be pari passu to the Series E Notes. (E) The provisions of this Section 1(u)(i)("Restricted Payments") is subject to the provisions of Section 1(u)(xiv)("Certain Covenants and Definitions--Suspension of Certain Covenants"). 30 (ii) Incurrence of Indebtedness and Issuance of Preferred Stock. (A) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the Company shall not issue any Disqualified Stock and shall not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, and its Subsidiary Guarantors may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. (B) Notwithstanding the foregoing, this Section 1(u)(ii) shall not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (1) the incurrence by the Company pursuant to this clause (1) of additional Indebtedness and letters of credit under one or more Credit Facilities (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company thereunder), together with the principal component of amounts outstanding under Qualified Receivables Transactions, in an aggregate amount up to $250.0 million at any time outstanding; (2) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (3) the incurrence by the Company of Indebtedness represented by the Series E Notes to be issued on the original issue date of the Series E Notes (and the related Exchange Notes to be issued pursuant to the Registration Rights Agreement) and the incurrence by any Subsidiary Guarantor of a Subsidiary Guarantee of those Series E Notes (and the related Exchange Notes); (4) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Subsidiary Guarantor, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred 31 pursuant to this clause (4), not to exceed $10.0 million at any time outstanding; (5) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was incurred under Section 1(u)(ii)(A) or clauses (2), (3)(5) or (12) of this Section 1(u)(ii)(B); (6) the incurrence by the Company or any of its Restricted Subsidiaries (other than a Receivables Entity) of intercompany Indebtedness between or among the Company or any of its Restricted Subsidiaries (other than a Receivables Entity); provided, however, that: (a) if the Company is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Series E Notes; (b) if a Subsidiary Guarantor is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of such Subsidiary Guarantor's Subsidiary Guarantee; and (c) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6); (7) the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations; (8) the guarantee by the Company or any Restricted Subsidiary of Indebtedness of the Company or any Restricted Subsidiary that was permitted to be incurred by another provision of this Section 1(u)(ii) ("Incurrence of Indebtedness and Issuance of Preferred Stock"); (9) the accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of such Disqualified Stock shall not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this Section 1(u)(ii) ("Incurrence of Indebtedness and Issuance of Preferred Stock"); provided, in each such case, that the amount thereof is included in the Fixed Charges of the Company as accrued; 32 (10) Indebtedness in respect of bid, performance or surety bonds issued for the account of the Company or any Restricted Subsidiary thereof in the ordinary course of business, including guarantees or obligations of the Company or any Restricted Subsidiary thereof with respect to letters of credit supporting such bid, performance or surety obligations (in each case other than for an obligation for money borrowed); (11) the incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse Debt; provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the Company that was not permitted by this clause (11); (12) the incurrence by the Company of additional Indebtedness consisting of securities issued pursuant to the Indenture in respect of claims relating to the Company's obligations pursuant to agreements with gas, electric power and other energy suppliers that have been terminated as of the original issue date of the Series E Notes; (13) the incurrence by the Company or any Restricted Subsidiary of additional Indebtedness consisting of letters of credit for purposes of supporting the Company's or any Restricted Subsidiary's obligations now or hereafter owing to gas, electric power or other energy suppliers, not to exceed $10.0 million at any time outstanding; (14) the issuance by the Company of up to $125 million of Securities issued pursuant to the Indenture in connection with a Qualified Receivables Transaction; (15) the issuance by a Receivables Entity of a Purchase Money Note in connection with a Qualified Receivables Transaction; and (16) the incurrence by the Company or any Restricted Subsidiary of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable), including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (16), not to exceed $30.0 million at any time outstanding. (C) Notwithstanding the foregoing, the Company shall not issue any additional First Mortgage Bonds, except as necessary to replace any mutilated, lost or destroyed First Mortgage Bonds or to effect exchanges and transfers of First Mortgage Bonds. (D) The Company shall not incur any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Company unless such Indebtedness is also contractually subordinated in right of payment to the Series E Notes on substantially identical terms; provided, however, that no Indebtedness of the Company shall be deemed to be contractually subordinated in right of 33 payment to any other Indebtedness of the Company solely by virtue of being secured on a junior basis or by virtue of being unsecured. (E) For purposes of determining compliance with this Section 1(u) (ii) ("Incurrence of Indebtedness and Issuance of Preferred Stock"): (1) in the event that an item of proposed Indebtedness, including Acquired Debt, meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (16) above, or is entitled to be incurred pursuant to the first paragraph of this Section 1(u)(ii), the Company shall be permitted to classify (or later classify or reclassify such Indebtedness, in whole or in part in its sole discretion) such item of Indebtedness in any manner that complies with this Section 1(u)(ii); and (2) for the purposes of determining compliance with any dollar-denominated restriction on the incurrence of Indebtedness denominated in a foreign currency, the dollar-equivalent principal amount of such Indebtedness incurred pursuant thereto shall be calculated based on the relevant currency exchange rate in effect on the date that such Indebtedness was incurred. (F) The provisions of this Section 1(u)(ii)("Incurrence of Indebtedness and Issuance of Preferred Stock") is subject to the provisions of Section 1(u)(xiv)("Certain Covenants and Definitions--Suspension of Certain Covenants"). (iii) Series E Liens. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or otherwise cause or suffer to exist or become effective any Series E Lien of any kind securing Indebtedness, Attributable Debt or trade payables on any of their property or assets, now owned or hereafter acquired, except Series E Permitted Liens. (iv) Dividend and Other Payment Restrictions Affecting Subsidiaries. (A) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to the Company or any of its Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries; (2) make loans or advances to Company or any of its Restricted Subsidiaries; or 34 (3) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. (B) Notwithstanding the foregoing, this Section (1)(u)(iv) shall not apply to encumbrances or restrictions existing under or by reason of: (1) agreements governing Existing Indebtedness and Credit Facilities or Qualified Receivables Transactions as in effect on the original issue date of the Series E Notes and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements, provided that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the original issue date of the Series E Notes; (2) the Indenture, this Officer's Certificate and the Series E Notes; (3) applicable law; (4) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Officer's Certificate to be incurred; (5) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices; (6) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on that property of the nature described in clause 1(u)(iv)(A)(3); (7) any Purchase Money Note or other Indebtedness or contractual requirements incurred with respect to a Qualified Receivables Transaction relating exclusively to a Receivables Entity that, in the good faith determination of the Board of Directors, are necessary to effect such Qualified Receivables Transaction; (8) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions or dispositions of assets by that Restricted Subsidiary pending its sale or other disposition; 35 (9) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (10) Series E Liens securing Indebtedness otherwise permitted to be incurred under the provisions of Section 1(u)(iii) of this Officer's Certificate ("Series E Liens") that limit the right of the debtor to dispose of the assets subject to such Series E Liens; and (11) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business. (C) The provisions of this Section 1(u)(iv)("Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries") is subject to the provisions of Section 1(u)(xiv)("Certain Covenants and Definitions--Suspension of Certain Covenants"). (v) Asset Sales. (A) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: (1) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of; (2) the fair market value is determined by the Board of Directors and evidenced by a resolution of the Board of Directors set forth in an Officer's Certificate delivered to the Trustee; and (3) at least 75% of the consideration received in the Asset Sale by the Company or such Restricted Subsidiary is in the form of cash. For purposes of this provision, each of the following shall be deemed to be cash: (a) any liabilities, as shown on the Company's or such Restricted Subsidiary's most recent balance sheet, of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the notes) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability; and (b) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are 36 contemporaneously, subject to ordinary settlement periods, converted by the Company or such Restricted Subsidiary into cash, to the extent of the cash received in that conversion. (B) Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply those Net Proceeds at its option: (1) to repay senior secured Indebtedness of the Company; (2) to acquire all or substantially all of the assets of, or a majority of the Voting Stock of, another Permitted Business; (3) to make a capital expenditure; or (4) to acquire other long-term assets that are used or useful in a Permitted Business. (C) Pending the final application of any Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by this Officer's Certificate. (D) Any Net Proceeds from Asset Sales that are not applied or invested as provided in Section 1(u)(v)(B) shall constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $25.0 million, the Company shall make an Asset Sale Offer pursuant to the provisions of Section 1(h)(iv) of this Officer's Certificate. (E) To the extent that any Asset Sale constitutes the sale, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole, such transaction shall be governed by the provisions of this Officer's Certificate in Sections (1)(h)(iii) and (1)(u)(vi) (under the heading "Offer to Repurchase Upon a Change of Control" and the heading "Certain Covenants and Definitions--Merger, Consolidation or Sale of Assets") and not by the provisions of this Section 1(u)(v) or Section 1(h)(iv) of this Officer's Certificate. (vi) Merger, Consolidation or Sale of Assets. (A) The Company shall not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person; unless: (1) either: (a) the Company is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a corporation organized or existing under the laws of the United States, any state of the United States or the District of Columbia; 37 (2) (a) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of the Company under the Series E Notes, the Indenture and the Registration Rights Agreement pursuant to agreements reasonably satisfactory to the Trustee; and (b) such Person executes and delivers to the Trustee a supplemental indenture that contains a grant, conveyance, transfer and mortgage by such Person confirming the lien of the Indenture on the property subject to such lien and subjecting to such lien all property thereafter acquired by such Person that shall constitute an improvement, extension or addition to the property subject to the lien of the Indenture or renewal, replacement or substitution of or for any part thereof and, at the election of such Person, subjecting to the lien of the Indenture such other property then owned or thereafter acquired by such Person as such Person shall specify; (3) immediately after such transaction no Default or Event of Default exists; (4) the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition has been made shall, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 1(u)(ii)(A) of this Officer's Certificate (under the heading "Incurrence of Indebtedness and Issuance of Preferred Stock"); provided, however, that this clause (4) shall be suspended during any period in which the Company and its Restricted Subsidiaries are not subject to the Suspended Covenants; and (5) the Company, or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition has been made, shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that such transaction and any supplemental indenture entered into in connection therewith complies with all of the terms of this Section 1(u)(vi) and that all conditions precedent provided for in this Section 1(u)(vi) relating to such transaction or series of transactions have been complied with. (B) In addition, the Company may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. Clauses (4) and (5) under Section 1(u)(vi)(A) shall not apply to a sale, assignment, transfer, conveyance or other disposition of assets between or among the Company and any of its Restricted Subsidiaries. 38 (C) In addition, the Company shall not effect any consolidation, merger, sale, assignment, transfer, conveyance or other disposition as is contemplated in this Section 1(u)(v), unless the Company also complies with Sections 13.01 and 13.02 of the Indenture and the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition has been made, shall be deemed a Successor Corporation under the Indenture. (vii) Transactions with Affiliates. (A) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"), unless: (1) the Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and (2) the Company delivers to the Trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, a resolution of the Board of Directors set forth in an Officer's Certificate certifying that such Affiliate Transaction complies with this Section 1(u)(vii) and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $20.0 million, an opinion as to the fairness to the Holders of Series E Notes of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. (B) The following items shall not be deemed to be Affiliate Transactions and, therefore, shall not be subject to the provisions of Section 1(u)(vii)(A) above: (1) any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary; (2) transactions between or among the Company and/or its Restricted Subsidiaries (other than a Receivables Entity); 39 (3) transactions with a Person that is an Affiliate of the Company solely because the Company owns an Equity Interest in such Person; (4) payment of reasonable directors fees to Persons who are not otherwise Affiliates of the Company; (5) sales of Equity Interests (other than Disqualified Stock) to Affiliates of the Company; (6) Permitted Investments pursuant to this Officer's Certificate and Restricted Payments that are permitted by the provisions of this Officer's Certificate in Section 1(u)(i) (under the heading "Restricted Payments"); (7) fees and compensation paid to and indemnity provided on behalf of directors, officers or employees of the Company or any Restricted Subsidiary of the Company in the ordinary course of business; (8) transactions pursuant to any agreement in effect on the date of this Officer's Certificate as the same may be amended from time to time in any manner not materially less favorable to the Holders of the Series E Notes; (9) loans or advances to officers, directors and employees of the Company or any Restricted Subsidiary made in the ordinary course of business, consistent with past practices of the Company and/or its Restricted Subsidiaries and in compliance with applicable law in an aggregate amount not to exceed $1.0 million outstanding at any one time; and (10) sales or other transfers or dispositions of accounts receivable and other related assets customarily transferred in an asset securitization transaction involving accounts receivable to a Receivables Entity in a Qualified Receivables Transaction, and acquisitions of Permitted Investments in connection with a Qualified Receivables Transaction. (C) The provisions of this Section 1(u)(vii)("Transactions with Affiliates") is subject to the provisions of Section 1(u)(xiv)("Certain Covenants and Definitions--Suspension of Certain Covenants"). (viii) Designation of Restricted and Unrestricted Subsidiaries. (A) The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default; provided that in no event shall the business currently operated by the Company be transferred to or held by an Unrestricted Subsidiary. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair market value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary properly designated shall be deemed to be an Investment made as of the time of the designation and shall reduce the amount available for Restricted Payments under Section 1(u)(i)(A) of this Officer's Certificate (under the heading "Restricted Payments"). That designation shall only be 40 permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. (B) The Board of Directors may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (1) such Indebtedness is permitted under Section 1(u)(ii) of this Officer's Certificate (under the heading "Incurrence of Indebtedness and Issuance of Preferred Stock"), calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. (C) The provisions of this Section 1(u)(viii)("Designation of Restricted and Unrestricted Subsidiaries") is subject to the provisions of Section 1(u)(xiv)("Certain Covenants and Definitions--Suspension of Certain Covenants"). (ix) Future Subsidiary Guarantees. (A) The Company shall not permit any Restricted Subsidiary to guarantee the payment of any Indebtedness of the Company unless (1) such Restricted Subsidiary simultaneously executes and delivers to the Trustee a Subsidiary Guarantee of such Restricted Subsidiary except that with respect to a Guarantee of Indebtedness of the Company if such Indebtedness is by its express terms subordinated in right of payment to the Series E Notes, any such Guarantee of such Restricted Subsidiary with respect to such Indebtedness shall be subordinated in right of payment to such Restricted Subsidiary's Subsidiary Guarantee with respect to the Series E Notes substantially to the same extent as such Indebtedness is subordinated to the Series E Notes; (2) such Restricted Subsidiary waives and shall not in any manner whatsoever claim or take the benefit or advantage of, any rights or reimbursement, indemnity or subrogation or any other rights against the Company or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Subsidiary Guarantee of the Series E Notes; and (3) such Restricted Subsidiary shall deliver to the Trustee an Opinion of Counsel to the effect that (a) such Subsidiary Guarantee has been duly executed and authorized and (b) such Subsidiary Guarantee constitutes a valid, binding and enforceable obligation of such Restricted Subsidiary, except insofar as enforcement thereof may be limited by bankruptcy, insolvency or similar laws (including, without limitation, all laws relating to fraudulent transfers) and except insofar as enforcement thereof is subject to general principles of equity; provided that this Section 1(u)(ix)(A) shall not be applicable to any Guarantee of any Restricted Subsidiary that (x) existed at the time such Person became a Restricted Subsidiary of the Company and (y) was not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary of the Company. (B) Notwithstanding the foregoing and the other provisions of this Officer's Certificate, in the event a Subsidiary Guarantor is sold or disposed of (whether by merger, consolidation, the sale of its Capital Stock or the sale of all or substantially all of its assets (other than by lease) and whether or not the Subsidiary Guarantor is the 41 surviving corporation in such transaction) to a Person which is not the Company or a Restricted Subsidiary of the Company (other than a Receivables Entity), such Subsidiary Guarantor shall be released from its obligations under its Subsidiary Guarantee if: (1) the sale or other disposition is in compliance with the applicable provisions of this Officer's Certificate, including Sections 1(h)(iv) of this Officer's Certificate (under the heading "Offer to Purchase by Application of Excess Proceeds"); and (2) the Subsidiary Guarantor is also released or discharged from its obligations under the Guarantee which resulted in the creation of such Subsidiary Guarantee, except by or as a result of payment under such Guarantee. (x) Sale and Leaseback Transactions. (A) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company or any Restricted Subsidiary may enter into a sale and leaseback transaction if: (1) the Company or that Restricted Subsidiary, as applicable, could have incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under the Fixed Charge Coverage Ratio test in Section 1(u)(ii)(A) of this Officer's Certificate (under the heading "Incurrence of Indebtedness and Issuance of Preferred Stock"); (2) the gross cash proceeds of that sale and leaseback transaction are at least equal to the fair market value, as determined in good faith by the Board of Directors and set forth in an Officer's Certificate delivered to the Trustee, of the property that is the subject of that sale and leaseback transaction; and (3) the transfer of assets in that sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, Section 1(h)(iv) of this Officer's Certificate (under the heading "Offer to Purchase by Application of Excess Proceeds"); provided, however, that the foregoing clauses (1) and (3) shall be suspended during any period in which the Company and its Restricted Subsidiaries are not subject to the Suspended Covenants. (xi) Business Activities. (A) The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Subsidiaries taken as a whole. 42 (B) The provisions of this Section 1(u)(xi)("Business Activities") is subject to the provisions of Section 1(u)(xiv)("Certain Covenants and Definitions--Suspension of Certain Covenants"). (xii) Payments for Consent. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of Series E Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Officer's Certificate or the Series E Notes unless such consideration is offered to be paid and is paid to all Holders of the Series E Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. (xiii) Reports. (A) Whether or not required by the Commission, so long as any Series E Notes are outstanding, the Company shall make available to the Holders of Series E Notes, within the time periods specified in the Commission's rules and regulations (as if required): (1) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the certifications that would be required by Rule 13a-14 under the Exchange Act and, with respect to the annual information only, a report on the annual financial statements by the Company's certified independent accountants; and (2) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. (B) If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company. In addition, whether or not required by the Commission, the Company shall file a copy of all of the information and reports referred to in clauses (1) and (2) above with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission shall not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company has agreed that, for so long as any Series E Notes remain 43 outstanding, they shall furnish to the Holders of Series E Notes and to prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. (xiv) Suspension of Certain Covenants. (A) During any period of time that the notes have an Investment Grade Rating from both of the Rating Agencies and no Default or Event of Default has occurred and is continuing under the Indenture, the Company and its Restricted Subsidiaries shall not be subject to the following provisions of this Officer's Certificate: Section 1(h)(iv), Section 1(u)(i), Section 1(u)(ii), Section 1(u)(iv), Section 1(u)(v), Section 1(u)(vii), Section 1(u)(viii) and Section 1(u)(xi) (under the headings: "Mandatory Redemption/Redemption at Option of Holders/Offers to Purchase--Offer to Purchase by Application of Excess Proceeds," "Certain Covenants and Definitions--Restricted Payments," "Certain Covenants and Definitions--Incurrence of Indebtedness and Issuance of Preferred Stock," "Certain Covenants and Definitions--Dividend and Other Payment Restrictions Affecting Subsidiaries," "Certain Covenants and Definitions--Asset Sales," "Certain Covenants and Definitions--Transactions with Affiliates," "Certain Covenants and Definitions--Designation of Restricted and Unrestricted Subsidiaries," and "Certain Covenants and Definitions--Business Activities") (collectively, the "Suspended Covenants"); provided, however, that the provisions in Section 1(h)(iii), Section 1(u)(iii), Section 1(u)(vi) (except as set forth in that Section 1(u)(vi)), Section 1(u)(ix) (except as set forth in that Section 1(u)(ix), Section 1(u)(x), Section 1(u)(xii) (except as set forth in that Section 1(u)(xii)) and Section 1(u)(xiii) (under the headings "Mandatory Redemption/Redemption at Option of Holders/Offers to Purchase--Offer to Purchase Upon Change of Control," "Certain Covenants and Definitions--Liens," "Certain Covenants and Definitions--Merger, Consolidation or Sale of Assets" (except as set forth thereunder), "Certain Covenants and Definitions--Future Subsidiary Guarantees" (except as set forth thereunder), "Certain Covenants and Definitions--Sale and Leaseback Transactions" (except as set forth thereunder), "Certain Covenants and Definitions--Payments for Consent," and "Reports") of this Officer's Certificate shall not be so suspended. (B) If the Company and its Restricted Subsidiaries are not subject to the Suspended Covenants for any period of time as a result of the preceding Section 1(xiv)(A) and, subsequently, either of the Rating Agencies withdraws its ratings or downgrades the ratings assigned to the Series E Notes below the Investment Grade Ratings so that the Series E Notes do not have an Investment Grade Rating from both Rating Agencies, or a Default or Event of Default (other than with respect to the Suspended Covenants) occurs and is continuing, the Company and its Restricted Subsidiaries shall thereafter again be subject to the Suspended Covenants, subject to the terms, conditions and obligations set forth in this Officer's Certificate (each such date of reinstatement being the "Reinstatement Date"), including the preceding Section 1(xiv)(A). Compliance with the Suspended Covenants with respect to Restricted Payments made after the Reinstatement Date shall be calculated in accordance with the terms of Section 1(u)(i) of this Officer's Certificate (under "Certain Covenants and Definitions--Restricted Payments") as though such covenant had been in effect during 44 the entire period of time from which the Series E Notes are issued, provided, however, that no immediate Default or Event of Default shall occur as a result of such reinstatement of the Suspended Covenants. (xv) Covenant Defeasance. (A) Option to Effect Covenant Defeasance. The Company may, at the option of the Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have Section 1(u)(xv)(B) hereof be applied to all outstanding Series E Notes upon compliance with the conditions set forth below in Section 1(u)(xv)(C) hereof. (B) Exercise of Covenant Defeasance. Upon the Company's exercise under Section 1(u)(xv)(A) hereof of the option applicable to this Section 1(u)(xv)(B), the Company shall, subject to the satisfaction of the conditions set forth in Section 1(u)(xv)(C) hereof, be released from each of its obligations under the covenants contained in Section 1(h)(iii), Section 1(h)(iv), Section 1(u)(i), Section 1(u)(ii), Section 1(u)(iii), Section 1(u)(iv), Section 1(u)(v), Section 1(u)(vii), Section 1(u)(viii), Section 1(u)(ix), Section 1(u)(x), Section 1(u)(xi), Section 1(u)(xii) hereof (under the headings: "Mandatory Redemption/Redemption at Option of Holders/Offers to Purchase--Offer to Purchase Upon Change of Control," Mandatory Redemption/Redemption at Option of Holders/Offers to Purchase--Offer to Purchase by Application of Excess Proceeds," "Certain Covenants and Definitions--Restricted Payments," "Certain Covenants and Definitions--Incurrence of Indebtedness and Issuance of Preferred Stock," "Certain Covenants and Definitions--Liens," "Certain Covenants and Definitions--Dividend and Other Payment Restrictions Affecting Subsidiaries," "Certain Covenants and Definitions--Asset Sales," "Certain Covenants and Definitions--Transactions with Affiliates," "Certain Covenants and Definitions--Designation of Restricted and Unrestricted Subsidiaries," "Certain Covenants and Definitions--Future Subsidiary Guarantees," "Certain Covenants and Definitions--Sale and Leaseback Transactions," "Certain Covenants and Definitions--Business Activities" and "Certain Covenants and Definitions--Payment for Consents") and clause (A)(4) of Section 1(u)(vi) (under the heading "Certain Covenants and Definitions--Merger, Consolidation or Sale of Assets") hereof with respect to the Outstanding Series E Notes on and after the date the conditions set forth in Section 1(u)(xv)(C) hereof are satisfied (hereinafter, "Covenant Defeasance"), and the Series E Notes shall thereafter be deemed not Outstanding for the purposes of any direction, waiver, consent or declaration or act of Holders of Securities, including but not limited to, Holders of Series E Notes (and the consequences of any thereof) in connection with such covenants, but will continue to be deemed Outstanding for all other purposes hereunder. For this purpose, Covenant Defeasance means that, with respect to the Outstanding Series E Notes, the Company may omit to comply with and will have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply will not constitute a Triggering Event under Section 1(h)(ii) hereof or a Default or an Event of Default under Section 10.01 of the Indenture, but, except as specified above, the remainder of the Indenture, this Officer's Certificate and such Series E Notes will be unaffected thereby. 45 In addition, upon the Company's exercise under Section 1(u)(xv)(A) hereof of the option applicable to Section 1(u)(xv)(B) hereof, subject to the satisfaction of the conditions set forth in Section 1(u)(xv)(C) hereof, Sections 1(h)(ii)(A)(3) through 1(h)(ii)(A)(7) hereof will not constitute Triggering Events. (C) Conditions to Covenant Defeasance. In order to exercise Covenant Defeasance under this Section 1(u)(xv): (1) the Company must irrevocably deposit with the Trustee or any Paying Agent (other than the Company), in trust for the benefit of the Holders of the Series E Notes: (a) money (including Funded Cash not otherwise applied pursuant to the Indenture) in an amount which will be sufficient, or (b) Eligible Obligations which do not contain provisions permitting the redemption or other prepayment thereof at the option of the issuer thereof, the principal of and the interest on which when due, without any regard to reinvestment thereof, will provide monies which, together with the money, if any, deposited with or held by the Trustee or such Paying Agent, will be sufficient, or (c) a combination of (a) and (b) which will be sufficient, to pay when due the principal of and premium, if any, and interest, if any, and Liquidated Damages, if any, due and to become due on the Series E Notes or portions thereof provided, that the Company shall have delivered to the Trustee and such Paying Agent: (I) a Company Order stating that the money and Eligible Obligations deposited in accordance with this Section 1(u)(xv)(C) shall be held in trust, as provided in Section 9.03 of the Indenture; and (II) if Eligible Obligations shall have been deposited, an Opinion of Counsel to the effect that such obligations constitute Eligible Obligations and do not contain provisions permitting the redemption or other prepayment thereof at the option of the issuer thereof, and an opinion of an Independent public Accountant of nationally recognized standing, selected by the Company, to the effect that the other requirements set forth in Section 1(u)(xv)(C)(1)(b) above have been satisfied; (2) the Company shall have delivered to the Trustee an Opinion of Counsel confirming that the Holders of the Outstanding Series E Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (3) no Triggering Event shall have occurred and be continuing on the date of such deposit (other than a Triggering Event arising from the breach of a covenant under this Officer's Certificate resulting from the borrowing of funds to be applied to such deposit); (4) such Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than 46 the Indenture ) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (5) the Company must deliver to the Trustee an Officer's Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Series E Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (6) the Company must deliver to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the Covenant Defeasance have been complied with. (xvi) Additional Conditions to Section 9.01 of Indenture. Notwithstanding the provisions of Section 9.01 of the Indenture, no Series E Note shall be deemed to have been paid pursuant to such provisions unless the Company shall have delivered to the Trustee either: (a) an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (ii) since the date of this Officer's Certificate, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the Outstanding Series E Notes will not recognize income, gain or loss for federal income tax purposes as a result of such satisfaction and discharge and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such satisfaction and discharge had not occurred; or (b) (i) an instrument wherein the Company, notwithstanding the satisfaction and discharge of the Company's Indebtedness in respect of the Series E Notes, shall assume the obligation (which shall be absolute and unconditional) to irrevocably deposit with the Trustee such additional sums of money, if any, or additional Eligible Obligations, if any, or any combination thereof, at such time or times, as shall be necessary, together with the money and/or Eligible Obligations theretofore so deposited, to pay when due the principal of and premium, if any, and interest due and to become due on such Series E Notes or portions thereof; provided, however, that such instrument may state that the Company's obligation to make additional deposits as aforesaid shall be subject to the delivery to the Company by the Trustee of a notice asserting the deficiency accompanied by an opinion of an Independent public Accountant of nationally recognized standing showing the calculation thereof; and (ii) an Opinion of Counsel of tax counsel in the United States reasonably acceptable to the Trustee to the effect that the Holders of the Outstanding Series E Notes will not recognize income, gain or loss for federal income tax purposes as a result of such satisfaction and discharge and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such satisfaction and discharge had not occurred. 47 (xvii) Modifications Requiring Consent. In addition to the provisions of Section 14.02 of the Indenture, no supplemental indenture shall alter or waive any of the provisions with respect to the redemption of the Series E Notes set forth in Section 1(g) hereof without the consent of each Holder of Series E Notes affected thereby. (xviii) Certain Definitions. Set forth below are certain defined terms used in this Officer's Certificate. Reference is made to the Indenture for the definitions of any other capitalized terms used herein for which no definition is provided herein. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and (2) Indebtedness secured by a Series E Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings. "Affiliate Transaction" has the meaning assigned to it in Section 1(u)(vii)(A) of this Officer's Certificate. "Agent" means: any Security Registrar, Paying Agent or Authenticating Agent. "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Clearstream that apply to such transfer or exchange. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets or rights, other than sales of inventory in the ordinary course of business consistent with past practices; provided that the sale, conveyance or other 48 disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole shall be governed by the provisions in Section 1(u)(x) ("Repurchase at the Option of Holders--Change of Control") and/or Section 1(u)(vi) ("Certain Covenants--Merger, Consolidation or Sale of Assets") and not by Section 1(u)(v) ("Certain Covenants--Asset Sales") of this Officer's Certificate; and (2) the issuance of Equity Interests in any of the Company's Subsidiaries or the sale of Equity Interests in any of its Subsidiaries. Notwithstanding the preceding, the following items shall not be deemed to be Asset Sales: (1) any single transaction or series of related transactions that involves assets having a fair market value of less than $1.0 million; (2) a transfer of assets between or among the Company and its Restricted Subsidiaries; (3) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to another Restricted Subsidiary; (4) a Restricted Payment or Permitted Investment that is permitted by Section 1(u)(i) of this Officer's Certificate (under the heading "Certain Covenants--Restricted Payments"); (5) sales of accounts receivable and related assets or an interest therein of the type specified in the definition of Qualified Receivables Transaction to or by a Receivables Entity; and (6) sales, transfers or other dispositions of assets, including Capital Stock of Restricted Subsidiaries, for consideration at least equal to the fair market value of the assets sold or disposed of, but only if the consideration received consists of Capital Stock of a Person that becomes a Restricted Subsidiary engaged in, or property or assets (other than cash, except to extent used as a bona fide means of equalizing the value of the property or assets involved in the swap transaction) of a nature or type or that are used in, a business of the issuer and its Restricted Subsidiaries existing on the date of such sale or other disposition; provided, however, that any cash received by the Company shall be treated as Net Proceeds and applied as set forth in the Section 1(g)(iii) of this Officer's Certificate (under the heading "Repurchase at the Option of Holders--Asset Sales"); provided further that the fair market value of the assets sold or disposed of is determined as provided in Section 1(u)(i)(C) of this Officer's Certificate (under the heading "Certain Covenants--Restricted Payments"). "Asset Sale Offer" has the meaning assigned to it in Section 1(h)(iv) (A) of this Officer's Certificate. 49 "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning. "Board" means: (1) with respect to a corporation, the board of directors of the corporation; (2) with respect to a partnership, the board of directors of the general partner of the partnership; and (3) with respect to any other Person, the board or committee of such Person serving a similar function. "Broker-Dealer" has the meaning set forth in the Registration Rights Agreement. "Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and 50 (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means: (1) United States dollars; (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than one year from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B" or better; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having the highest rating obtainable from Moody's or S&P and in each case maturing within 270 days after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "Change of Control" means the occurrence of any of the following: (1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d)(3) of the Exchange Act, including any "group" with the meaning of the Exchange Act); (2) the adoption of a plan relating to the liquidation or dissolution of the Company; (3) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as 51 defined above) becomes the Beneficial Owner, directly or indirectly, of more than 30% of the Voting Stock of the Company or Sierra Pacific Resources, measured by voting power rather than number of shares; or (4) the first day on which a majority of the members of the Board of Directors or the Board of Sierra Pacific Resources are not Continuing Directors. "Change of Control Offer" has the meaning assigned to it in Section 1(h)(iii)(A) of this Officer's Certificate. "Change of Control Payment" has the meaning assigned to it in Section 1(h)(iii)(A) of this Officer's Certificate. "Change of Control Payment Date" has the meaning assigned to it in Section 1(h)(iii)(B)(2) of this Officer's Certificate. "Clearstream" means Clearstream Banking, societe anonyme. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus (4) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, 52 amortization and other non-cash expenses were deducted in computing such Consolidated Net Income); plus (5) all extraordinary, unusual or non-recurring items of loss or expense; minus (6) all extraordinary, unusual or non-recurring items of gain or revenue; minus (7) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP; provided that non-cash expenses recorded as a result of deferred energy accounting shall not be added to Consolidated Net Income. "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person; (2) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; (3) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded; (4) the cumulative effect of a change in accounting principles shall be excluded; and (5) any equity in earnings or losses of Sierra Pacific Resources shall be excluded. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors who: (1) was a member of the Board of Directors on the original issue date of the Series E Notes; or 53 (2) was nominated for election or elected to the Board of Directors with the approval of a majority of the Continuing Directors who were members of the Board of Directors at the time of such nomination or election. "Credit Facilities" means one or more debt facilities or commercial paper facilities, in each case with banks or other institutional lenders providing for revolving credit loans, term loans or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time, and includes any securities issued pursuant to the Indenture in order to secure any amounts outstanding under a Credit Facility from time to time; provided that the obligation of the Company to make any payment on any such securities shall be (1) no greater than the amount required to be paid under such Credit Facility that is secured by such payment obligation, (2) payable no earlier than such amount is required to be paid under such Credit Facility and (3) deemed to have been paid or otherwise satisfied and discharged to the extent that the Company has paid such amount under such Credit Facility; provided further that any amounts the Company is obligated to pay under such securities will not be included for purposes of determining the aggregate amount outstanding under Credit Facilities that is permitted under clause (1) of Section 1(u)(ii)(B) ("Incurrence of Indebtedness and Issuance of Preferred Stock"). "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default as defined in the Indenture. "Definitive Note" means a certificated Series E Note registered in the name of the Holder thereof and issued in accordance with Section 1(q)(v) of this Officer's Certificate, in the form of Exhibit A hereto except that such Series E Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Series E Notes issuable or issued in whole or in part in global form, the Person specified in Section 1(q)(iii) of this Officer's Certificate as the Depositary with respect to the Series E Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Officer's Certificate or the Indenture. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event (other than as a result of an optional redemption by the issuer thereof), matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Series E Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital 54 Stock pursuant to such provisions unless such repurchase or redemption complies with Section 1(u)(i) of this Officer's Certificate (under the heading "Certain Covenants and Definitions--Restricted Payments"). "DTC" has the meaning assigned to it in Section 1(q)(iii) of this Officer's Certificate. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Euroclear" means Euroclear Bank S.A./N.V. "Event of Default" means an Event of Default as defined in the Indenture. "Excess Proceeds" has the meaning assigned to it in Section 1(u)(v)(D) of this Officer's Certificate. "Exchange Notes" means if and when issued, each series of the Series E Notes issued in exchange for any Initial Notes in an Exchange Offer or upon transfer pursuant to a Shelf Registration Statement. "Exchange Offer" has the meaning set forth in a corresponding Registration Rights Agreement. "Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Existing Indebtedness" means all Indebtedness of the Company and its Subsidiaries (other than Indebtedness under a Credit Facility) in existence on the original issue date of the Series E Notes, until such amounts are repaid. "First Mortgage Indenture" means the Indenture of Mortgage, dated as of October 1, 1953, between the Company and Deutsche Bank, as trustee, as modified, amended or supplemented at any time or from time to time by supplemental indentures. "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and 55 net of the effect of all payments made or received pursuant to Hedging Obligations; plus (2) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period; plus (3) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Series E Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Series E Lien is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP; plus (5) all distributions by a Trust Preferred Vehicle to persons other than the Company of amounts received as interest by such trust on the subordinated Indebtedness of the Company held by such trust. "Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Fixed Charges of such Person and its Restricted Subsidiaries for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers, consolidations or otherwise (including acquisitions of assets used in a Permitted Business) and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to 56 the Calculation Date shall be given pro forma effect as if they had occurred on the first day of the four-quarter reference period, including any pro forma expense and cost reductions that have occurred or are reasonably expected to occur, in the reasonable judgment of the chief financial officer of the Company (regardless of whether those cost savings or operating improvements could then be reflected in pro forma financial statements in accordance with Regulation S-X promulgated under the Securities Act or any other regulation or policy of the Commission related thereto); (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded; and (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges shall not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the original issue date of the Series E Notes. "Global Note Legend" means the legend set forth in Section 1(q)(v)(G)(2) of this Officer's Certificate, which is required to be placed on all Global Notes issued under this Officer's Certificate. "Global Notes" means, individually and collectively, each of the Series E Notes (which may be either Restricted Global Notes or Unrestricted Global Notes) issued or issuable in the global form of Exhibit A hereto issued in accordance with Sections 1(q)(i), 1(q)(v)(B)(4), 1(q)(v)(D)(4) or 1(q)(v)(F) of this Officer's Certificate. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person incurred in the normal course of business and consistent with past practices and not for speculative purposes under: 57 (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements designed to protect the person or entity entering into the agreement against fluctuations in interest rates with respect to Indebtedness incurred and not for purposes of speculation; (2) foreign exchange contracts and currency protection agreements entered into with one of more financial institutions designed to protect the person or entity entering into the agreement against fluctuations in currency exchange rates with respect to Indebtedness incurred and not for purposes of speculation; (3) any commodity futures contract, commodity option or other similar agreement or arrangement designed to protect against fluctuations in the price of commodities used by that entity at the time; and (4) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent: (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) in respect of banker's acceptances; (4) representing Capital Lease Obligations; (5) representing the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or (6) representing any Hedging Obligations, if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes (i) all Indebtedness of others secured by a Series E Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any indebtedness of any other Person and (ii) all beneficial interests issued by a Trust Preferred Vehicle to persons other than the Company, which beneficial interests shall be treated as Indebtedness that is subordinated to the Series E Notes for all purposes of this Officer's Certificate. The amount of any Indebtedness outstanding as of any date shall be: 58 (1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; and (2) the principal amount of the Indebtedness, together with any interest on the Indebtedness that is more than 30 days past due, in the case of any other Indebtedness. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Initial Notes" has the meaning set forth in Section 1(q)(ii) of this Officer's Certificate. "Initial Purchaser" has the meaning set forth in the Purchase Agreement. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Investment Grade Rating" means a rating equal to or higher than Baa3 (or the equivalent) by Moody's or BBB- (or the equivalent) by S&P. "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in Section 1(u)(i)(C) of this Officer's Certificate (under the heading "Certain Covenants and Definitions--Restricted Payments"). The acquisition by the Company or any Subsidiary of the Company of a Person that holds an Investment in a third Person shall be deemed to be an Investment by the Company or such Subsidiary in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person in an amount determined as provided in Section 1(u)(i)(C) of this Officer's Certificate (under the heading "Certain Covenants and Definitions--Restricted Payments"). "Issue Date" means the first date on which any Series E Notes are issued, authenticated and delivered under the Indenture and this Officer's Certificate. "Letter of Transmittal" means the letter of transmittal to be prepared by the Company and sent to all Holders of Initial Notes for use by such Holders in connection with an Exchange Offer. 59 "Liquidated Damages" means all liquidated damages then owing pursuant to Section 5 of the Registration Rights Agreement. "Moody's" means Moody's Investors Service, Inc. or any successor to the rating agency business thereof. "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries; and (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than Senior Debt secured by a Series E Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness: (1) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender; (2) no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the Series E Notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its stated maturity; and 60 (3) as to which the lenders have been notified in writing that they shall not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Non-U.S. Person" means a person who is not a U.S. Person. "Note Custodian" means the Trustee, as custodian for the Depositary with respect to the Series E Notes in global form, or any successor entity thereto. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offer Amount" has the meaning assigned to it in Section 1(h)(iv)(B) of this Officer's Certificate. "Offer Period" has the meaning assigned to it in Section 1(h)(iv)(B) of this Officer's Certificate. "Offering" means the offering of the Original Notes by the Company on the Issue Date. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Original Notes" has the meaning set forth in Section 1(q)(ii) of this Officer's Certificate. "Participant" means, with respect to DTC, Euroclear or Clearstream, a Person who has an account with DTC, Euroclear or Clearstream, respectively (and, with respect to DTC, shall include Euroclear and Clearstream). "Payment Default" has the meaning assigned to it in Section 1(h)(ii)(A)(6)(I) of this Officer's Certificate. "Permitted Business" means any business that derives a majority of its revenues from the business engaged in by the Company and its Restricted Subsidiaries on the original issue date of the Series E Notes and/or activities that are reasonably similar, ancillary, incidental, complementary or related to, or a reasonable extension, development or expansion of, the businesses in which the Company and its Restricted Subsidiaries are engaged on the original issue date of the Series E Notes, as determined in good faith by the Board of Directors. "Permitted Investments" means: 61 (1) any Investment in the Company or in a Restricted Subsidiary of the Company (other than a Receivables Entity); (2) any Investment in Cash Equivalents; (3) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary of the Company (other than a Receivables Entity); or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company (other than a Receivables Entity); (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 1(u)(v) of this Officer's Certificate (under the heading "Certain Covenants and Definitions--Asset Sales"); (5) any acquisition of assets to the extent it is in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (6) any Investments received in compromise of obligations of such persons incurred in the ordinary course of trade creditors or customers that were incurred in the ordinary course of business, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; (7) Hedging Obligations; (8) Investments by the Company or a Restricted Subsidiary in a Receivables Entity or any Investment by a Receivables Entity in any other Person, in each case, in connection with a Qualified Receivables Transaction, provided however, that any Investment in any Receivables Entity or such other Person is in the form of a Purchase Money Note, or any equity interests, directly or indirectly, in accounts receivable and related assets generated by the Company or a Restricted Subsidiary and transferred to any Person in connection with a Qualified Receivables Transaction or any such Person owning such accounts receivable; (9) any Investments made in accordance with clause (6) of the definition of "Asset Sales;" and (10) other Investments in any Person that is not also a Restricted Subsidiary of the Company having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to 62 subsequent changes in value), when taken together with all other Investments made pursuant to this clause (10) since the original issue date of the Series E Notes, not to exceed $20.0 million. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued and unpaid interest on the Indebtedness and the amount of all expenses and premiums incurred in connection therewith); (2) if such Permitted Refinancing Indebtedness is issued on or after the first anniversary of the original issue date of the Series E Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (3) if such Permitted Refinancing Indebtedness is issued on or after the first anniversary of the original issue date of the Series E Notes, and the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is contractually subordinated in right of payment to the Series E Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Series E Notes on terms at least as favorable to the Holders of Series E Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (4) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Private Placement Legend" means the legend set forth in Section 1(q)(v)(G)(1) of this Officer's Certificate to be placed on all Series E Notes issued under the Indenture and this Officer's Certificate except where otherwise permitted by the provisions of the Indenture and this Officer's Certificate. "Purchase Agreement" means the Purchase Agreement dated October 22, 2002 among the Company and each Initial Purchaser relating to the Offering. 63 "Purchase Date" has the meaning assigned to it in Section 1(h)(iv)(B) of this Officer's Certificate. "Purchase Money Note" means a promissory note of a Receivables Entity evidencing a line of credit, which may be irrevocable, from the Company or any Restricted Subsidiary of the Company in connection with a Qualified Receivables Transaction to a Receivables Entity, which note is repayable from cash available to the Receivables Entity, other than amounts required to be established as reserves pursuant to agreements, amounts paid to investors in respect of interest, principal and other amounts owing to such investors and amounts owing to such investors and amounts paid in connection with the purchase of newly generated accounts receivable. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Qualified Receivables Transaction" means any transaction or series of transactions that may be entered into by the Company or any of its Restricted Subsidiaries pursuant to which the Company or any of its Restricted Subsidiaries may sell, convey or otherwise transfer to (1) a Receivables Entity (in the case of a transfer by the Company or any of its Restricted Subsidiaries) and (2) any other Person (in the case of a transfer by a Receivables Entity), or may grant a security interest in, any accounts receivable (whether now existing or arising in the future) of the Company or any of its Restricted Subsidiaries, and any assets related thereto including, without limitation, all collateral securing such accounts receivable, all contracts and all guarantees or other obligations in respect of such accounts receivable, the proceeds of such receivables and other assets which are customarily transferred, or in respect of which security interests are customarily granted in connection with asset securitization involving accounts receivable. "Rating Agencies" means S&P and Moody's, or if S&P or Moody's or both shall not make a rating on the Series E Notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Company (as certified by a resolution of the Board of Directors) which shall be substituted for S&P or Moody's or both, as the case may be. "Receivables Entity" means a Wholly-Owned Subsidiary of the Company or Sierra Pacific Resources (or another Person in which the Company or any Restricted Subsidiary of the Company makes an Investment and to which the Company or any Restricted Subsidiary of the Company transfers accounts receivable and related assets) which engages in no activities other than in connection with the financing of accounts receivable and which is designated by the Board of Directors (as provided below) as a Receivables Entity: (1) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which: (a) is guaranteed by the Company or any Restricted Subsidiary of the Company (excluding guarantees of Obligations (other than the 64 principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings); (b) is recourse to or obligates the Company or any Restricted Subsidiary of the Company in any way other than pursuant to Standard Securitization Undertakings; or (c) subjects any property or asset of the Company or any Restricted Subsidiary of the Company, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings; (2) which is not party to any agreement, contract, arrangement or understanding (except in connection with a Purchase Money Note or Qualified Receivables Transaction) with the Company or any Restricted Subsidiary of the Company other than on terms no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of the Company, other than fees payable in the ordinary course of business in connection with servicing accounts receivable; and (3) to which neither the Company nor any Restricted Subsidiary of the Company has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such entity's financial condition or cause such entity to achieve certain levels of operating results. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officer's Certificate certifying that such designation complied with the foregoing conditions. "Registration Rights Agreement" means (i) the Registration Rights Agreement, dated as of the Issue Date, by and among the Company and the other parties named on the signature pages thereof relating to the Original Notes and (ii) any similar agreement that the Company and other parties may enter into in relation to any other Initial Notes, in each case as such agreement may be amended, modified or supplemented from time to time. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Note" means a Global Note in the form of Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in an initial denomination equal to the outstanding principal amount of the Notes initially sold by the Initial Purchasers in reliance on Rule 903 of Regulation S. 65 "Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend. "Restricted Global Note" means a Global Note bearing the Private Placement Legend. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Payments" has the meaning assigned to it in Section 1(u)(i)(A) of this Officer's Certificate. "Restricted Period" means the 40-day distribution compliance period as set forth in Regulation S. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 144A Global Note" means a Global Note in the form of Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend and deposited with and registered in the name of the Depositary or its nominee, issued in an initial denomination equal to the outstanding principal amount of the Notes initially sold by the Initial Purchasers in reliance on Rule 144A. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated under the Securities Act. "Securities Act" means the Security Act of 1933, as amended. "Series E Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Series E Permitted Liens" means: (1) Series E Liens securing any Indebtedness under a Credit Facility that was permitted by the terms of this Officer's Certificate to be incurred, and all Obligations and Hedging Obligations relating to such Indebtedness; (2) Series E Liens in favor of the Company or any Subsidiary Guarantors; 66 (3) Series E Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Series E Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company or the Restricted Subsidiary; (4) Series E Liens on property existing at the time of acquisition of the property by the Company or any Restricted Subsidiary of the Company, provided that such Series E Liens were in existence prior to the contemplation of such acquisition; (5) Series E Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (6) Series E Liens to secure Indebtedness (including Capital Lease Obligations) permitted by Section 1(u)(ii)(B)(4) of this Officer's Certificate ("Certain Covenants and Definitions--Incurrence of Indebtedness and Issuance of Preferred Stock") covering only the assets acquired with such Indebtedness; (7) Series E Liens existing on the original issue date of the Series E Notes (including the Series E Lien of the First Mortgage Indenture and the Series E Lien of the Indenture); (8) Series E Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor; (9) Series E Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary with respect to obligations (including Hedging Obligations) that do not exceed $15.0 million at any one time outstanding; (10) Series E Liens to secure Indebtedness permitted by clauses (7), (13) or (16) of Section 1(u)(ii)(B) of this Officer's Certificate (under the heading "Certain Covenants and Definitions--Incurrence of Indebtedness and Issuance of Preferred Stock"); (11) Series E Liens securing any other Indebtedness issued or to be issued under the Indenture that was permitted to be incurred under the terms of Section 1(u)(ii) of this Officer's Certificate (under the heading "Certain Covenants-- Incurrence of Indebtedness and Issuance of Preferred Stock"); 67 (12) Series E Liens securing Permitted Refinancing Indebtedness incurred to refinance Indebtedness that was previously so secured, provided that any such Series E Lien is limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or, under the written arrangements under which the original Series E Lien arose, could secure) the Indebtedness being refinanced or is in respect of property that is the security for a Series E Permitted Lien hereunder; (13) Series E Liens on assets transferred to a Receivables Entity or on assets of a Receivables Entity, in either case, incurred in connection with a Qualified Receivables Transaction; and (14) Series E Liens, including pledges, rights of offset and bankers' liens, on deposit accounts, instruments, investment accounts and investment property (including cash, cash equivalents and marketable securities) from time to time maintained with or held by any financial and/or depository institutions, in each case solely to secure any and all obligations now or hereafter existing of the Company or any of its Subsidiaries in connection with any deposit account, investment account or cash management service (including ACH, Fedwire, CHIPS, concentration and zero balance accounts, and controlled disbursement, lockbox or restricted accounts) now or hereafter provided by any financial and/or depository institutions to or for the benefit of the Company, any of its Subsidiaries or any special purpose entity directly or indirectly providing loans to or making receivables purchases from the Company or any of its Subsidiaries. "Shelf Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "S&P" means Standard & Poor's Rating Group, Inc., or any successor to the rating agency business thereof. "Standard Securitization Undertakings" means representations, warranties, covenants and indemnities entered into by the Company or any Restricted Subsidiary of the Company which are reasonably customary in securitization of accounts receivable transactions. "Subsidiary" means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of 68 directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof). "Subsidiary Guarantee" means any Guarantee of the Series E Notes to be executed by any Subsidiary of the Company pursuant to Section 1(u)(ix) of this Officer's Certificate (under the heading "Future Subsidiary Guarantees"). "Subsidiary Guarantors" means any Subsidiary of the Company that executes a Subsidiary Guarantee in accordance with the provisions of the Indenture, and their respective successors and assigns. "Triggering Event" has the meaning assigned to it in Section 1(h) of this Officer's Certificate. "Trust Preferred Vehicle" means NVP Capital I, NVP Capital III or any future similar trust, the only assets of which are subordinated Indebtedness of the Company. "Unrestricted Definitive Note" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "Unrestricted Global Note" means a permanent Global Note in the form of Exhibit A attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "Unrestricted Subsidiary" means any Subsidiary of the Company that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to 69 subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (5) has at least one director on its Board that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries. Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officer's Certificate certifying that such designation complied with the preceding conditions and was permitted by Section 1(u)(i) of this Officer's Certificate (under the heading "Certain Covenants and Definitions--Restricted Payments"). If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under Section 1(u)(ii) of this Officer's Certificate (under the heading "Certain Covenants and Definitions--Incurrence of Indebtedness and Issuance of Preferred Stock"), the Company shall be in default of such covenant. "U.S." means the United States of America. "U.S. Person" means a U.S. person as defined in Rule 902(o) under the Securities Act. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that shall elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness. 70 (v) The Series E Notes shall have such other terms and provisions as are provided in the form thereof attached hereto as Exhibit A, and shall be issued in substantially such form. 71 2. The undersigned has read all of the covenants and conditions contained in the Indenture, and the definitions in the Indenture relating thereto, relating to the issuance of the Series E Notes and in respect of compliance with which this certificate is made. The statements contained in this certificate are based upon the familiarity of the undersigned with the Indenture, the documents accompanying this certificate, and upon discussions by the undersigned with officers and employees of the Company familiar with the matters set forth herein. In the opinion of the undersigned, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenants and conditions have been complied with. In the opinion of the undersigned, such conditions and covenants have been complied with. 72 IN WITNESS WHEREOF, the undersigned has executed this Officer's Certificate as of the date first written above. By: ______________________________________ Richard K. Atkinson Vice President, Investor Relations and Treasurer Acknowledged and Received on October 29, 2002 THE BANK OF NEW YORK, as Trustee By:________________________________________________ Name:______________________________________________ Title:_____________________________________________ 73 EXHIBIT A FORM OF SERIES E NOTES [Insert the Global Note Legend, if applicable, pursuant to the provisions of the Indenture and the Officer's Certificate] [Insert the Private Placement Legend, if applicable, pursuant to the provisions of the Indenture and the Officer's Certificate] NEVADA POWER COMPANY 10(7/8)% General and Refunding Mortgage Notes, Series E, due 2009 Original Interest Accrual Date: October 29, 2002 Redeemable: Yes [X] No [ ] Stated Maturity: October 15, 2009 Redemption Date: See Below Interest Rate: 107/8% Redemption Price: See Below Interest Payment Dates: April 15, and October 15 Record Dates: April 1 and October 1
The Security is not a Discount Security within the meaning of the within-mentioned Indenture. --------------- CUSIP/CINS__________ 10(7/8)% General and Refunding Mortgage Notes, Series E, due 2009 No. ___ $__________ promises to pay to __________ or registered assigns, the principal sum of _____________ Dollars on October 15, 2009. 1. Interest. Nevada Power Company, a Nevada corporation (the "Company"), promises to pay interest on the principal amount of this Series E Note at 10?% per annum, from October 29, 2002 until maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company shall pay interest and Liquidated Damages, if any, semi-annually in arrears on April 15 and October 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Series E Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from Original Interest Accrual Date specified above; provided that if there is no existing Default in the payment of interest, and if this Series E Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date, except in the case of the original issuance of Series E Notes, in which case interest shall accrue from the Original Interest Accrual Date specified above; provided, further, that the first Interest Payment Date shall be April 15, 2003. The Company shall pay interest A-1 (including postpetition interest in any proceeding under the Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at the rate borne on the Series E Notes; it shall pay interest (including post-petition interest in any proceeding under the Bankruptcy Law) on overdue installments of interest and Liquidated Damages, if any, (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company shall pay interest on the Series E Notes (except Defaulted Interest) and Liquidated Damages to the Persons who are registered Holders of Series E Notes at the close of business on the April 1 and October 1 next preceding the Interest Payment Date, even if such Series E Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 3.07 of the Indenture with respect to Defaulted Interest. The Series E Notes shall be payable as to principal, premium and Liquidated Damages, if any, and interest at the office or agency of the Company maintained for such purpose within the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders of Series E Notes at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds shall be required with respect to principal of, and interest, premium and Liquidated Damages on, all Global Notes and all other Series E Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. Paying Agent and Security Registrar. Initially, The Bank of New York, the Trustee under the Indenture, shall act as Paying Agent and Security Registrar. The Company may change any Paying Agent or Security Registrar without notice to any Holder of Series E Notes. The Company or any of its Subsidiaries may act in any such capacity. 4. Indenture; Security. This Series E Note is one of a duly authorized issue of Securities of the Company, issued and issuable in one or more series under and equally secured by a General and Refunding Mortgage Indenture, dated as of May 1, 2001 (such Indenture as originally executed and delivered and as supplemented or amended from time to time thereafter, together with any constituent instruments establishing the terms of particular Securities, being herein called the "Indenture"), between the Company and The Bank of New York, Trustee (herein called the "Trustee," which term includes any successor Trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the property mortgaged, pledged and held in trust, the nature and extent of the security and the respective rights, limitations of rights, duties and immunities of the Company, the Trustee and the Holders of the Securities thereunder and of the terms and conditions upon which the Securities are, and are to be, authenticated and delivered and secured. The acceptance of this Series E Note shall be deemed to constitute the consent and agreement by the Holder hereof to all of the terms and provisions of the Indenture. This Series E Note is one of the series designated above. The terms of the Series E Notes include those stated in the Indenture, the Officer's Certificate dated October 29, 2002 (the "Officer's Certificate") and those made part of the Indenture by reference to the Trust Indenture Act. The Series E Notes are subject to all such terms, and Holders of Series E Notes are referred to the Indenture and such Act for a statement A-2 of such terms. To the extent any provision of this Series E Note conflicts with the express provisions of the Indenture or the Officer's Certificate, the provisions of the Indenture and the Officer's Certificate shall govern and be controlling. The Series E Notes are general obligations of the Company initially limited to $250,000,000 aggregate principal amount in the case of Series E Notes issued on the Issue Date. All Outstanding Securities, including the Series E Notes, issued under the Indenture are secured by the lien of the Indenture on the properties of the Company described in the Indenture. The lien of the Indenture is junior, subject and subordinate to the prior lien of the Indenture of Mortgage dated as of October 1, 1953 between the Company and Deutsche Bank, as trustee. 5. Optional Redemption. (a) Except as set forth in subparagraph (b) of this paragraph 5, the Series E Notes shall not be redeemable at the Company's option prior to October 15, 2006. Thereafter, the Series E Notes shall be subject to redemption at any time or from time to time at the option of the Company, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on May 1 of the years indicated below:
YEAR PERCENTAGE - ---- ---------- 2006................................... 105.438% 2007................................... 102.719% 2008 thereafter........................ 100.000%
(b) Notwithstanding the foregoing, at any time or from time to time on or prior to October 15, 2005, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of Series E Notes at a Redemption Price of 110.875% of the principal amount thereof, plus accrued and unpaid interest, if any, and Liquidated Damages thereon, if any, to the Redemption Date, with the net cash proceeds of any public or private offerings of its Equity Interests or capital contribution to the Company's equity made with net cash proceeds of an offering by Sierra Pacific Resources; provided that at least 65% of the aggregate principal amount of Series E Notes remain outstanding immediately after each occurrence of such redemption excluding Series E Notes held by the Company and its Subsidiaries; and provided, further, that each such redemption shall occur within 120 days of the date of the closing of such offering. 6. Notice of Optional Redemption. Notice of optional redemption shall be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder whose Series E Notes are to be redeemed at its registered address. Series E Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Series E Notes held by a Holder are to be redeemed. On and after the redemption date, interest and Liquidated Damages, if any, cease to accrue on Series E Notes or portions thereof called for redemption. 7. Mandatory Redemption. A-3 (a) Other than in connection with clause (b) below or in connection with a redemption at the option of the Holders of the Series E Notes, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Series E Notes. (b) Upon the occurrence of the events described below in clauses (1) or (2) of this paragraph 7(b), the Company shall be required to redeem the Series E Notes immediately, at a Redemption Price equal to 100% of the aggregate principal amount of the Series E Notes plus accrued and unpaid interest and Liquidated Damages, if any, on the Series E Notes to the date of redemption, without further action or notice on the part of the Trustee or the Holders of the Series E Notes: (1) the Company or any of its Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (I) commences a voluntary case, (II) consents to the entry of an order for relief against it in an involuntary case, (III) consents to the appointment of a custodian of it or for all or substantially all of its property, (IV) makes a general assignment for the benefit of its creditors, or (V) admits in writing of its inability to pay its debts generally as they become due; or (2) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (I) is for relief against the Company or any of its Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (II) appoints a custodian of the Company or any of its Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (III) orders the liquidation of the Company or any of its Subsidiaries that is a Significant Subsidiary or any group of Restricted A-4 Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days. 8. Redemption at the Option of Holders. Upon the occurrence of any of the following Triggering Events: (a) failure for 30 days to pay when due interest on, or Liquidated Damages with respect to, the Series E Notes; (b) failure to pay when due the principal of, or premium, if any, on the Series E Notes; (c) failure by the Company or any of its Restricted Subsidiaries to comply with the provisions described in Sections 1(u)(i), 1(u)(ii) or 1(u)(vi) of the Officer's Certificate; (d) failure by the Company or any of its Restricted Subsidiaries for 30 days after notice to comply with the provisions described in Section 1(h)(iii) or (iv) of the Officer's Certificate; (e) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice to comply with any of the other agreements in the Officer's Certificate or the Series E Notes; (f) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the original issue date of the Series E Notes, if that default (i) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (ii) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $15.0 million or more; (g) failure by the Company or any of its Subsidiaries to pay final judgments aggregating in excess of $15.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; or (h) an event of default under the First Mortgage Indenture (other than any such matured event of default which (i) is of similar kind or character to the Triggering Event described in (c) or (e) above and (ii) has not resulted in the acceleration of the securities outstanding under the First Mortgage Indenture); provided, however, that, anything in the Officer's Certificate to the contrary notwithstanding, the waiver or cure of such event of default under the First Mortgage Indenture and the rescission and annulment of the consequences thereof under the First Mortgage Indenture shall constitute a cure of the corresponding Triggering Event and a rescission and annulment of the consequences thereof, the Holders of at least 25% in principal amount of the Series E Notes then Outstanding may deliver a notice to the Company requiring the Company to redeem the Series E Notes immediately at a Redemption Price equal to 100% of the aggregate principal amount of the Series E Notes plus accrued and unpaid interest and Liquidated Damages, if any, on the Series E Notes to the Redemption Date. The Holders of a majority in aggregate principal amount of the Series E Notes then Outstanding by notice to the Company and the Trustee may on behalf of the Holders of all of the Series E Notes waive any existing Triggering Event and its consequences except a continuing Triggering Event related to the payment of interest or Liquidated Damages on, or the principal of, the Series E Notes. In the case of any Triggering Event occurring on or after October 15, 2006 by reason of any willful action or inaction taken or not taken by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then A-5 had elected to redeem the Series E Notes pursuant to the provisions of Section 1(g)(i) of the Officer's Certificate relating to redemption at the option of the Company, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the redemption of the Series E Notes at the option of the Holders thereof. If a Triggering Event occurs prior to October 15, 2006, by reason of any willful action or inaction taken or not taken by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Series E Notes prior to October 15, 2006, then the premium specified in Section 1(g)(ii) of the Officer's Certificate shall also become immediately due and payable to the extent permitted by law upon the redemption of the Series E Notes at the option of the Holders thereof. Upon becoming aware of any Triggering Event, the Company shall deliver to the Trustee a statement specifying such Triggering Event. 9. Original Issue Discount. The Series E Notes have been issued with original issue discount ("OID") for United Stated federal income tax purposes. Upon written request, a representative of the Company will, beginning no later than 10 days after the Original Interest Accrual Date, promptly inform a Holder of the Series E Notes of the amount of OID as well as the issue price, the Original Interest Accrual Date and yield to Maturity of the Series E Notes. Holders may contact Nevada Power Company, P.O. Box 230, 6226 W. Sahara Avenue, Las Vegas, Nevada 89146, Attention: Treasurer. 10. Denominations, Transfer, Exchange. The Series E Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Series E Notes may be registered and Series E Notes may be exchanged as provided in the Indenture and the Officer's Certificate. The Security Registrar and the Trustee may require a Holder of Series E Notes, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder of Series E Notes to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Series E Note or portion of a Series E Note selected for redemption, except for the unredeemed portion of any Series E Note being redeemed in part. Also, it need not exchange or register the transfer of any Series E Notes for a period of 15 days before a selection of Series E Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 11. Persons Deemed Owners. The registered Holder of a Series E Note may be treated as its owner for all purposes. 12. Amendment, Supplement and Waiver. The Indenture permits, with certain exceptions as therein provided, the Trustee to enter into one or more supplemental indentures for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, the Indenture with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities of all series then Outstanding under the Indenture, considered as one class; provided, however, that if there shall be Securities of more than one series Outstanding under the Indenture and if a proposed supplemental indenture shall directly affect the rights of the Holders of Securities of one or more, but less than all, of such series, then the consent only of the Holders of a majority in aggregate principal amount of the Outstanding Securities of all series so directly affected, considered as one class, shall be required; and provided, further, that if the Securities of any series shall have been issued in more than one A-6 Tranche and if the proposed supplemental indenture shall directly affect the rights of the Holders of Securities of one or more, but less than all, of such Tranches, then the consent only of the Holders of a majority in aggregate principal amount of the Outstanding Securities of all Tranches so directly affected, considered as one class, shall be required; and provided, further, that the Indenture permits the Trustee to enter into one or more supplemental indentures for limited purposes without the consent of any Holders of Securities. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Securities then Outstanding, on behalf of the Holders of all Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Series E Note shall be conclusive and binding upon such Holder and upon all future Holders of this Series E Note and of any Series E Note issued upon the registration of transfer hereof or in exchange therefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Series E Note. 13. Events of Default. If an Event of Default shall occur and be continuing, the principal of this Series E Note may be declared due and payable in the manner and with the effect provided in the Indenture. 14. No Recourse Against Others. As provided in the Indenture, no recourse shall be had for the payment of the principal of or premium, if any, or interest on any Securities, or any part thereof, or for any claim based thereon or otherwise in respect thereof, or of the indebtedness represented thereby, or upon any obligation, covenant or agreement under the Indenture, against, and no personal liability whatsoever shall attach to, or be incurred by, any incorporator, stockholder, officer or director, as such, past, present or future of the Company or of any predecessor or successor corporation (either directly or through the Company or a predecessor or successor corporation), whether by virtue of any constitutional provision, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly agreed and understood that the Indenture and all the Securities are solely corporate obligations and that any such personal liability is hereby expressly waived and released as a condition of, and as part of the consideration for, the execution of the Indenture and the issuance of the Securities. 15. Authentication. Unless the certificate of authentication hereon has been executed by the Trustee or an Authenticating Agent by manual signature, this Series E Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 16. Transfer and Exchange. (a) As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Series E Note is registrable in the Security Register, upon surrender of this Series E Note for registration of transfer at the Corporate Trust Office of The Bank of New York in New York, New York or such other office or agency as may be designated by the Company from time to time, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Series E Notes of this series of authorized denominations and of like tenor and aggregate principal amount, will be issued to the designated transferee or transferees. A-7 (b) No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. (c) Prior to due presentment of this Series E Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Series E Note is registered as the absolute owner hereof for all purposes, whether or not this Series E Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. 17. Governing Law. THE SERIES E NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 18. Definition of "Business Day" and Other Terms. As used herein, "Business Day" shall mean any day, other than Saturday or Sunday, on which commercial banks are open for business, including dealings in deposits in U.S. dollars, in New York. All other terms used in this Series E Note which are defined in the Indenture or the Officer's Certificate shall have the meanings assigned to them in the Indenture or the Officer's Certificate, as applicable, unless otherwise indicated. 19. Abbreviations. Customary abbreviations may be used in the name of a Holder of Series E Notes or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 20. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Series E Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement dated as of October 29, 2002 between Nevada Power Company and the parties named on the signature pages thereof (the "Registration Rights Agreement"). 21. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Series E Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders of Series E Notes. No representation is made as to the accuracy of such numbers either as printed on the Series E Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company shall furnish to any Holder of Series E Notes upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Nevada Power Company P.O. Box 230 6226 W. Sahara Avenue Las Vegas, Nevada 89146 Attention: Treasurer. A-8 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. NEVADA POWER COMPANY By: _________________________ Richard K. Atkinson Vice President, Investor Relations And Treasurer CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Dated: October __, 2002 THE BANK OF NEW YORK, as Trustee By: _______________________________ Authorized Signatory A-9 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*** The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
- -------------- -------------- -------------- -------------- --------------- PRINCIPAL AMOUNT OF AMOUNT OF AMOUNT OF THIS SIGNATURE OF DECREASE IN INCREASE IN GLOBAL NOTE AUTHORIZED PRINCIPAL PRINCIPAL FOLLOWING SUCH SIGNATORY OF DATE OF AMOUNT OF THIS AMOUNT OF THIS DECREASE (OR TRUSTEE OR NOTE EXCHANGE GLOBAL NOTE GLOBAL NOTE INCREASE) CUSTODIAN - -------------- -------------- -------------- -------------- ---------------
- -------------------------- *** This should be included only if the Note is issued in global form. A-10 NOTATION OF SUBSIDIARY GUARANTEES Payment of principal of, and premium, if any, interest and Liquidated Damages, if any, on, this Series E Note is jointly, severally, and unconditionally guaranteed on a senior basis to the extent and in the manner set forth in the Indenture by the Guarantors who have become parties to the Indenture, including the Guarantors duly endorsing this notation. Subsidiary Guarantees are subject to release under circumstances set forth in the Indenture. [Insert Names of Guarantors] By [ ] Attorney in fact for each of the Guarantors By:__________________________________________________ Name: Title: A-11 ASSIGNMENT FORM To assign this Series E Note, fill in the form below: (I) or (we) assign and transfer this Series E Note to - ------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint _______________________________________________________ to transfer this Series E Note on the books of the Company. The agent may substitute another to act for him. - ------------------------------------------------------------------------------- Date: Your Signature:________________________________________________________________ (Sign exactly as your name appears on the face of this Series E Note) SIGNATURE GUARANTEE - ------------------------------------------------------------------------------- Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-12 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Series E Note purchased by the Company pursuant to Section 1(h)(iii) (Offer to Purchase upon Change of Control) or 1(h)(iv) (Offer to Purchase Upon Application of Excess Proceeds) of the Officer's Certificate, check the box below: [ ] Section 1(h)(iii) (Offer to Purchase [ ] Section 1(h)(iv)(Offer to upon Change of Control) Purchase Upon Application of Excess Proceeds) If you want to elect to have only part of the Series E Note purchased by the Company pursuant to Section 1(h)(iii) (Offer to Purchase upon Change of Control) or 1(h)(iv) (Offer to Purchase Upon Application of Excess Proceeds) of the Indenture, state the amount you elect to have purchased: $___________________________ Date: Your Signature: _______________________________________________________________ (Sign exactly as your name appears on the face of the Series E Note) Tax Identification No.:________________________________________________________ SIGNATURE GUARANTEE - ------------------------------------------------------------------------------- Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-13 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER Nevada Power Company P.O. Box 230 6226 W. Sahara Avenue Las Vegas, Nevada 89146 Attention: Treasurer The Bank of New York 101 Barclay Street, Floor 21W New York, New York 10286 Attention: Corporate Trust Administration Re: Nevada Power Company 10?% General and Refunding Mortgage Notes, Series E, due 2009 Reference is hereby made to the General and Refunding Mortgage Indenture, dated as of May 1, 2001, as amended or supplemented (the "Indenture"), between Nevada Power Company, as issuer (the "Company") and The Bank of New York, as trustee and the Officer's Certificate dated October 29, 2002 governing the Note[s] (the "Officer's Certificate"). Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture and the Officer's Certificate. ____________________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such in such Note[s] specified in Annex A hereto, in the principal amount of $__________ in such Note[s] or interests (the "Transfer"), to ____________________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. [ ] CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A RESTRICTED DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Officer's Certificate and the Securities Act. B-1 2. [ ] CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE REGULATION S GLOBAL NOTE OR A RESTRICTED DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act and (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture and the Officer's Certificate, the transferred beneficial interest or Definitive Note shall be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note and/or the Definitive Note and in the Officer's Certificate and the Securities Act. 3. [ ] CHECK AND COMPLETE IF TRANSFEREE SHALL TAKE DELIVERY OF A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [ ] such Transfer is being effected to the Company or a subsidiary thereof; or (c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) [ ] such Transfer is being effected to an accredited investor within the meaning of Rule (501)(a)(1), (2), (3) or (7) under the Securities Act ("Institutional Accredited Investor") or pursuant to another exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby certifies that the B-2 Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) if the Transfer is to an Institutional Accredited Investor, a certificate executed by the Transferee in the form of Exhibit D to the Officer's Certificate and (2) an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certificate) to the effect that such Transfer is in compliance with the Securities Act (provided that an Opinion of Counsel need not be furnished in respect of Transfers of a principal amount of Notes of $250,000 or more at the time of Transfer to an Institutional Accredited Investor who furnishes the certificate set forth in (1) above). Upon consummation of the proposed transfer in accordance with the terms of the Indenture and the Officer's Certificate, the transferred beneficial interest or Definitive Note shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Global Note and/or the Definitive Notes and in the Officer's Certificate and the Securities Act. 4. [ ] CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE. (a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture, the Officer's Certificate and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture and the Officer's Certificate, the transferred beneficial interest or Definitive Note shall no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Officer's Certificate. (b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and the Officer's Certificate and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Officer's Certificate and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture and the Officer's Certificate, the transferred beneficial interest or Definitive Note shall no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Officer's Certificate. (c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and the Officer's Certificate and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Officer's Certificate and the Private Placement B-3 Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture and the Officer's Certificate, the transferred beneficial interest or Definitive Note shall not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Officer's Certificate. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. - --------------------------------------------------- [Insert Name of Transferor] By:________________________________________________ Name: Title: Dated:_____________________________________________ B-4 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [ ] a beneficial interest in the: (ii) [ ] 144A Global Note (CUSIP ___________), or (ii) [ ] Regulation S Global Note (CUSIP ___________); or (b) [ ] a Restricted Definitive Note. 2. After the Transfer the Transferee shall hold: [CHECK ONE] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP ___________), or (ii) [ ] Regulation S Global Note (CUSIP ___________), or (iii) [ ] Unrestricted Global Note (CUSIP ___________); or (b) [ ] a Restricted Definitive Note. (c) [ ] an Unrestricted Definitive Note, in accordance with the terms of the Indenture and the Officer's Certificate. B-5 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE Nevada Power Company P.O. Box 230 6226 W. Sahara Avenue Attention: Treasurer Las Vegas, Nevada 89146 The Bank of New York 101 Barclay Street, Floor 21W New York, New York 10286 Attention: Corporate Trust Administration Re: Nevada Power Company 10 7/8% General and Refunding Mortgage Notes, Series E, due 2009 (CUSIP ____________) Reference is hereby made to the General and Refunding Mortgage Indenture, dated as of May 1, 2001, as amended or supplemented (the "Indenture"), between Nevada Power Company, as issuer (the "Company") and The Bank of New York, as trustee, and the Officer's Certificate dated October 29, 2002 governing the Note[s] (the "Officer's Certificate"). Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture and the Officer's Certificate. ____________________ (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $______________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture, the Officer's Certificate and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note C-1 is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture, the Officer's Certificate and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for a beneficiary interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture, the Officer's Certificate and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture, the Officer's Certificate and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. 2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in C-2 accordance with the terms of the Indenture and the Officer's Certificate, the Restricted Definitive Note issued shall continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Officer's Certificate and the Securities Act. (b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE] [ ] 144A Global Note [ ] Regulation S Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture and the Officer's Certificate, the beneficial interest issued shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Officer's Certificate and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ------------------------------- [Insert Name of Owner] By:____________________________ Name: Title: Dated:________________________ C-3 EXHIBIT D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Nevada Power Company P.O. Box 230 6226 W. Sahara Avenue Las Vegas, Nevada 89146 Attention: Treasurer The Bank of New York 101 Barclay Street, Floor 21W New York, New York 10286 Attention: Corporate Trust Administration Re: Nevada Power Company 10 7/8% General and Refunding Mortgage Notes, Series E, due 2009 Reference is hereby made to the General and Refunding Mortgage Indenture, dated as of May 1, 2001, as amended or supplemented (the "Indenture"), among Nevada Power Company, as issuer (the "Company") and The Bank of New York, as trustee, and the Officer's Certificate dated October 29, 2002 governing the Notes (the "Officer's Certificate"). Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture and the Officer's Certificate. In connection with our proposed purchase of $______________ aggregate principal amount of: (a) [ ] a beneficial interest in a Global Note, or (b) [ ] a Definitive Note, we confirm that: 1. we are an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the "Securities Act"), or an entity in which all of the equity owners are accredited investors within the meaning of Rule (501)(a)(1), (2), (3) or (7) under the Securities Act (an "institutional accredited investor"); 2. (i)(A) any purchase of the Notes by us shall be for our own account or for the account of one or more other institutional accredited investors or as fiduciary for the account of one or more trusts, each of which is an "accredited investor" within the meaning of Rule 501(a)(7) under the Securities Act and for each of which we exercise sole investment discretion or (B) we are a "bank," within the meaning of Section 3(a)(2) of the Securities Act, or a "savings and loan association" or other institution described in Section 3(a)(5)(A) of the Securities Act that is acquiring Notes as fiduciary for the account of one or more institutions for which we exercise sole investment discretion; D-1 3. in the event that we purchase any Notes, we shall acquire Notes having a minimum purchase price of not less than $250,000 for our own account and for each separate account for which we are acting; 4. we have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of purchasing Notes; 5. we are not acquiring the Notes with a view to any distribution thereof in a transaction that would violate the Securities Act or the securities laws of any State of the United States or any other applicable jurisdictions, provided that the disposition of our property and the property of any accounts for which we are acting as fiduciary shall remain at all times within our control; 6. we have received a copy of the Offering Memorandum relating to the offering of the Notes and acknowledge that we have had access to such financial and other information, and have been afforded the opportunity to ask such questions of representatives of the Company and receive answers thereto, as we deem necessary in connection with our decision to purchase the Notes; and 7. (vii)(a) we are not an employee benefit plan or other arrangement that is subject to the Employee Retirement Income Security Act of 1974, as amended, or Section 4975 of the Internal Revenue Code of 1986, as amended, or an entity whose underlying assets include assets of such a plan or arrangement (pursuant to 29 C.F.R. Section 2510.3-101 or otherwise), and we are not purchasing (and shall not hold) the Notes on behalf of, or with the assets of, any such plan, arrangement or entity; or (b) our purchase and holding of the Notes are completely covered by the full exemptive relief provided by U.S. Department of Labor Prohibited Transaction Class Exemption 96-23, 95-60, 91-38, 90-1 or 84-14. We understand that the Notes were offered in a transaction not involving any public offering in the United States within the meaning of the Securities Act and that the Notes have not been registered under the Securities Act or any state securities laws, and they were offered for resale in transactions not requiring registration under the Securities Act. We agree on our own behalf and on behalf of any investor account for which we are purchasing the Notes, and each subsequent holder of the Notes by its acceptance of the Notes will agree, to offer, sell or otherwise transfer such notes prior to (x) the date which is two years (or such shorter period of time as permitted by Rule 144(k) under the Securities Act or any successor provision thereunder) after the later of the date of the original issue of the Notes and the last date on which the Company or any of its affiliates were the owner of such Notes (or any predecessor thereto) or (y) such later date, if any, as may be required by applicable law (the "Resale Restriction Termination Date") only: (1) to the Company; (2) pursuant to a registration statement which has been declared effective under the Securities Act; (3) for so long as the Notes are eligible for resale pursuant to Rule 144A, to a person it reasonably believes is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that the transfer is being made in reliance on Rule 144A; (4) pursuant to offers and sales to non-U.S. persons that occur outside the United States within the meaning of Regulation S under the Securities Act; or (5) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in D-2 each of the foregoing cases to any requirements of law that the disposition of its property or the property of such investor account or accounts be at all times within its or their control and in compliance with any applicable state securities laws. Subject to the procedures set forth under Section 1(q)(v) of the Officer's Certificate, prior to any proposed transfer of the Notes (otherwise than pursuant to an effective registration statement) within the period referred to in Rule 144(k) under the Securities Act with respect to such transfer, the Holder of the Notes must check the appropriate box set forth on the reverse of its Notes relating to the manner of such transfer and submit the Notes to the trustee. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. We acknowledge that the Company, the trustee and the transfer agent and security registrar reserve the right prior to any offer, sale or other transfer pursuant this paragraph, prior to the end of the restrictive periods described in clauses (x) and (y) above, to require the delivery of an opinion of counsel, certifications and/or other information satisfactory to the Company, the trustee and the security registrar. We further understand that any Notes we receive shall be in the form of definitive physical certificates and that such certificates shall bear a legend reflecting the substance of this paragraph. THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. We acknowledge that you and the Company shall rely upon the truth and accuracy of our acknowledgments, confirmations and agreements in this letter. Further, we acknowledge and agree that you and the Company are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or, official inquiry with respect to the matters covered hereby. ---------------------------------------- [Insert Name of Accredited Investor] By:______________________________________ Name: Title: Dated:________________________ D-3 EX-4.2 4 b44528spexv4w2.txt FORM OF SERIES E (NEVADA POWER CO.) Exhibit 4.2 EXHIBIT A FORM OF SERIES E NOTES [INSERT THE GLOBAL NOTE LEGEND, IF APPLICABLE, PURSUANT TO THE PROVISIONS OF THE INDENTURE AND THE OFFICER'S CERTIFICATE] [INSERT THE PRIVATE PLACEMENT LEGEND, IF APPLICABLE, PURSUANT TO THE PROVISIONS OF THE INDENTURE AND THE OFFICER'S CERTIFICATE] NEVADA POWER COMPANY 10 7/8% General and Refunding Mortgage Notes, Series E, due 2009 Original Interest Accrual Date: October 29, 2002 Redeemable: Yes [X] No [ ] Stated Maturity: October 15, 2009 Redemption Date: See Below Interest Rate: 10 7/8% Redemption Price: See Below Interest Payment Dates: April 15, and October 15 Record Dates: April 1 and October 1
The Security is not a Discount Security within the meaning of the within-mentioned Indenture. --------------- CUSIP No. ___________ 10 7/8% General and Refunding Mortgage Notes, Series E, due 2009 No. ___ $__________ promises to pay to ______ or registered assigns, the principal sum of __________ Dollars on October 15, 2009. 1. Interest. Nevada Power Company, a Nevada corporation (the "Company"), promises to pay interest on the principal amount of this Series E Note at 10 7/8% per annum, from October 29, 2002 until maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company shall pay interest and Liquidated Damages, if any, semi-annually in arrears on April 15 and October 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Series E Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from Original Interest Accrual Date specified above; provided that if there is no existing Default in the payment of interest, and if this Series E Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest A-1 Payment Date, except in the case of the original issuance of Series E Notes, in which case interest shall accrue from the Original Interest Accrual Date specified above; provided, further, that the first Interest Payment Date shall be April 15, 2003. The Company shall pay interest (including postpetition interest in any proceeding under the Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at the rate borne on the Series E Notes; it shall pay interest (including post-petition interest in any proceeding under the Bankruptcy Law) on overdue installments of interest and Liquidated Damages, if any, (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company shall pay interest on the Series E Notes (except Defaulted Interest) and Liquidated Damages to the Persons who are registered Holders of Series E Notes at the close of business on the April 1 and October 1 next preceding the Interest Payment Date, even if such Series E Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 3.07 of the Indenture with respect to Defaulted Interest. The Series E Notes shall be payable as to principal, premium and Liquidated Damages, if any, and interest at the office or agency of the Company maintained for such purpose within the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders of Series E Notes at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds shall be required with respect to principal of, and interest, premium and Liquidated Damages on, all Global Notes and all other Series E Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. Paying Agent and Security Registrar. Initially, The Bank of New York, the Trustee under the Indenture, shall act as Paying Agent and Security Registrar. The Company may change any Paying Agent or Security Registrar without notice to any Holder of Series E Notes. The Company or any of its Subsidiaries may act in any such capacity. 4. Indenture; Security. This Series E Note is one of a duly authorized issue of Securities of the Company, issued and issuable in one or more series under and equally secured by a General and Refunding Mortgage Indenture, dated as of May 1, 2001 (such Indenture as originally executed and delivered and as supplemented or amended from time to time thereafter, together with any constituent instruments establishing the terms of particular Securities, being herein called the "Indenture"), between the Company and The Bank of New York, Trustee (herein called the "Trustee," which term includes any successor Trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the property mortgaged, pledged and held in trust, the nature and extent of the security and the respective rights, limitations of rights, duties and immunities of the Company, the Trustee and the Holders of the Securities thereunder and of the terms and conditions upon which the Securities are, and are to be, authenticated and delivered and secured. The acceptance of this Series E Note shall be deemed to constitute the consent and agreement by the Holder hereof to all of the terms and provisions of the Indenture. This Series E Note is one of the series designated above. The terms of the Series E Notes include those stated in the Indenture, the A-2 Officer's Certificate dated October 29, 2002 (the "Officer's Certificate") and those made part of the Indenture by reference to the Trust Indenture Act. The Series E Notes are subject to all such terms, and Holders of Series E Notes are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Series E Note conflicts with the express provisions of the Indenture or the Officer's Certificate, the provisions of the Indenture and the Officer's Certificate shall govern and be controlling. The Series E Notes are general obligations of the Company initially limited to $250,000,000 aggregate principal amount in the case of Series E Notes issued on the Issue Date. All Outstanding Securities, including the Series E Notes, issued under the Indenture are secured by the lien of the Indenture on the properties of the Company described in the Indenture. The lien of the Indenture is junior, subject and subordinate to the prior lien of the Indenture of Mortgage dated as of October 1, 1953 between the Company and Deutsche Bank, as trustee. 5. Optional Redemption. (a) Except as set forth in subparagraph (b) of this paragraph 5, the Series E Notes shall not be redeemable at the Company's option prior to October 15, 2006. Thereafter, the Series E Notes shall be subject to redemption at any time or from time to time at the option of the Company, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on May 1 of the years indicated below: YEAR PERCENTAGE ---- ---------- 2006................................... 105.438% 2007................................... 102.719% 2008 thereafter........................ 100.000% (b) Notwithstanding the foregoing, at any time or from time to time on or prior to October 15, 2005, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of Series E Notes at a Redemption Price of 110.875% of the principal amount thereof, plus accrued and unpaid interest, if any, and Liquidated Damages thereon, if any, to the Redemption Date, with the net cash proceeds of any public or private offerings of its Equity Interests or capital contribution to the Company's equity made with net cash proceeds of an offering by Sierra Pacific Resources; provided that at least 65% of the aggregate principal amount of Series E Notes remain outstanding immediately after each occurrence of such redemption excluding Series E Notes held by the Company and its Subsidiaries; and provided, further, that each such redemption shall occur within 120 days of the date of the closing of such offering. 6. Notice of Optional Redemption. Notice of optional redemption shall be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder whose Series E Notes are to be redeemed at its registered address. Series E Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Series E Notes held by a Holder are to be redeemed. On and after the redemption date, interest and Liquidated Damages, if any, cease to accrue on Series E Notes or portions thereof called for redemption. A-3 7. Mandatory Redemption. (a) Other than in connection with clause (b) below or in connection with a redemption at the option of the Holders of the Series E Notes, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Series E Notes. (b) Upon the occurrence of the events described below in clauses (1) or (2) of this paragraph 7(b), the Company shall be required to redeem the Series E Notes immediately, at a Redemption Price equal to 100% of the aggregate principal amount of the Series E Notes plus accrued and unpaid interest and Liquidated Damages, if any, on the Series E Notes to the date of redemption, without further action or notice on the part of the Trustee or the Holders of the Series E Notes: (1) the Company or any of its Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (I) commences a voluntary case, (II) consents to the entry of an order for relief against it in an involuntary case, (III) consents to the appointment of a custodian of it or for all or substantially all of its property, (IV) makes a general assignment for the benefit of its creditors, or (V) admits in writing of its inability to pay its debts generally as they become due; or (2) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (I) is for relief against the Company or any of its Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (II) appoints a custodian of the Company or any of its Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or A-4 (III) orders the liquidation of the Company or any of its Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days. 8. Redemption at the Option of Holders. Upon the occurrence of any of the following Triggering Events: (a) failure for 30 days to pay when due interest on, or Liquidated Damages with respect to, the Series E Notes; (b) failure to pay when due the principal of, or premium, if any, on the Series E Notes; (c) failure by the Company or any of its Restricted Subsidiaries to comply with the provisions described in Sections 1(u)(i), 1(u)(ii) or 1(u)(vi) of the Officer's Certificate; (d) failure by the Company or any of its Restricted Subsidiaries for 30 days after notice to comply with the provisions described in Section 1(h)(iii) or (iv) of the Officer's Certificate; (e) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice to comply with any of the other agreements in the Officer's Certificate or the Series E Notes; (f) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the original issue date of the Series E Notes, if that default (i) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (ii) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $15.0 million or more; (g) failure by the Company or any of its Subsidiaries to pay final judgments aggregating in excess of $15.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; or (h) an event of default under the First Mortgage Indenture (other than any such matured event of default which (i) is of similar kind or character to the Triggering Event described in (c) or (e) above and (ii) has not resulted in the acceleration of the securities outstanding under the First Mortgage Indenture); provided, however, that, anything in the Officer's Certificate to the contrary notwithstanding, the waiver or cure of such event of default under the First Mortgage Indenture and the rescission and annulment of the consequences thereof under the First Mortgage Indenture shall constitute a cure of the corresponding Triggering Event and a rescission and annulment of the consequences thereof, the Holders of at least 25% in principal amount of the Series E Notes then Outstanding may deliver a notice to the Company requiring the Company to redeem the Series E Notes immediately at a Redemption Price equal to 100% of the aggregate principal amount of the Series E Notes plus accrued and unpaid interest and Liquidated Damages, if any, on the Series E Notes to the Redemption Date. The Holders of a majority in aggregate principal amount of the Series E Notes then Outstanding by notice to the Company and the Trustee may on behalf of the Holders of all of the Series E Notes waive any existing Triggering Event and its consequences except a continuing Triggering Event related to the payment of interest or Liquidated Damages on, or the principal of, the Series E Notes. In the case of any Triggering Event occurring on or after October 15, 2006 by reason of any willful action or inaction taken or not taken by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Series E Notes pursuant to the provisions of Section 1(g)(i) of the Officer's Certificate relating to redemption at the option of the Company, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the redemption of the Series E Notes at the option of the Holders thereof. If a Triggering Event occurs prior to October 15, 2006, by reason of any willful A-5 action or inaction taken or not taken by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Series E Notes prior to October 15, 2006, then the premium specified in Section 1(g)(ii) of the Officer's Certificate shall also become immediately due and payable to the extent permitted by law upon the redemption of the Series E Notes at the option of the Holders thereof. Upon becoming aware of any Triggering Event, the Company shall deliver to the Trustee a statement specifying such Triggering Event. 9. Original Issue Discount. The Series E Notes have been issued with original issue discount ("OID") for United Stated federal income tax purposes. Upon written request, a representative of the Company will, beginning no later than 10 days after the Original Interest Accrual Date, promptly inform a Holder of the Series E Notes of the amount of OID as well as the issue price, the Original Interest Accrual Date and yield to Maturity of the Series E Notes. Holders may contact Nevada Power Company, P.O. Box 230, 6226 W. Sahara Avenue, Las Vegas, Nevada 89146, Attention: Treasurer. 10. Denominations, Transfer, Exchange. The Series E Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Series E Notes may be registered and Series E Notes may be exchanged as provided in the Indenture and the Officer's Certificate. The Security Registrar and the Trustee may require a Holder of Series E Notes, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder of Series E Notes to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Series E Note or portion of a Series E Note selected for redemption, except for the unredeemed portion of any Series E Note being redeemed in part. Also, it need not exchange or register the transfer of any Series E Notes for a period of 15 days before a selection of Series E Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 11. Persons Deemed Owners. The registered Holder of a Series E Note may be treated as its owner for all purposes. 12. Amendment, Supplement and Waiver. The Indenture permits, with certain exceptions as therein provided, the Trustee to enter into one or more supplemental indentures for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, the Indenture with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities of all series then Outstanding under the Indenture, considered as one class; provided, however, that if there shall be Securities of more than one series Outstanding under the Indenture and if a proposed supplemental indenture shall directly affect the rights of the Holders of Securities of one or more, but less than all, of such series, then the consent only of the Holders of a majority in aggregate principal amount of the Outstanding A-6 Securities of all series so directly affected, considered as one class, shall be required; and provided, further, that if the Securities of any series shall have been issued in more than one Tranche and if the proposed supplemental indenture shall directly affect the rights of the Holders of Securities of one or more, but less than all, of such Tranches, then the consent only of the Holders of a majority in aggregate principal amount of the Outstanding Securities of all Tranches so directly affected, considered as one class, shall be required; and provided, further, that the Indenture permits the Trustee to enter into one or more supplemental indentures for limited purposes without the consent of any Holders of Securities. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Securities then Outstanding, on behalf of the Holders of all Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Series E Note shall be conclusive and binding upon such Holder and upon all future Holders of this Series E Note and of any Series E Note issued upon the registration of transfer hereof or in exchange therefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Series E Note. 13. Events of Default. If an Event of Default shall occur and be continuing, the principal of this Series E Note may be declared due and payable in the manner and with the effect provided in the Indenture. 14. No Recourse Against Others. As provided in the Indenture, no recourse shall be had for the payment of the principal of or premium, if any, or interest on any Securities, or any part thereof, or for any claim based thereon or otherwise in respect thereof, or of the indebtedness represented thereby, or upon any obligation, covenant or agreement under the Indenture, against, and no personal liability whatsoever shall attach to, or be incurred by, any incorporator, stockholder, officer or director, as such, past, present or future of the Company or of any predecessor or successor corporation (either directly or through the Company or a predecessor or successor corporation), whether by virtue of any constitutional provision, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly agreed and understood that the Indenture and all the Securities are solely corporate obligations and that any such personal liability is hereby expressly waived and released as a condition of, and as part of the consideration for, the execution of the Indenture and the issuance of the Securities. 15. Authentication. Unless the certificate of authentication hereon has been executed by the Trustee or an Authenticating Agent by manual signature, this Series E Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 16. Transfer and Exchange. (a) As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Series E Note is registrable in the Security Register, upon surrender of this Series E Note for registration of transfer at the Corporate Trust Office of The Bank of New York in New York, New York or such other office or agency as may be designated by the Company from time to time, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Series A-7 E Notes of this series of authorized denominations and of like tenor and aggregate principal amount, will be issued to the designated transferee or transferees. (b) No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. (c) Prior to due presentment of this Series E Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Series E Note is registered as the absolute owner hereof for all purposes, whether or not this Series E Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. 17. Governing Law. THE SERIES E NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 18. Definition of "Business Day" and Other Terms. As used herein, "Business Day" shall mean any day, other than Saturday or Sunday, on which commercial banks are open for business, including dealings in deposits in U.S. dollars, in New York. All other terms used in this Series E Note which are defined in the Indenture or the Officer's Certificate shall have the meanings assigned to them in the Indenture or the Officer's Certificate, as applicable, unless otherwise indicated. 19. Abbreviations. Customary abbreviations may be used in the name of a Holder of Series E Notes or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 20. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Series E Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement dated as of October 29, 2002 between Nevada Power Company and the parties named on the signature pages thereof (the "Registration Rights Agreement"). 21. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Series E Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders of Series E Notes. No representation is made as to the accuracy of such numbers either as printed on the Series E Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. A-8 The Company shall furnish to any Holder of Series E Notes upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Nevada Power Company P.O. Box 230 6226 W. Sahara Avenue Las Vegas, Nevada 89146 Attention: Treasurer. A-9 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. NEVADA POWER COMPANY By: ____________________________________ Richard K. Atkinson Vice President, Investor Relations and Treasurer CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Dated: October __, 2002 THE BANK OF NEW YORK, as Trustee By: ______________________________ Authorized Signatory A-10 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*** The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
- --------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT OF THIS GLOBAL NOTE SIGNATURE OF AMOUNT OF DECREASE AMOUNT OF INCREASE FOLLOWING SUCH AUTHORIZED SIGNATORY IN PRINCIPAL AMOUNT IN PRINCIPAL AMOUNT DECREASE (OR OF TRUSTEE OR NOTE DATE OF EXCHANGE OF THIS GLOBAL NOTE OF THIS GLOBAL NOTE INCREASE) CUSTODIAN - ---------------------------------------------------------------------------------------------------------------------
- -------- *** This should be included only if the Note is issued in global form. A-11 ASSIGNMENT FORM To assign this Series E Note, fill in the form below: (I) or (we) assign and transfer this Series E Note to - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint_________________________________________________________ to transfer this Series E Note on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Date: Your Signature:_________________________________________________________________ (Sign exactly as your name appears on the face of this Series E Note) SIGNATURE GUARANTEE - -------------------------------------------------------------------------------- Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-12 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Series E Note purchased by the Company pursuant to Section 1(h)(iii) (Offer to Purchase upon Change of Control) or 1(h)(iv) (Offer to Purchase Upon Application of Excess Proceeds) of the Officer's Certificate, check the box below: [ ] Section 1(h)(iii) (Offer to Purchase [ ] Section 1(h)(iv) (Offer to Purchase upon Change of Control) Upon Application of Excess Proceeds)
If you want to elect to have only part of the Series E Note purchased by the Company pursuant to Section 1(h)(iii) (Offer to Purchase upon Change of Control) or 1(h)(iv) (Offer to Purchase Upon Application of Excess Proceeds) of the Indenture, state the amount you elect to have purchased: $_________________________ Date: Your Signature: ---------------------------------------------------------------- (Sign exactly as your name appears on the face of the Series E Note) Tax Identification No.: --------------------------------------------------------- SIGNATURE GUARANTEE - -------------------------------------------------------------------------------- Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-13 EX-4.3 5 b44528spexv4w3.txt OFFICER'S CERTIFICATE Exhibit 4.3 SIERRA PACIFIC POWER COMPANY OFFICER'S CERTIFICATE October 30, 2002 I, the undersigned officer of Sierra Pacific Power Company (the "Company"), do hereby certify that I am an Authorized Officer of the Company as such term is defined in the Indenture (as defined herein). I am delivering this certificate pursuant to the authority granted in the Board Resolutions of the Company dated September 10, 2002, and Sections 1.04, 2.01, 3.01, 4.01(a) and 4.02(b)(i) of the General and Refunding Mortgage Indenture dated as of May 1, 2001, as heretofore supplemented to the date hereof (as heretofore supplemented, the "Indenture"), between the Company and The Bank of New York, as Trustee (the "Trustee"). Terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Indenture, unless the context clearly requires otherwise. Based upon the foregoing, I hereby certify on behalf of the Company as follows: 1. The terms and conditions of the Securities of the series described in this Officer's Certificate are as follows (the lettered subdivisions set forth in this Paragraph 1 corresponding to the lettered subdivisions of Section 3.01 of the Indenture): (a) The Securities of the third series to be issued under the Indenture shall be designated "General and Refunding Mortgage Bonds, Series C, due October 31, 2005" (the "Bonds"). (b) The Bonds shall be authenticated and delivered in the aggregate principal amount of $100,000,000. (c) Not applicable. (d) The principal of all Bonds shall be payable by the Company in whole or in installments on such date or dates as the Company has any obligations under the Term Loan Agreement dated as of October 30, 2002 (the "Loan Agreement") among the Company, Lehman Brothers Inc., as advisor, sole lead arranger and sole bookrunner, Lehman Commercial Paper Inc., as administrative agent (in such capacity, the "Administrative Agent") and as syndication agent and the other financial institutions or entities party thereto from time to time (the "Lenders") to repay any Loans (as defined in the Loan Agreement) to the Lenders (whether upon scheduled maturity, optional prepayment, required prepayment, acceleration, demand or otherwise), but not later than October 31, 2005. The amount of principal of the Bonds payable by the Company on any such date shall equal the aggregate principal amount of the Loans (as defined in the Loan Agreement) due and payable on such date pursuant to the Loan Agreement (but, in no event, shall exceed the aggregate principal amount of the Bonds). The obligation of the Company to make any payment of the principal on the Bonds shall be fully or partially, as the case may be, deemed to have been paid or otherwise satisfied and discharged to the extent that the Company has paid the principal then due and payable on the Loans made pursuant to the Loan Agreement. If a Default (as defined in the Loan Agreement) in the payment of principal of any Loans shall occur under Section 7(a) of the Loan Agreement, it shall be deemed to be a default, for the purposes of Section 10.01(b) of the Indenture, in payment of an amount of principal of the Bonds equal to the amount of such unpaid principal of the Loans (but, in no event, in excess of the aggregate principal amount of the Bonds). (e) The Bonds shall bear interest from the time hereinafter provided at such rate per annum as shall cause the amount of interest payable on each Interest Payment Date (as hereinafter defined) on the Bonds to equal the amount of interest, fees or such other amounts payable by the Company on such Interest Payment Date under the Loan Agreement. Such interest on the Bonds shall be payable on the same dates as interest and, fees or such other amounts are payable by the Company from time to time under the Loan Agreement (each such date herein called an "Interest Payment Date"), until the maturity of the Bonds, or, in the case the Administrative Agent shall demand redemption of the Bonds, until the redemption date, or, in the case of any default by the Company in the payment of the principal due on the Bonds, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Indenture. The amount of interest, fees or such other amounts payable by the Company from time to time under the Loan Agreement, the basis on which such interest, fees and such other amounts are computed and the dates on which such interest, fees and such other amounts are payable are set forth in the Loan Agreement. Each Bond shall bear interest (a) from the most recent Interest Payment Date, or (b) if no interest has been paid on the Bond, then from the date of the initial authentication of the Bond. The obligation of the Company to make any payment of interest on the Bonds shall be fully or partially, as the case may be, deemed to have been paid or otherwise satisfied and discharged to the extent that the Company has paid the interest on the Loans and fees then due and payable pursuant to the Loan Agreement. If a Default (as defined in the Loan Agreement) in the payment of interest, fees or such other amounts by the Company shall occur under Section 7(a) of the Loan Agreement, it shall be deemed to be a default, for purposes of Section 10.01(a) of the Indenture, in the payment of an amount of interest on the Bonds equal to the amount of such unpaid interest on the Loans, fees and such other amounts. (f) The Corporate Trust Office of The Bank of New York in New York, New York shall be the place at which (i) the principal of and interest on the Bonds shall be payable, (ii) registration of transfer of the Bonds may be effected, (iii) exchanges of the Bonds may be effected and (iv) notices and demands to or upon the Company in respect of the Bonds and the Indenture may be served; and The Bank of New York shall be the Security Registrar for the Bonds; PROVIDED, HOWEVER, that the Company reserves the right to change, by one or more Officer's Certificates, with the consent of the Administrative Agent, any such place or the Security Registrar; and provided, further, that the Company reserves the right to designate, by one or more Officer's Certificates, its principal office in Reno, Nevada as any such place or itself as the Security Registrar; PROVIDED, HOWEVER, 2 that there shall be only a single Security Registrar for the Bonds. The principal of the Bonds shall be payable without the presentment or surrender thereof. (g) Not applicable. (h) Not applicable. (i) The Bonds are issuable only in denominations of $100,000,000. (j) Not applicable. (k) Not applicable. (l) Not applicable. (m) See subsections (d) and (e) above. (n) Not applicable. (o) Not applicable. (p) Not applicable. (q) The Bonds shall be evidenced by a single registered Bond in the principal amount and denomination of One Hundred Million Dollars ($100,000,000). The Bonds shall be dated October 30, 2002, shall mature no later than October 31, 2005 unless sooner paid, and shall bear interest at the rate specified in subsection (e) above. The Bonds may be executed by the Company and delivered to the Trustee for authentication and delivery. The principal of and interest on the Bonds shall be payable at the Corporate Trust Office of the Trustee in New York, New York. The single Bond shall be identified by the number C-1 and shall upon issuance be delivered by the Company to, and registered in the name of, the Administrative Agent, on behalf of itself and the Lenders, and shall be transferable only as required to effect an assignment thereof to a successor or an assign of the Administrative Agent under the Loan Agreement. The Bonds are to be delivered to the Administrative Agent as security for the payment by the Company of its Obligations (as defined in the Loan Agreement). The single Bond shall be held by the Administrative Agent subject to the terms of the Bond Delivery Agreement, dated as of October 30, 2002, between the Company and the Administrative Agent. Bonds issued upon transfer shall be numbered consecutively from C-2 upwards and issued in the same $100,000,000 denomination. See also subsection(s) below. (r) Not applicable. 3 (s) The holder of the Bond by acceptance of the Bond agrees to restrictions on transfer and to waivers of certain rights of exchange as set forth herein. In addition, the Bond has not been registered under the Securities Act of 1933 and the Bond may not be transferred without compliance with applicable securities laws. The Bond is not transferable except to a successor to the Administrative Agent under the Loan Agreement. (t) For purposes of the Bonds, "Business Day" shall mean any day that is not a Saturday, Sunday or other day on which commercial banks in Los Angeles, California or New York, New York are authorized or required by law to remain closed. (u) The Trustee may conclusively presume that the obligation of the Company to pay the principal of and interest on the Bond shall have been fully satisfied and discharged unless and until it shall have received a written notice from the Administrative Agent, signed by an authorized officer of the Administrative Agent and attested by the Secretary or an Assistant Secretary of the Administrative Agent, stating that the payment of principal of or interest on the Bond has not been fully paid when due and specifying the amount of funds required to make such payment. The Bonds shall have such other terms and provisions as are provided in the form thereof attached hereto as EXHIBIT A, and shall be issued in substantially such form. 2. The undersigned has read all of the covenants and conditions contained in the Indenture, and the definitions in the Indenture relating thereto, relating to the issuance of the Bonds and in respect of compliance with which this certificate is made. The statements contained in this certificate are based upon the familiarity of the undersigned with the Indenture, the documents accompanying this certificate, and upon discussions by the undersigned with officers and employees of the Company familiar with the matters set forth herein. In the opinion of the undersigned, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenants and conditions have been complied with. In the opinion of the undersigned, such conditions and covenants have been complied with. 4 IN WITNESS WHEREOF, the undersigned has executed this Officer's Certificate as of the date first written above. By: ------------------------------------------ Name: Richard K. Atkinson Title: Vice President, Investor Relations and Treasurer Received on October __, 2002 THE BANK OF NEW YORK, as Trustee By: ------------------------------------------- Name: Stacey B Poindexter Title: Assistant Treasurer 5 EXHIBIT A FORM OF BONDS SEE EXHIBIT 4.4 EX-4.4 6 b44528spexv4w4.txt FORM OF SERIES C (SIERRA PACIFIC POWER CO.) Exhibit 4.4 NOTE: THE HOLDER OF THIS BOND BY ACCEPTANCE HEREOF AGREES TO RESTRICTIONS ON TRANSFER, TO WAIVERS OF CERTAIN RIGHTS OF EXCHANGE, AND TO INDEMNIFICATION PROVISIONS AS SET FORTH BELOW. IN ADDITION, THE BOND REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND SUCH BOND MAY NOT BE TRANSFERRED WITHOUT COMPLIANCE WITH APPLICABLE SECURITIES LAWS. THIS BOND IS NOT TRANSFERABLE EXCEPT TO A SUCCESSOR OR ASSIGN OF THE ADMINISTRATIVE AGENT UNDER THE LOAN AGREEMENT REFERRED TO HEREIN AMONG THE COMPANY AND THE SEVERAL PARTIES THERETO. SIERRA PACIFIC POWER COMPANY General and Refunding Mortgage Bonds, Series C, due October 31, 2005 Original Interest Accrual Date: October 30, 2002 Redeemable by Company: Yes [ ] No [X] Stated Maturity: October 31, 2005 Redemption Date: N/A Interest Rate: See below Redemption Price: N/A Interest Payment Dates: See below Regular Record Dates: N/A
This Security is not a Discount Security within the meaning of the within-mentioned Indenture. ------------------------------------ Principal Amount $100,000,000 No. C-1 SIERRA PACIFIC POWER COMPANY, a corporation duly organized and existing under the laws of the State of Nevada (herein called the "Company," which term includes any successor corporation under the Indenture referred to below), for value received, hereby promises to pay to LEHMAN COMMERCIAL PAPER INC., as Administrative Agent (the "Administrative Agent"), or its registered assigns, on behalf of itself and the Lenders (as defined below), the principal sum of ONE HUNDRED MILLION DOLLARS, or such lesser principal amount as shall be equal to the aggregate principal amount of Loans (as defined in the Loan Agreement defined below) outstanding from time to time under the Loan Agreement (as defined below), in whole or in installments on such date or dates as the Company has any obligations under the Loan Agreement to repay any Loans to the Lenders (whether upon scheduled maturity, optional prepayment, required prepayment, acceleration, demand or otherwise), but not later than the Stated Maturity specified above. The amount of principal of this Bond payable by the Company on any such date shall equal the aggregate principal amount of the Loans due and payable on such date pursuant to the Loan Agreement (but, in no event, shall exceed the principal amount of this Bond). The obligation of the Company to make any payment of the principal on this Bond shall be fully or partially, as the case may be, deemed to have been paid or otherwise satisfied and discharged to the extent that the Company has paid the principal then due and payable on the Loans made pursuant to the Loan Agreement. Interest shall be payable on this Bond on each Interest Payment Date (as hereinafter defined) at such rate per annum as shall cause the amount of interest payable on such Interest Payment Date on this Bond to equal the amount of interest, fees or such other amounts payable by the Company on such Interest Payment Date under the Loan Agreement. Such interest shall be payable on the same dates as interest, fees or such other amounts are payable by the Company from time to time under to the Loan Agreement (each such date herein called an "Interest Payment Date"), until the maturity of this Bond, or, if the Administrative Agent shall demand redemption of this Bond, until the redemption date, or, if the Company shall default in the payment of the principal due on this Bond, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Indenture. The amount of interest, fees or such other amounts payable by the Company from time to time under the Loan Agreement, the basis on which such interest, fees and such other amounts are computed and the dates on which such interest fees and such other amounts are payable are set forth in the Loan Agreement. This Bond shall bear interest (a) from the most recent Interest Payment Date, or (b) if no interest has been paid on this Bond, then from the date of initial authentication of this Bond. The obligation of the Company to make any payment of interest on this Bond shall be fully or partially, as the case may be, deemed to have been paid or otherwise satisfied and discharged to the extent that the Company has paid the interest on the Loans and fees then due and payable pursuant to the Loan Agreement. This Bond is issued to the Administrative Agent by the Company pursuant to the Company's obligations under the Term Loan Agreement, dated as of October 30, 2002 (as amended, supplemented, restated or otherwise modified from time to time, the "Loan Agreement"), among the Company, Lehman Brothers Inc., as advisor, sole lead arranger and sole bookrunner, the Administrative Agent, Lehman Commercial Paper Inc., as syndication agent and the other financial institutions or entities party thereto from time to time (the "Lenders"). This Bond shall be held by the Administrative Agent subject to the terms of the Bond Delivery Agreement, dated as of October 30, 2002, between the Company and the Administrative Agent. Any capitalized terms used herein and not defined herein shall have the meanings specified in the Indenture (as defined below), unless otherwise noted. If a Default (as defined in the Loan Agreement) shall have occurred under Section 7(a) of the Loan Agreement by reason of a failure by the Company to make a payment of principal of any Loans when the same shall be due and payable by the Company under to the Loan Agreement, it shall be deemed to be a default, for purposes of Section 10.01(b) of the Indenture, in payment of an amount of principal of this Bond equal to the amount of such unpaid principal of the Loans (but, in no event, in excess of the principal amount of this Bond). If a Default (as defined in the Loan Agreement) shall have occurred under Section 7(a) of the Loan Agreement by reason of a failure by the Company to make a payment of interest, fees or such other amounts when the same shall be due and payable by the Company pursuant to the Loan Agreement, it shall be deemed to be a default, for purposes of Section 10.01(a) of the Indenture, in the payment of an amount of interest on this Bond equal to the amount of such unpaid interest on the Loans, fees and such other amounts. The Administrative Agent shall surrender this Bond to the Trustee when all of the principal of and interest on the Loans made pursuant to the Loan Agreement shall have been duly paid, all fees payable by the Company under the Loan Agreement shall have been duly paid, and the Loan Agreement shall have been terminated. Payments of the principal of and interest on this Bond shall be made at the Corporate Trust Office of The Bank of New York located at 101 Barclay Street, 8W, New York, New York 10286 or at such other office or agency as may be designated for such purpose by the Company from time to time. 2 Payment of the principal of and interest on this Bond, as aforesaid, shall be made in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. This Bond is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and issuable in one or more series under and equally secured by a General and Refunding Mortgage Indenture, dated as of May 1, 2001 (such Indenture as originally executed and delivered and as supplemented or amended from time to time thereafter, together with any constituent instruments establishing the terms of particular Securities, being herein called the "Indenture"), between the Company and The Bank of New York, as trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the property mortgaged, pledged and held in trust, the nature and extent of the security and the respective rights, limitations of rights, duties and immunities of the Company, the Trustee and the Holders of the Securities thereunder and of the terms and conditions upon which the Securities are, and are to be, authenticated and delivered and secured. The acceptance of this Bond shall be deemed to constitute the consent and agreement by the Holder hereof to all of the terms and provisions of the Indenture. This Bond is one of the series designated above. The Bonds of this series will not be entitled to the benefit of any sinking fund or optional redemption provisions. If an Event of Default, as defined in the Indenture, shall occur and be continuing, the principal of this Bond may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the Trustee to enter into one or more supplemental indentures for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, the Indenture with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities of all series then Outstanding under the Indenture, considered as one class; provided, however, that if there shall be Securities of more than one series Outstanding under the Indenture and if a proposed supplemental indenture shall directly affect the rights of the Holders of Securities of one or more, but less than all, of such series, then the consent only of the Holders of a majority in aggregate principal amount of the Outstanding Securities of all series so directly affected, considered as one class, shall be required; and provided, further, that if the Securities of any series shall have been issued in more than one Tranche and if the proposed supplemental indenture shall directly affect the rights of the Holders of Securities of one or more, but less than all, of such Tranches, then the consent only of the Holders of a majority in aggregate principal amount of the Outstanding Securities of all Tranches so directly affected, considered as one class, shall be required; and provided, further, that the Indenture permits the Trustee to enter into one or more supplemental indentures for limited purposes without the consent of any Holders of Securities. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Securities then Outstanding, on behalf of the Holders of all Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Bond shall be conclusive and binding upon such Holder and upon all future Holders of this Bond and of any Security issued upon the registration of transfer hereof or in exchange therefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Bond. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Bond is registrable in the Security Register, upon surrender of this Bond for registration of transfer at the Corporate Trust Office of The Bank of New York in New York, New York or such other office or agency as may be designated by the Company from time to time, duly endorsed by, or accompanied by a written 3 instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Bonds of this series of authorized denominations and of like tenor and aggregate principal amount, will be issued to the designated transferee or transferees. This Bond has been issued by the Company to the Administrative Agent to (i) provide for the payment of the Company's obligations to make payments to any person under the Loan Agreement and (ii) provide to such persons the benefits of the security provided for this Bond pursuant to the Indenture. The Company, the Trustee and any agent of the Company or the Trustee may deem and treat the person in whose name this Bond shall be registered upon the Security Register for the Bonds of this series as the absolute owner of such Bond for the purpose of receiving payment of or on account of the principal of and interest on this Bond and for all other purposes, whether or not this Bond be overdue, and neither the Company nor the Trustee shall be affected by any notice to the contrary; and all such payments so made to such registered owner or upon his order shall be valid and effectual to satisfy and discharge the liability upon this Bond to the extent of the sum or sums paid. The Trustee may conclusively presume that the obligation of the Company to pay the principal of and interest on this Bond shall have been fully satisfied and discharged unless and until it shall have received a written notice from the Administrative Agent, signed by an authorized officer of the Administrative Agent and attested by the Secretary or an Assistant Secretary of the Administrative Agent, stating that the payment of principal of or interest on this Bond has not been fully paid when due and specifying the amount of funds required to make such payment. Before any transfer of this Bond by the registered holder or his or its legal representative will be recognized or given effect by the Company or the Trustee, the registered holder shall note the amounts of all reductions in the principal payments under the Loan Agreement, and shall notify the Company and the Trustee of the name and address of the transferee and shall afford the Company and the Trustee the opportunity of verifying the notation as to such reductions. By acceptance hereof the holder of this Bond and each transferee shall be deemed to have agreed to indemnify and hold harmless the Company and the Trustee against all losses, claims, damages or liability arising out of any failure on part of the holder or of any such transferee to comply with the requirements of the preceding sentence. No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in any indenture supplemental thereto, or in any Bond or coupon thereby secured, or because of any indebtedness thereby secured, shall be had against any incorporator, or against any past, present or future stockholder, officer or director, as such, of the Company or any successor corporation, either directly or through the Company or of any successor corporation under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise; it being expressly agreed and understood that the Indenture, any indenture supplemental thereto and the obligations thereby secured, are solely corporate obligations, and that no personal liability whatsoever shall attach to, or be incurred by, such incorporators, stockholders, officers or directors, as such, of the Company or of any successor corporation, or any of them, because of the incurring of the indebtedness thereby authorized, or under or by reason of any of the obligations, covenants or agreements contained in the Indenture or in any indenture supplemental thereto or in any of the Bonds or coupons thereby secured, or implied therefrom. This Bond shall be governed by and construed in accordance with the laws of the State of New York. 4 Unless the certificate of authentication hereon has been executed by the Trustee or an Authenticating Agent by manual signature, this Bond shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. [The remainder of this page is intentionally left blank.] 5 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. SIERRA PACIFIC POWER COMPANY By: ___________________________________________________ Name: Richard K. Atkinson Title: Treasurer and Investor Relations Officer CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Dated: October __, 2002 THE BANK OF NEW YORK, as Trustee By: ___________________________________________________ Authorized Signatory 6 EX-10.1 7 b44528spexv10w1.txt DONALD L. SHALMY EMPLOYMENT LETTER Exhibit 10.1 May 21, 2002 Mr. Donald L. "Pat" Shalmy 379 Placer Creek Lane Henderson NV 89014 Dear Pat, On behalf of the Board of Directors, I am pleased to offer you employment as Senior Vice President, Nevada Power. Your work location will be at Sierra Pacific - Nevada Power headquarters in Las Vegas, Nevada. You will report directly to me in this position. We expect that you will assume your duties as soon as possible. Your starting base salary in this position will be $300,000. You will also be eligible for an annual cash incentive, Short Term Incentive Program (STIP), of 45% (target) of your base salary. Payment of the Short Term Incentive is at the discretion of the Board of Directors and is based on corporate, business unit and personal performance. Actual payout may vary from 0% to 150% of target. Your participation for 2002 will be prorated from your start date. Long-term incentives for this position are in accordance with the plan approved by the shareholders and administered by the Board of Directors. At this time, long-term incentives consist of Non-Qualified Stock Options (NQSO's) and performance shares. For your position the long-term incentive is targeted at 75% of your base salary, 60% delivered through NQSO's and 40% delivered through Performance Shares. The NQSO's vest one-third per year and are fully vested after the third year. Performance shares have a three-year term and are earned based on measures established by the Board for each grant. You will also be eligible to participate on a pro-rata basis (31 of 36 months) in the 2002-2004 Performance Share grant made earlier this year. In addition you will also be able to participate in the 2001-2003 Performance Share grant for the remaining 19 of the original 36 months. As a special inducement for you to join SPR, the Board has also authorized the following incentives. A one-time signing bonus of $25,000, gross amount before taxes. In addition, you will receive a special stock option grant of 25,000 NQSO's at a strike price to be set based on the closing stock price on the day you accept this offer by signing it and informing me that you have done so. These options will vest at the end of one year, or upon change of control if such an event were to occur before the end of one year. As a Senior Vice President, you will be expected to achieve and maintain one and a half times your annual compensation in SPR stock. You will have five years to achieve this level. Should an event occur on or before December 31, 2002, which would constitute a change of control or potential change of control (as defined under the terms of company's senior executive change of control plan), and if your employment is terminated or you are notified that it will be 1 terminated, you will be eligible to receive one year's base pay plus target annual incentive, upon termination, unless your employment is terminated for (1) reasons relating to moral turpitude, (2) conviction of any crime amounting to a felony, or (3) on you own volition and without actually being requested to resign by the Board. This payment shall be conditioned on the execution of appropriate releases in favor of the Company for any and all claims connected with or arising out of your employment or termination and will require continued maintenance of confidential and proprietary information, a non-compete for one year and agreement not to disparage the Company. Beginning January 1, 2003 you will be eligible for inclusion within the company's senior executive change of control plan. You will be eligible to participate in the Company's Supplemental Executive Retirement Plan (SERP) and eligible for benefits under this Plan including a maximum benefit of 50% of your Final Average Earnings. The Company will also provide you life insurance coverage of $400,000 contingent upon completion of a physical exam performed by a doctor selected by our insurance carrier. This will be in addition to a $1,000,000 policy in the event that you die while traveling on Company business and company provided group life insurance equivalent to 1.5 times your annual salary. You will be eligible for all regular employee benefits including a 401K plan that matches employee contributions dollar for dollar up to 6% and SPR's Deferred Compensation Plan. You will receive a perquisite allowance of $15,000 to cover such expenses as a car, tax preparation and club memberships. You will receive paid time off (PTO) based on your total years of professional work experience (40). Your annual paid time off allowance will be 33.4 days, plus 11 paid holidays. In 2002, PTO will be pro rated based on your hire date. In addition to the benefits described above, in the event you are terminated for reasons other than (1) reasons relating to moral turpitude, (2) conviction of any crime amounting to a felony, or (3) on you own volition and without actually being requested to resign by the Board, you will receive within thirty days of termination, one year of base salary. This payment shall be conditioned on the execution of appropriate releases in favor of the Company for any and all claims connected with or arising out of your employment or termination and will require continued maintenance of confidential and proprietary information, a non-compete for one year and agreement not to disparage the Company. As is Sierra's policy, all hiring offers are contingent on a drug analysis test. We can arrange for you to have this test at a time and place convenient for you. Also you will need to provide us proof of U.S. Citizenship on your first day of work. This could include a copy of your Birth Certificate, Driver's License or Social Security Card. The position being offered to you is one of trust and confidence. In accepting the position you are agreeing that, in addition to any other limitation and regardless of the circumstances or any future limitation of your employment, you will not communicate to any person, firm or other entity any knowledge relating to documents, transactions or any other confidential knowledge which you might acquire with respect to the business of Sierra Pacific Resources or any of its affiliated companies. To indicate acceptance of this offer, please sign below and return one signed original of this letter to me as soon as possible. If you have questions about elements of this offer, you may call me or discuss them with Victor H. Pena, Senior Vice President and CAO. 2 On behalf of the board and the senior officers of the company, I am delighted that you have accepted the opportunity to join Nevada Power and the Sierra Pacific team. We believe, with your leadership, expertise and dedication we will accomplish great results for our shareholders, customers, employees and communities. Welcome! Sincerely, Walter M. Higgins Accepted: _________________________________ Donald L. "Pat" Shalmy Date ____________________________ 3 EX-10.2 8 b44528spexv10w2.txt JOHN F. YOUNG EMPLOYMENT LETTER Exhibit 10. 2 May 22, 2002 -- AMENDED AGREEMENT Mr. John F. Young 4505 Dudley Lane Atlanta GA 30327 Dear John, On behalf of the Board of Directors, I am pleased to offer you employment as Senior Vice President Energy Supply for Sierra Pacific Resources for a period of one (1) year. At the end of one (1) year, by mutual agreement, either this contract may be extended for an additional period or you may become a regular full time employee of the company. Your primary work location will be Las Vegas, Nevada. The job does require business travel especially between Las Vegas and Reno. We expect that you will assume your duties as soon as possible. Your starting base salary in this position will be $275,000. You will also be eligible for an annual cash incentive (STIP) of 45% of your base salary. Payment of the Short Term Incentive is at the discretion of the Board of Directors and is based on corporate, business unit and personal performance. Actual payout may vary from 0% to 150% of target. Your participation for 2002 will be prorated from your start date. Long-term incentives for this position are in accordance with the plan approved by the shareholders and administered by the Board of Directors. At this time, long-term incentives consist of Non-Qualified Stock Options (NQSO's) and performance shares. For your position the long-term incentive is targeted at 75% of your base salary, 60% delivered through NQSO's and 40% delivered through Performance Shares. The NQSO's vest one-third per year and are fully vested after the third year. Performance shares have a three-year term and are earned based on measures established by the Board for each grant. You will also be eligible to participate on a pro-rata basis (31 of 36 months) in the 2002-2004 Performance Share grant made earlier this year. In addition you will also be able to participate in the 2001-2003 Performance Share grant for the remaining 19 of the original 36 months. As a special inducement for you to join SPR, the Board has also authorized the following incentives. A one-time signing bonus of $35,000, gross amount before taxes. In addition, you will receive a special stock option grant of 25,000 NQSO's at a strike price to be set based on the closing stock price on the day you accept this offer by signing it and informing me that you have done so. These options will vest at the end of one year, or upon change of control if such an event were to occur before the end of one year, or if you are released from employment for other than the reasons described below. Should you become a regular employee as a Senior Vice President, you will be expected to achieve and maintain one and a half times your annual compensation in SPR stock. You will have five years to achieve this level. You will be eligible to participate in the Company's Supplemental Executive Retirement Plan (SERP) and eligible for benefits under this Plan including a maximum benefit of 50% of your Final Average Earnings. The Company will also provide you life insurance coverage of $400,000 contingent upon completion of a physical exam performed by a doctor selected by our insurance carrier. This will be in addition to a $1,000,000 policy in the event that you die while traveling on Company business and company provided group life insurance equivalent to 1.5 of your annual salary. You will be eligible for all regular employee benefits including a 401K plan that matches employee contributions dollar for dollar up to 6% and SPR's Deferred Compensation Plan. You will receive a perquisite allowance of $9,100 to cover such expenses as a car, tax preparation and club memberships. You will receive paid time off (PTO) based on your total years of professional work experience (27). Your annual paid time off allowance will be 43 days, which include 11 paid holidays. In 2002, it will be pro rated based on your hire date. In addition to the benefits described above, in the event you are terminated for reasons other than (1) reasons relating to moral turpitude, (2) conviction of any crime amounting to a felony, or (3) on your own volition and without actually being requested to resign by the Board, you will receive within thirty days of termination, one year of base salary. This payment shall be conditioned on the execution of appropriate releases in favor of the Company for any and all claims connected with or arising out of your employment or termination and will require continued maintenance of confidential and proprietary information, a non-compete for one year and agreement not to disparage the Company. This offer includes reimbursement for reasonable relocation expenses including travel to/from your current home, packing and transportation of your household goods, expenses related to acquisition of a new home in Las Vegas and commission on the sale of your current home. You will be allowed to delay your relocation for up to one year from the date of conversion to regular employee. The Company will pay for your reasonable travel expenses to make visits home during this period. The Company will provide temporary apartment housing in Las Vegas until your permanent relocation takes place. As is Sierra's policy, all hiring offers are contingent on a drug analysis test. We can arrange for you to have this test at a time and place convenient for you. Also you will need to provide us proof of U.S. Citizenship on your first day of work. This could include a copy of your Birth Certificate, Driver's License or Social Security Card. The position being offered to you is one of trust and confidence. In accepting the position you are agreeing that, in addition to any other limitation and regardless of the circumstances or any future limitation of your employment, you will not communicate to any person, firm or other entity any knowledge relating to documents, transactions or any other confidential knowledge which you might acquire with respect to the business of Sierra Pacific Resources or any of its affiliated companies. 2 To indicate acceptance of this offer, please sign below and return one signed original of this letter to me as soon as possible. If you have questions about elements of this offer, you may call me or discuss them with Victor H. Pena, Senior Vice President and CAO. On behalf of the board and the senior officers of the company, I am delighted that you have accepted the opportunity to join Sierra. We believe, with your leadership, expertise and dedication we will accomplish great results for our shareholders, customers, employees and communities. Welcome! Sincerely, Walter M. Higgins Accepted: ______________________________ John F. Young Date _________________________ 3 EX-10.3 9 b44528spexv10w3.txt TERM LOAN AGREEMENT Exhibit 10.3 =============================================================================== $100,000,000 TERM LOAN AGREEMENT AMONG SIERRA PACIFIC POWER COMPANY, AS BORROWER, THE SEVERAL LENDERS FROM TIME TO TIME PARTIES HERETO, LEHMAN BROTHERS INC., AS ARRANGER LEHMAN COMMERCIAL PAPER INC., AS SYNDICATION AGENT AND LEHMAN COMMERCIAL PAPER INC., AS ADMINISTRATIVE AGENT DATED AS OF OCTOBER 30, 2002 =============================================================================== TABLE OF CONTENTS
Page SECTION 1. DEFINITIONS..................................................... 1 1.1 Defined Terms............................................ 1 1.2 Other Definitional Provisions............................ 16 SECTION 2. AMOUNT AND TERMS OF COMMITMENTS................................. 16 2.1 Commitments.............................................. 16 2.2 Procedure for Borrowing.................................. 16 2.3 Repayment of Loans....................................... 17 2.4 Repayment of Loans; Evidence of Debt..................... 17 2.5 Fees, etc................................................ 18 2.6 Optional Prepayments..................................... 18 2.7 Mandatory Prepayments.................................... 18 2.8 Conversion and Continuation Options...................... 19 2.9 Minimum Amounts and Maximum Number of Eurodollar Tranches 20 2.10 Interest Rates and Payment Dates......................... 20 2.11 Computation of Interest and Fees......................... 20 2.12 Inability to Determine Interest Rate..................... 21 2.13 Pro Rata Treatment and Payments.......................... 21 2.14 Requirements of Law...................................... 22 2.15 Taxes.................................................... 23 2.16 Indemnity................................................ 25 2.17 Illegality............................................... 25 2.18 Change of Lending Office................................. 26 SECTION 3. REPRESENTATIONS AND WARRANTIES.................................. 26 3.1 Financial Condition...................................... 26 3.2 No Change................................................ 27 3.3 Corporate Existence; Compliance with Law................. 27 3.4 Corporate Power; Authorization; Enforceable Obligations.. 28 3.5 No Legal Bar............................................. 28 3.6 No Material Litigation................................... 28 3.7 No Default............................................... 28 3.8 Ownership of Property; Liens............................. 28 3.9 Intellectual Property.................................... 28 3.10 Taxes.................................................... 29 3.11 Federal Regulations...................................... 29 3.12 Government Approval and Filings.......................... 29 3.13 Labor Matters............................................ 29 3.14 ERISA.................................................... 30 3.15 Investment Company Act; Other Regulations................ 30 3.16 Subsidiaries............................................. 30 3.17 Use of Proceeds.......................................... 30 3.18 Environmental Matters.................................... 30 3.19 Accuracy of Information, etc............................. 31 3.20 Bond Delivery Agreement; G&R Series C Mortgage Bond...... 32
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Page 3.21 Solvency................................................. 32 SECTION 4. CONDITIONS PRECEDENT............................................ 32 4.1 Conditions to Loans...................................... 32 SECTION 5. AFFIRMATIVE COVENANTS........................................... 34 5.1 Financial Statements..................................... 34 5.2 Certificates; Other Information.......................... 35 5.3 Payment of Obligations................................... 36 5.4 Conduct of Business and Maintenance of Existence, etc.... 36 5.5 Maintenance of Property; Insurance....................... 37 5.6 Inspection of Property; Books and Records; Discussions... 37 5.7 Notices.................................................. 37 5.8 Environmental Laws....................................... 38 5.9 Termination of Existing Credit Agreement................. 38 SECTION 6. NEGATIVE COVENANTS.............................................. 38 6.1 Financial Condition Covenants............................ 38 6.2 Limitation on Indebtedness............................... 39 6.3 Limitation on Liens...................................... 40 6.4 Limitation on Fundamental Changes........................ 41 6.5 Limitation on Disposition of Property.................... 42 6.6 Limitation on Restricted Payments........................ 42 6.7 Limitation on Capital Expenditures....................... 43 6.8 Limitation on Investments................................ 43 6.9 Modifications of Instruments, etc........................ 44 6.10 Limitation on Transactions with Affiliates............... 44 6.11 Limitation on Sales and Leasebacks....................... 44 6.12 Limitation on Changes in Fiscal Periods.................. 44 6.13 Limitation on Negative Pledge Clauses.................... 44 6.14 Limitation on Restrictions on Subsidiary Distributions... 45 6.15 Limitation on Subordinated Debt.......................... 45 6.16 Limitation on Lines of Business.......................... 45 6.17 Limitation on Amendments to Other Documents.............. 45 6.18 Limitation on Hedge Agreements........................... 45 6.19 Limitations on Release from Liens........................ 45 SECTION 7. EVENTS OF DEFAULT............................................... 45 SECTION 8. THE AGENTS...................................................... 48 8.1 Appointment.............................................. 48 8.2 Delegation of Duties..................................... 48 8.3 Exculpatory Provisions................................... 48 8.4 Reliance by Agents....................................... 49 8.5 Notice of Default........................................ 49 8.6 Non-Reliance on Agents and Other Lenders................. 49 8.7 Indemnification.......................................... 50 8.8 Agent in Its Individual Capacity......................... 50 8.9 Successor Administrative Agent........................... 51 8.10 The Arranger; the Syndication Agent...................... 51 SECTION 9. MISCELLANEOUS................................................... 51
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Page 9.1 Amendments and Waivers................................... 51 9.2 Notices.................................................. 52 9.3 No Waiver; Cumulative Remedies........................... 53 9.4 Survival of Representations and Warranties............... 53 9.5 Payment of Expenses...................................... 53 9.6 Successors and Assigns; Participations and Assignments... 55 9.7 Adjustments; Set-off..................................... 58 9.8 Counterparts............................................. 58 9.9 Severability............................................. 58 9.10 Integration.............................................. 58 9.11 GOVERNING LAW............................................ 59 9.12 Submission To Jurisdiction; Waivers...................... 59 9.13 Acknowledgments.......................................... 59 9.14 Confidentiality.......................................... 60 9.15 [Reserved]............................................... 60 9.16 Accounting Changes....................................... 60 9.17 Delivery of Lender Addenda............................... 60 9.18 WAIVERS OF JURY TRIAL.................................... 60
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SCHEDULES: 3.2 Disclosed Matters 3.4 Consents, Authorizations, Filings and Notices 3.6 Material Litigation 3.7 Contractual Obligations 3.16 Subsidiaries 6.2(d) Existing Indebtedness 6.3(f) Existing Liens 6.5 Scheduled Asset Sales 7(e)(ii) Certain Hedge Agreements
EXHIBITS: A Form of Bond Delivery Agreement B Form of Compliance Certificate C Form of Closing Certificate D Form of Assignment and Acceptance E-1 Form of Legal Opinion of Choate, Hall & Stewart E-2 Form of Legal Opinion of Woodburn & Wedge F Form of Term Note G Form of Exemption Certificate H Form of Lender Addendum I Form of Borrowing Notice
TERM LOAN AGREEMENT, dated as of October 30, 2002, among SIERRA PACIFIC POWER COMPANY, a Nevada corporation (the "Borrower"), the several banks and other financial institutions or entities from time to time parties to this Agreement (the "Lenders"), LEHMAN BROTHERS INC., as advisor, sole lead arranger and sole bookrunner (in such capacity, the "Arranger"), LEHMAN COMMERCIAL PAPER INC., as syndication agent (in such capacity, the "Syndication Agent"), and LEHMAN COMMERCIAL PAPER INC., as administrative agent (in such capacity, the "Administrative Agent"). W I T N E S S E T H: WHEREAS, the Borrower has requested that the Lenders make available to the Borrower term loans on the terms set forth herein; and WHEREAS, the Lenders are willing to make such term loans upon and subject to the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the agreements hereinafter set forth, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the terms listed in this Section 1.1 shall have the respective meanings set forth in this Section 1.1. "Administrative Agent": as defined in the preamble hereto. "Affiliate": as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Agents": the collective reference to the Syndication Agent and the Administrative Agent. "Aggregate Exposure": with respect to any Lender at any time, an amount equal to (a) until the Closing Date, the amount of such Lender's Commitment at such time and (b) thereafter, the aggregate principal amount of such Lender's Loan outstanding at such time. "Aggregate Exposure Percentage": with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender's Aggregate Exposure at such time to the sum of the Aggregate Exposures of all Lenders at such time. "Agreement": this Term Loan Agreement, as amended, supplemented or otherwise modified from time to time. 2 "Applicable Margin": (a) with respect to Base Rate Loans, 6.50%, and (b) with respect to Eurodollar Loans, 7.50%. "Arranger": as defined in the preamble hereto. "Asset Sale": any Disposition of Property or series of related Dispositions of Property (excluding any such Disposition permitted by clause (a), (b), (c), (d) or (e) of Section 6.5) which yields gross proceeds to the Borrower or any of its Subsidiaries (valued at the initial principal amount thereof in the case of non-cash proceeds consisting of notes or other debt securities and valued at fair market value in the case of other non-cash proceeds) in excess of $1,000,000. "Assignee": as defined in Section 9.6(c). "Assignor": as defined in Section 9.6(c). "Base Rate": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the prime lending rate as set forth on the British Banking Association Telerate Page 5 (or such other comparable page as may, in the opinion of the Administrative Agent, replace such page for the purpose of displaying such rate), as in effect from time to time. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Base Rate Loans": Loans for which the applicable rate of interest is based upon the Base Rate. "Benefitted Lender": as defined in Section 9.7. "Board": the Board of Governors of the Federal Reserve System of the United States (or any successor). "Bond Delivery Agreement": the Bond Delivery Agreement, dated as of the Closing Date, between the Borrower and the Administrative Agent. "Borrower": as defined in the preamble hereto. "Borrowing Notice": a notice from the Borrower, substantially in the form of, and containing the information prescribed by, Exhibit I, delivered to the Administrative Agent. "Business Day": (a) for all purposes other than as covered by clause (b) below, a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close and (b) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (a) and which is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar market. 3 "Calculation Period": as defined in Section 6.6(b). "Capital Expenditures": for any period, with respect to any Person, the aggregate of all expenditures by such Person for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) which are required to be capitalized under GAAP on a balance sheet of such Person. "Capital Lease Obligations": with respect to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP; and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. "Capital Stock": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. "Cash Equivalents": (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank deposits having maturities of six months or less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof having combined capital and surplus of not less than $500,000,000; (c) commercial paper of an issuer rated at least A-2 by Standard & Poor's Ratings Services ("S&P") or P-2 by Moody's Investors Service, Inc. ("Moody's"), or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within six months from the date of acquisition; (d) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's; (f) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition; and (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition. "Change of Control": the occurrence of any of the following events: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities 4 Exchange Act of 1934, as amended (the "Exchange Act")) shall become, or obtain rights (whether by means or warrants, options or otherwise) to become, the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of more than 20% of the outstanding common stock of Resources; (b) Resources shall cease to own and control, of record and beneficially, directly, 100% of each class of outstanding Capital Stock of the Borrower free and clear of all Liens or (c) for any period of 12 consecutive calendar months, a majority of the Board of Directors of Resources shall no longer be composed of individuals (i) who were members of said Board on the first day of such period, (ii) whose election or nomination to said Board was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of said Board or (iii) whose election or nomination to said Board was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of said Board. "Closing Date": the date on which the conditions precedent set forth in Section 4.1 shall have been satisfied, which date shall be not later than October 31, 2002. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Commitment": as to any Lender, the obligation of such Lender to make a Loan on the Closing Date to the Borrower pursuant to Section 2.1 in a principal amount not to exceed the amount set forth under the heading "Commitment" opposite such Lender's name on Schedule 1 to the Lender Addendum delivered by such Lender. The original aggregate amount of the Commitments is $100,000,000. "Commonly Controlled Entity": an entity, whether or not incorporated, that is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group that includes the Borrower and that is treated as a single employer under Section 414 of the Code. "Compliance Certificate": a certificate duly executed by a Responsible Officer, substantially in the form of Exhibit B. "Confidential Information Memorandum": the Confidential Information Memorandum dated October 2002 and furnished to the initial Lenders in connection with the syndication of the Term Loan Facility. "Consolidated EBITDA": of any Person for any period, Consolidated Net Income of such Person and its Subsidiaries for such period plus, without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) income tax expense, (b) Consolidated Interest Expense of such Person and its Subsidiaries, amortization or write-off of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with Indebtedness, (c) depreciation and amortization expense, (d) amortization of intangibles (including, but not limited to, goodwill) and organization costs, (e) any extraordinary, unusual or non-recurring expenses or losses (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, losses on sales of assets outside of the ordinary course of business) and (f) any other non-cash charges (excluding Disallowed Deferred Energy Expenses), and minus, to 5 the extent included in the statement of such Consolidated Net Income for such period, the sum of (a) interest income (except to the extent deducted in determining Consolidated Interest Expense), (b) any extraordinary, unusual or non-recurring income or gains (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, gains on the sales of assets outside of the ordinary course of business) and (c) any other non-cash income, all as determined on a consolidated basis. "Consolidated Interest Coverage Ratio": for any period, the ratio of (a) Consolidated EBITDA of the Borrower and its Subsidiaries for such period to (b) Consolidated Interest Expense of the Borrower and its Subsidiaries for such period. "Consolidated Interest Expense": of any Person for any period, total interest expense (including that attributable to Capital Lease Obligations) of such Person and its Subsidiaries for such period with respect to all outstanding Indebtedness of such Person and its Subsidiaries (including, without limitation, all commissions, discounts and other fees and charges owed by such Person with respect to letters of credit and bankers' acceptance financing and net costs of such Person under Hedge Agreements in respect of interest rates to the extent such net costs are allocable to such period in accordance with GAAP). "Consolidated Net Income": of any Person for any period, the consolidated net income (or loss) of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided, that in calculating Consolidated Net Income of the Borrower and its consolidated Subsidiaries for any period, there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person (other than a Subsidiary of the Borrower) in which the Borrower or any of its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by the Borrower or such Subsidiary in the form of dividends or similar distributions and (c) the undistributed earnings of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any Contractual Obligation (other than under any Loan Document) or Requirement of Law applicable to such Subsidiary. "Consolidated Total Capitalization": at any date, the sum of (a) Consolidated Total Debt at such date, plus (b) all amounts that would, in conformity with GAAP, be included on a consolidated balance sheet of the Borrower and its Subsidiaries under stockholders' equity at such date (including all preferred Capital Stock issued by the Borrower). "Consolidated Total Debt": at any date, the aggregate principal amount of all Indebtedness of the Borrower and its Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP. "Consolidated Total Debt Ratio": at any date, the ratio of (a) Consolidated Total Debt at such date to (b) Consolidated Total Capitalization at such date. 6 "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its Property is bound. "Control Investment Affiliate": as to any Person, any other Person that (a) directly or indirectly, is in control of, is controlled by, or is under common control with, such Person and (b) is organized by such Person primarily for the purpose of making equity or debt investments in one or more companies. For purposes of this definition, "control" of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Default": any of the events specified in Section 7, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Disallowed Deferred Energy Expenses": energy expenses of the Borrower disallowed pursuant to any order from the Public Utilities Commission of Nevada and reflected as a non-cash charge for such disallowed expense in the financial statements of the Borrower. "Disposition": with respect to any Property, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof; and the terms "Dispose" and "Disposed of" shall have correlative meanings. "Dollars" and "$": lawful currency of the United States of America. "Domestic Subsidiary": any Subsidiary of the Borrower organized under the laws of any jurisdiction within the United States of America. "Environmental Laws": any and all laws, rules, orders, regulations, statutes, ordinances, guidelines, codes, decrees, or other legally enforceable requirements (including, without limitation, common law) of any international authority, foreign government, the United States, or any state, local, municipal or other governmental authority, regulating, relating to or imposing liability or standards of conduct concerning protection of the environment or of human health, or employee health and safety, as has been, is now, or may at any time hereafter be, in effect. "Environmental Permits": any and all permits, licenses, approvals, registrations, notifications, exemptions and other authorizations required under any Environmental Law. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurocurrency Reserve Requirements": for any day, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves) under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System. 7 "Eurodollar Base Rate": with respect to each day during each Interest Period, the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Telerate screen as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on Page 3750 of the Telerate screen (or otherwise on such screen), the "Eurodollar Base Rate" for purposes of this definition shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Administrative Agent. "Eurodollar Loans": Loans for which the applicable rate of interest is based upon the Eurodollar Rate. "Eurodollar Rate": with respect to each day during each Interest Period, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate --------------------------------- 1.00 - Eurocurrency Reserve Requirements Notwithstanding the rate determined by any calculation pursuant to the foregoing formula, the Eurodollar Rate shall not be less than 3.00% at any time. "Eurodollar Tranche": the collective reference to Eurodollar Loans the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day). "Event of Default": any of the events specified in Section 7, provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Existing Credit Agreement": the Credit Agreement dated as of November 30, 2001, as amended, among the Borrower, the lenders party thereto from time to time, Union Bank of California, N.A. as the administrative agent and the other agents party thereto. "Federal Funds Effective Rate": for any day, 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 on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Reference Lender from three federal funds brokers of recognized standing selected by it. "First Mortgage Bonds": obligations issued from time to time under, and secured by, the First Mortgage Indenture "First Mortgage Indenture": the Indenture of Mortgage dated as of December 1, 1940, from the Borrower to State Street Bank and Trust Company (successor to The New England Trust Company), as trustee, and Gerald R. Wheeler (successor to Leo W. Huegle), as co-Trustee, as modified, amended or supplemented at any time or from time to time by supplemental indentures. 8 "FQ1", "FQ2 ", "FQ3", and "FQ4": when used with a numerical year designation, means the first, second, third or fourth fiscal quarters, respectively, of such fiscal year of the Borrower. (e.g., FQ4 2002 means the fourth fiscal quarter of the Borrower's 2002 fiscal year, which ends December 31, 2002). "Funding Office": the office specified from time to time by the Administrative Agent as its funding office by notice to the Borrower and the Lenders. "GAAP": generally accepted accounting principles in the United States of America as in effect from time to time. "G&R Series C Mortgage Bond": the Borrower's General and Refunding Mortgage Bond, Series C, due October 30, 2005, issued to the Administrative Agent under the General and Refunding Mortgage Indenture, in the aggregate principal amount of $100,000,000. "General and Refunding Mortgage Indenture": the General and Refunding Mortgage Indenture, dated as of May 1, 2001, between the Borrower and The Bank of New York, as trustee, as the same may be amended, modified or supplemented from time to time. "Governmental Authority": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee Obligation": as to any Person (the "guaranteeing person"), any obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit), if to induce the creation of such obligation of such other Person the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any Property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase Property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such 9 guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. "Hedge Agreements": all interest rate or currency swaps, caps or collar agreements, foreign exchange agreements, commodity contracts or similar arrangements entered into by the Borrower or its Subsidiaries providing for protection against fluctuations in interest rates, currency exchange rates, commodity prices or the exchange of nominal interest obligations, either generally or under specific contingencies. The term "Hedge Agreements" shall in any event include any forward energy purchase or sale contracts or similar arrangements entered into by the Borrower or its Subsidiaries. "Indebtedness": of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of Property or services (other than trade payables incurred in the ordinary course of such Person's business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to Property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such Property), (e) all Capital Lease Obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account party or applicant under acceptance, letter of credit or similar facilities, (g) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any Capital Stock of such Person, (h) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (g) above; and (i) all obligations of the kind referred to in clauses (a) through (h) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on Property (including, without limitation, accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation. "Indemnified Liabilities": as defined in Section 9.5. "Indemnitee": as defined in Section 9.5. "Insolvency": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. "Intellectual Property": the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom. "Interest Payment Date": (a) as to any Base Rate Loan, the last day of each January, April, July and October to occur while such Loan is outstanding and the final maturity 10 date of such Loan, (b) as to any Eurodollar Loan having an Interest Period of three months or shorter, the last day of such Interest Period, (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day that is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period and (d) as to any Loan, the date of any repayment or prepayment made in respect thereof. "Interest Period": as to any Eurodollar Loan, (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following: (1) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (2) any Interest Period that would otherwise extend beyond the date final payment is due on the Loans shall end on such due date; and (3) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period. "Investments": as defined in Section 7.8. "Lehman Entity": any of Lehman Commercial Paper Inc. or any of its affiliates (including Syndicated Loan Funding Trust). "Lender Addendum": with respect to any initial Lender, a Lender Addendum, substantially in the form of Exhibit H, to be executed and delivered by such Lender on the Closing Date as provided in Section 9.17. "Lenders": as defined in the preamble hereto. "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any capital lease having substantially the same economic effect as any of the foregoing). 11 "Loan": as defined in Section 2.1. "Loan Documents": this Agreement, the Bond Delivery Agreement and the Term Notes. "Loan Percentage": as to any Lender at any time, the percentage which such Lender's Commitment then constitutes of the aggregate Commitments (or, at any time after the Closing Date, the percentage which the aggregate principal amount of such Lender's Loan then outstanding constitutes of the aggregate principal amount of the Loans then outstanding). "Material Adverse Effect": a material adverse effect on (a) the business, assets, property, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole or (b) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights or remedies of the Agents or the Lenders hereunder or thereunder. "Material Environmental Amount": an amount or amounts payable by the Borrower and/or any of its Subsidiaries, in the aggregate in excess of $5,000,000, for: costs to comply with any Environmental Law; costs of any investigation, and any remediation, of any Material of Environmental Concern; and compensatory damages (including, without limitation damages to natural resources), punitive damages, fines, and penalties pursuant to any Environmental Law. "Materials of Environmental Concern": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutants, contaminants, radioactivity, and any other substances or forces of any kind, whether or not any such substance or force is defined as hazardous or toxic under any Environmental Law, that is regulated pursuant to or could give rise to liability under any Environmental Law. "Multiemployer Plan": a Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Cash Proceeds": (a) in connection with any Asset Sale or any Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale or Recovery Event, net of attorneys' fees, accountants' fees, investment banking fees, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset which is the subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a Security Document) and other customary fees and expenses actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements) and (b) in connection with the issuance of any Capital Stock or instruments or the incurrence of loans, the cash proceeds received from such issuance or incurrence, net of attorneys' fees, investment banking fees, accountants' fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith. 12 "Non-Excluded Taxes": as defined in Section 2.15(a). "Non-U.S. Lender": as defined in Section 2.15(d). "Obligations": the unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Loans and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans and all other obligations and liabilities of the Borrower to the Administrative Agent or to any Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document, or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees, charges and disbursements of counsel to the Administrative Agent or to any Lender that are required to be paid by the Borrower pursuant hereto) or otherwise. "Other Taxes": any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document. "Participant": as defined in Section 9.6(b). "Payment Date": as defined in Section 6.6(b). "Payment Office": the office specified from time to time by the Administrative Agent as its payment office by notice to the Borrower and the Lenders. "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (or any successor). "Person": an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at a particular time, any employee benefit plan that is covered by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pro Forma Balance Sheet": as defined in Section 3.1(a). "Projections": as defined in Section 5.2(c). "Property": any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including, without limitation, Capital Stock. 13 "Receivables Sale Documentation": collectively, (i) the Receivables Purchase Agreement, dated as of October 29, 2002, among Sierra Pacific Power Company, as Seller, and SPPC Receivables Finance Corporation, (ii) the Sale and Servicing Agreement, dated as of October 29, 2002, among SRP Receivables Finance Corporation, as Issuer, SPPC Receivables Finance Corporation, as Seller, and Sierra Pacific Power Company, as Servicer, (ii) the Base Indenture, dated as of October 29, 2002, among SRP Receivables Finance Corporation, as Issuer, and Deutsche Bank Trust Company Americas, as Indenture Trustee, (iv) the Series 2002-1 Indenture Supplement, dated as of October 29, 2002, among SRP Receivables Finance Corporation, as Issuer, Sierra Pacific Resources, as Administrator, certain conduit purchasers, certain committed purchasers, certain program managers, Lehman Commercial Paper Inc., as Master Administrator, and Deutsche Bank Trust Company Americas, as Indenture Trustee, (v) the Administration Agreement, between SRP Receivables Finance Corporation and Sierra Pacific Resources, as Administrator, (vi) the Guarantee, dated as of October 29, 2002, made by Sierra Pacific Resources in favor of the Indenture Trustee, (vii) the Collection Account Control Agreement, dated as of October 29, 2002, between the SRP Receivables Finance Corporation, Deutsche Bank Trust Company Americas, as Indenture Trustee and Deutsche Bank Trust Company Americas, as Collection Account Securities Intermediary, (viii) the Lock-Box Agreement, dated as of October 29, 2002, among Nevada Power Company, SRP Receivables Finance Corporation, Deutsche Bank Trust Company Americas, as Indenture Trustee, Deutsche Bank Trust Company Americas, as Lock-Box Bank and EDS Information Services L.L.C., as Lock-Box Processor, (ix) the Lock-Box Agreement, dated as of October 29, 2002, among Sierra Pacific Power Company, SRP Receivables Finance Corporation, Deutsche Bank Trust Company Americas, as Indenture Trustee, Wells Fargo Bank, N.A., as Lock-Box Bank and EDS Information Services L.L.C., as Lock-Box Processor, (x) the Remittance Account Agreement, dated at or about October 30, 2002, among the Bank, SRP Receivables Finance Corporation, as Issuer, Nevada Power Company, as Servicer and Deutsche Bank Trust Company Americas, as Indenture Trustee and (xi) the Remittance Account Agreement, dated at or about October 30, 2002, among the Bank, SRP Receivables Finance Corporation, as Issuer, Sierra Pacific Power Company, as Servicer and Deutsche Bank Trust Company Americas, as Indenture Trustee. "Receivables Sale Transaction": the transactions contemplated by the Receivables Sale Documentation. "Recovery Event": any settlement of or payment in respect of any property or casualty insurance claim or any condemnation proceeding relating to any asset of the Borrower or any of its Subsidiaries. "Reference Lender": Deutsche Bank, New York Office. "Register": as defined in Section 9.6(d). "Regulation H": Regulation H of the Board as in effect from time to time. "Regulation U": Regulation U of the Board as in effect from time to time. "Reinvestment Deferred Amount": with respect to any Reinvestment Event, the aggregate Net Cash Proceeds received by the Borrower or any of its Subsidiaries in connection 14 therewith that are not applied to prepay the Loans pursuant to Section 2.7(b) as a result of the delivery of a Reinvestment Notice. "Reinvestment Event": any Asset Sale, Purchase Price Refund or Recovery Event in respect of which the Borrower has delivered a Reinvestment Notice. "Reinvestment Notice": a written notice executed by a Responsible Officer stating that no Default or Event of Default has occurred and is continuing and that the Borrower (directly or indirectly through a Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds of an Asset Sale, Purchase Price Refund or Recovery Event to acquire assets, rebuild, replace or repair properties, or make capital improvements useful in its business. "Reinvestment Prepayment Amount": with respect to any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any amount expended prior to the relevant Reinvestment Prepayment Date to acquire assets, or rebuild, replace or repair properties, useful in the Borrower's business. "Reinvestment Prepayment Date": with respect to any Reinvestment Event, the earlier of (a) the date occurring one year after such Reinvestment Event and (b) the date on which the Borrower shall have determined not to, or shall have otherwise ceased to, acquire assets, or rebuild, replace or repair properties, useful in the Borrower's business with all or any portion of the relevant Reinvestment Deferred Amount. "Related Fund": with respect to any Lender, any fund that (x) invests in commercial loans and (y) is managed or advised by the same investment advisor as such Lender or an affiliate of such investment advisor, by such Lender or an Affiliate of such Lender. "Reorganization": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reportable Event": any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg.ss. 4043. "Required Lenders": at any time, the holders of more than 50% of (a) until the Closing Date, the Commitments and (b) thereafter, the sum of the aggregate unpaid principal amount of the Loans then outstanding . "Requirement of Law": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, 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. "Resources": Sierra Pacific Resources, a Nevada corporation. 15 "Responsible Officer": the chief executive officer, president, senior vice-president, vice-president, chief financial officer or treasurer of the Borrower, but in any event, with respect to financial matters, the chief financial officer or the treasurer of the Borrower. "Restricted Payments": as defined in Section 6.6. "SEC": the Securities and Exchange Commission (or successors thereto or an analogous Governmental Authority). "Security Documents": the collective reference to the Bond Delivery Agreement and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any Property of any Person to secure the obligations and liabilities of the Borrower under any Loan Document. "Single Employer Plan": any Plan that is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "Solvent": with respect to any Person, as of any date of determination, (a) the amount of the "present fair saleable value" of the assets of such Person will, as of such date, exceed the amount of all "liabilities of such Person, contingent or otherwise", as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) "debt" means liability on a "claim", and (ii) "claim" means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured. "Subsidiary": as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "Term Loan Facility": the Commitments and the Loans made thereunder. "Term Note": as defined in Section 2.4(e). "Transferee": as defined in Section 9.15. 16 "Type": as to any Loan, its nature as a Base Rate Loan or a Eurodollar Loan. "Wholly Owned Subsidiary": as to any Person, any other Person all of the Capital Stock of which (other than directors' qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries. 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the other Loan Documents or any certificate or other document made or delivered pursuant hereto or thereto. (b) As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms relating to the Borrower and its Subsidiaries not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (e) All calculations of financial ratios set forth in Section 6.1 shall be calculated to the same number of decimal places as the relevant ratios are expressed in and shall be rounded upward if the number in the decimal place immediately following the last calculated decimal place is five or greater. For example, if the relevant ratio is to be calculated to the hundredth decimal place and the calculation of the ratio is 5.126, the ratio will be rounded up to 5.13. SECTION 2. AMOUNT AND TERMS OF COMMITMENTS 2.1 Commitments. (a) Subject to the terms and conditions hereof, the Lenders severally agree to make term loans (each, a "Loan") to the Borrower on the Closing Date in an amount for each Lender not to exceed the amount of the Commitment of such Lender. The Loans may from time to time be Eurodollar Loans or Base Rate Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.2 and 2.8. (b) The Loans shall be funded by each Lender to the Borrower at a 3% discount; accordingly, the amount funded by each Lender to the Borrower on the Closing Date shall be an amount equal to 97% of the stated principal amount of such Loan. 2.2 Procedure for Borrowing. The Borrower shall deliver to the Administrative Agent a Borrowing Notice (which Borrowing Notice must be received by the Administrative Agent prior to 10:00 A.M., New York City time, one Business Day prior to the anticipated Closing Date) requesting that the Lenders make the Loans on the Closing Date. The Loans made on the Closing Date shall initially be Base Rate Loans, and no Loan may be 17 converted into or continued as a Eurodollar Loan having an Interest Period in excess of one month prior to the date which is 5 days after the Closing Date. Upon receipt of such Borrowing Notice the Administrative Agent shall promptly notify each Lender thereof. Not later than 12:00 Noon, New York City time, on the Closing Date each Lender shall make available to the Administrative Agent at the Funding Office an amount in immediately available funds equal to the Loan or Loans to be made by such Lender. The Administrative Agent shall make available to the Borrower the aggregate of the amounts made available to the Administrative Agent by the Lenders, in like funds as received by the Administrative Agent. 2.3 Repayment of Loans. The Loan of each Lender shall mature in 12 consecutive quarterly installments, commencing on January 31, 2003, each of which shall be in an amount equal to such Lender's Loan Percentage multiplied by the amount set forth below opposite such installment:
Installment Principal Amount - ----------- ---------------- January 31, 2003, April 30, 2003, July 31, 2003, October 31, 2003, January 31, 2004, April 30, 2004, July 31, 2004 and October 31, 2004................................. $ 250,000 January 31, 2005, April 30, 2005, July 31, 2005 and October 31, 2005................................. $24,500,000
2.4 Repayment of Loans; Evidence of Debt.(a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the stated principal amount of the Loan of such Lender (without any reduction in respect of the discount at which the Loans were funded on the Closing Date) in installments according to the amortization schedule set forth in Section 2.3 (or on such earlier date on which the Loans become due and payable pursuant to Section 7). The Borrower hereby further agrees to pay interest on the unpaid principal amount of the Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in Section 2.10. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Borrower to such Lender resulting from the Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (c) The Administrative Agent, on behalf of the Borrower, shall maintain the Register pursuant to Section 9.6(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Loan made hereunder and any Term Note evidencing such Loan, the Type of such Loan and each Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof. (d) The entries made in the Register and the accounts of each Lender maintained pursuant to Section 2.4(b) shall, to the extent permitted by applicable law, be prima 18 facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loan made to the Borrower by such Lender in accordance with the terms of this Agreement. (e) The Borrower agrees that, upon the request to the Administrative Agent by any Lender, the Borrower will promptly execute and deliver to such Lender a promissory note of the Borrower evidencing the Loan of such Lender, substantially in the form of Exhibit F (a "Term Note"), with appropriate insertions as to date and principal amount; provided, that delivery of Term Notes shall not be a condition precedent to the occurrence of the Closing Date or the making of the Loans on the Closing Date. 2.5 Fees, etc. (a) The Borrower agrees to pay to the Arranger the fees in the amounts and on the dates previously agreed to in writing by the Borrower and the Arranger. (b) The Borrower agrees to pay to the Administrative Agent the fees in the amounts and on the dates from time to time agreed to in writing by the Borrower and the Administrative Agent. (c) Each prepayment in respect of the Loans (whether optional or mandatory) on or prior to the second anniversary of the Closing Date shall be accompanied by payment to the Administrative Agent, for the ratable account of the Lenders, of a prepayment premium equal to (i) if such prepayment is made prior to the first anniversary of the Closing Date, 2% of the principal amount of such prepayment and (ii) if such prepayment is made on or after the first anniversary of the Closing Date and prior to the second anniversary of the Closing Date, 1% of the principal amount of such prepayment. 2.6 Optional Prepayments. The Borrower may at any time and from time to time prepay the Loans, in whole or in part, without premium or penalty except as otherwise provided herein, upon irrevocable notice delivered to the Administrative Agent at least three Business Days prior thereto in the case of Eurodollar Loans and at least one Business Day prior thereto in the case of Base Rate Loans, which notice shall specify the date and amount of such prepayment, and whether such prepayment is of Eurodollar Loans or Base Rate Loans; provided, that if a Eurodollar Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.16. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid. Partial prepayments of Loans shall be in an aggregate principal amount of $1,000,000 or a whole multiple thereof. 2.7 Mandatory Prepayments. (a) If any Indebtedness shall be incurred by the Borrower or any of its Subsidiaries (excluding any Indebtedness incurred in accordance with Section 6.2 as in effect on the date of this Agreement), then, on the date of such incurrence, the Loans shall be prepaid by an amount equal to the amount of the Net Cash Proceeds of such incurrence. The provisions of the paragraph do not constitute a consent to the incurrence of any Indebtedness not permitted by Section 6.2. 19 (b) If any Capital Stock shall be issued by the Borrower (excluding any Capital Stock issued to Resources and any capital contributions received by the Borrower from Resources), then, on the date of such issuance, the Loans shall be prepaid by an amount equal to 50% of the amount of the Net Cash Proceeds of such issuance. The provisions of the paragraph do not constitute a consent to any Change of Control. (c) If, on any date the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or Recovery Event, then, unless a Reinvestment Notice shall be delivered in respect thereof, on the date of receipt by the Borrower or any of its Subsidiaries of such Net Cash Proceeds, the Loans shall be prepaid by an amount equal to the amount of such Net Cash Proceeds; provided, that, notwithstanding the foregoing, (i) the aggregate Net Cash Proceeds of Asset Sales that may be excluded from the foregoing requirement pursuant to a Reinvestment Notice shall not exceed $5,000,000 in any fiscal year of the Borrower and (ii) on each Reinvestment Prepayment Date the Loans shall be prepaid by an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event. The provisions of this paragraph do not constitute a consent to the consummation of any Disposition not permitted by Section 6.5. (d) The application of any prepayment pursuant to this Section 2.7 shall be made, first, to Base Rate Loans and, second, to Eurodollar Loans. Each prepayment of the Loans under this Section 2.7 shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid. 2.8 Conversion and Continuation Options. (a) The Borrower may elect from time to time to convert Eurodollar Loans to Base Rate Loans by giving the Administrative Agent at least two Business Days' prior irrevocable notice of such election, provided that any such conversion of Eurodollar Loans may be made only on the last day of an Interest Period with respect thereto. The Borrower may elect from time to time to convert Base Rate Loans to Eurodollar Loans by giving the Administrative Agent at least three Business Days' prior irrevocable notice of such election (which notice shall specify the length of the initial Interest Period therefor), provided that no Base Rate Loan may be converted into a Eurodollar Loan (i) when any Event of Default has occurred and is continuing and the Administrative Agent has, or the Required Lenders have, determined in its or their sole discretion not to permit such conversions or (ii) after the date that is one month prior to the final scheduled maturity date of the Loans. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. (b) The Borrower may elect to continue any Eurodollar Loan as such upon the expiration of the then current Interest Period with respect thereto by giving irrevocable notice to the Administrative Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in Section 1.1, of the length of the next Interest Period to be applicable to such Loans, provided that no Eurodollar Loan may be continued as such (i) when any Event of Default has occurred and is continuing and the Administrative Agent has, or the Required Lenders have, determined in its or their sole discretion not to permit such continuations or (ii) after the date that is one month prior to the final scheduled maturity date of the Loans, and provided, further, that if the Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso, such 20 Loans shall be converted automatically to Base Rate Loans on the last day of such then expiring Interest Period. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. 2.9 Minimum Amounts and Maximum Number of Eurodollar Tranches. Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions, continuations and optional prepayments of Eurodollar Loans and all selections of Interest Periods shall be in such amounts and be made pursuant to such elections so that, (a) after giving effect thereto, the aggregate principal amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof and (b) no more than ten Eurodollar Tranches shall be outstanding at any one time. 2.10 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin in effect for such day. (b) Each Base Rate Loan shall bear interest for each day on which it is outstanding at a rate per annum equal to the Base Rate in effect for such day plus the Applicable Margin in effect for such day. (c) (i) If all or a portion of the principal amount of any Loan shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), all outstanding Loans (whether or not overdue) shall bear interest (to the extent legally permitted) at a rate per annum that is equal to the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section plus 2% and (ii) if all or a portion of any interest payable on any Loan or any fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate then applicable to Base Rate Loans plus 2%, in each case, with respect to clauses (i) and (ii) above, from the date of such non-payment until such amount is paid in full (after as well as before judgment). (d) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (c) of this Section shall be payable from time to time on demand. 2.11 Computation of Interest and Fees. (a) Interest and fees payable pursuant hereto shall be calculated on the basis of a 360-day year for the actual days elapsed, except that, with respect to Base Rate Loans on which interest is calculated on the basis of the Prime Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the Base Rate or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of the effective date and the amount of each such change in interest rate. 21 (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to Section 2.10(a). 2.12 Inability to Determine Interest Rate. If prior to the first day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or (b) the Administrative Agent shall have received notice from the Required Lenders that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the relevant Lenders as soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as Base Rate Loans, (y) any Loans that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as Base Rate Loans and (z) any outstanding Eurodollar Loans shall be converted, on the last day of the then current Interest Period with respect thereto, to Base Rate Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made or continued as such, nor shall the Borrower have the right to convert Loans to Eurodollar Loans. 2.13 Pro Rata Treatment and Payments. (a) Each borrowing by the Borrower from the Lenders hereunder and any reduction of the Commitments of the Lenders shall be made pro rata according to the respective Loan Percentages of the Lenders. (b) Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Loans shall be made pro rata according to the respective outstanding principal amounts of the Loans then held by the Lenders. The amount of each principal prepayment of the Loans shall be applied to reduce the then remaining installments of the Loans pro rata based upon the then remaining principal amount thereof. Amounts prepaid on account of the Loans may not be reborrowed. (c) All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Administrative Agent, for the account of the relevant Lenders, at the Payment Office, in Dollars and in immediately available funds. Any payment made by the Borrower after 12:00 Noon, New York City time, on any Business Day shall be deemed to have been on the next following Business Day. The Administrative Agent shall distribute such payments to the 22 Lenders promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. In the case of any extension of any payment of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate during such extension. (d) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this paragraph shall be conclusive in the absence of manifest error. If such Lender's share of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days after such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to Base Rate Loans, on demand, from the Borrower. (e) Unless the Administrative Agent shall have been notified in writing by the Borrower prior to the date of any payment due to be made by the Borrower hereunder that the Borrower will not make such payment to the Administrative Agent, the Administrative Agent may assume that the Borrower is making such payment, and the Administrative Agent may, but shall not be required to, in reliance upon such assumption, make available to the Lenders their respective pro rata shares of a corresponding amount. If such payment is not made to the Administrative Agent by the Borrower within three Business Days after such due date, the Administrative Agent shall be entitled to recover, on demand, from each Lender to which any amount which was made available pursuant to the preceding sentence, such amount with interest thereon at the rate per annum equal to the daily average Federal Funds Effective Rate. Nothing herein shall be deemed to limit the rights of the Administrative Agent or any Lender against the Borrower. 2.14 Requirements of Law. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect 23 thereof (except for Non-Excluded Taxes covered by Section 2.15 and changes in the rate of tax on the overall net income of such Lender); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender that is not otherwise included in the determination of the Eurodollar Rate hereunder; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender reasonably deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable. If any Lender becomes entitled to claim any additional amounts pursuant to this Section, it shall promptly notify the Borrower (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled. (b) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount reasonably deemed by such Lender to be material, then from time to time, after submission by such Lender to the Borrower (with a copy to the Administrative Agent) of a written request therefor, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation for such reduction. (c) A certificate as to any additional amounts payable pursuant to this Section submitted by any Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. The obligations of the Borrower pursuant to this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.15 Taxes. (a) All payments made by the Borrower under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net 24 income taxes) imposed on any Agent or any Lender as a result of a present or former connection between such Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from such Agent's or such Lender's having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any other Loan Document). If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") or any Other Taxes are required to be withheld from any amounts payable to any Agent or any Lender hereunder, the amounts so payable to such Agent or such Lender shall be increased to the extent necessary to yield to such Agent or such Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement; provided, however, that the Borrower shall not be required to increase any such amounts payable to any Lender with respect to any Non-Excluded Taxes (i) that are attributable to such Lender's failure to comply with the requirements of paragraph (d) or (e) of this Section or (ii) that are United States withholding taxes imposed on amounts payable to such Lender at the time such Lender becomes a party to this Agreement, except to the extent that such Lender's assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the Borrower with respect to such Non-Excluded Taxes pursuant to this paragraph (a) (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Administrative Agent for the account of the relevant Agent or Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Agents and the Lenders for any incremental taxes, interest or penalties that may become payable by any Agent or any Lender as a result of any such failure. The agreements in this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (d) Each Lender (or Transferee) that is not a citizen or resident of the United States of America, a corporation, partnership or other entity created or organized in or under the laws of the United States of America (or any jurisdiction thereof), or any estate or trust that is subject to federal income taxation regardless of the source of its income (a "Non-U.S. Lender") shall deliver to the Borrower and the Administrative Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) two copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest" a statement substantially in the form of Exhibit G and a Form W-8BEN, or any subsequent versions thereof or successors thereto properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payments by the Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any 25 Participant, on or before the date such Participant purchases the related participation). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this paragraph, a Non-U.S. Lender shall not be required to deliver any form pursuant to this paragraph that such Non-U.S. Lender is not legally able to deliver. (e) A Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate, provided that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender's reasonable judgment such completion, execution or submission would not materially prejudice the legal position of such Lender. 2.16 Indemnity. The Borrower agrees to indemnify each Lender for, and to hold each Lender harmless from, any loss or expense that such Lender may sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment or conversion of Eurodollar Loans on a day that is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest that would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) that would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank Eurodollar market. A certificate as to any amounts payable pursuant to this Section submitted to the Borrower by any Lender shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.17 Illegality. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert Base Rate Loans to Eurodollar Loans shall forthwith be 26 canceled and (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to Section 2.16. 2.18 Change of Lending Office. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 2.14, 2.15(a) or 2.17 with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event; provided, that such designation is made on terms that, in the sole judgment of such Lender, cause such Lender and its lending office(s) to suffer no economic, legal or regulatory disadvantage, and provided, further, that nothing in this Section shall affect or postpone any of the obligations of any Borrower or the rights of any Lender pursuant to Section 2.14, 2.15(a) or 2.17. 2.19 Replacement of Lenders under Certain Circumstances. The Borrower shall be permitted to replace any Lender that (a) requests reimbursement for amounts owing pursuant to Section 2.14 or 2.15 or gives a notice of illegality pursuant to Section 2.17 or (b) defaults in its obligation to make Loans hereunder, with a replacement financial institution; provided that (i) such replacement does not conflict with any Requirement of Law, (ii) no Event of Default shall have occurred and be continuing at the time of such replacement, (iii) prior to any such replacement, such Lender shall have taken no action under Section 2.18 so as to eliminate the continued need for payment of amounts owing pursuant to Section 2.14 or 2.15 or to eliminate the illegality referred to in such notice of illegality given pursuant to Section 2.17, (iv) the replacement financial institution shall purchase, at par, all Loans and other amounts owing to such replaced Lender on or prior to the date of replacement, (v) the Borrower shall be liable to such replaced Lender under Section 2.16 (as though Section 2.16 were applicable) if any Eurodollar Loan owing to such replaced Lender shall be purchased other than on the last day of the Interest Period relating thereto, (vi) the replacement financial institution, if not already a Lender, shall be reasonably satisfactory to the Administrative Agent, (vii) the replaced Lender shall be obligated to make such replacement in accordance with the provisions of Section 9.6 (provided that the Borrower shall be obligated to pay the registration and processing fee referred to therein), (viii) the Borrower shall pay all additional amounts (if any) required pursuant to Section 2.14 or 2.15, as the case may be, in respect of any period prior to the date on which such replacement shall be consummated, and (ix) any such replacement shall not be deemed to be a waiver of any rights that the Borrower, the Administrative Agent or any other Lender shall have against the replaced Lender. SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Agents and the Lenders to enter into this Agreement and to make the Loans, the Borrower hereby represents and warrants to each Agent and each Lender that: 3.1 Financial Condition. (a) The unaudited pro forma consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at June 30, 2002 (including the notes 27 thereto) (the "Pro Forma Balance Sheet"), copies of which have heretofore been furnished to each Lender, has been prepared giving effect (as if such events had occurred on such date) to (i) the Loans to be made on the Closing Date and the use of proceeds thereof and (ii) the payment of fees and expenses in connection with the foregoing. The Pro Forma Balance Sheet has been prepared based on the best information available to the Borrower as of the date of delivery thereof, and presents fairly on a pro forma basis the estimated financial position of Borrower and its consolidated Subsidiaries as at June 30, 2002, assuming that the events specified in the preceding sentence had actually occurred at such date. (b) The audited consolidated balance sheets of the Borrower as at December 31, 2000 and December 31, 2001 and the related consolidated statements of income and of cash flows for the fiscal years ended on such dates, reported on by and accompanied by an unqualified report from Deloitte & Touche LLP, present fairly the consolidated financial condition of the Borrower as at such date, and the consolidated results of its operations and its consolidated cash flows for the respective fiscal years then ended. The unaudited consolidated balance sheet of the Borrower as at June 30, 2002, and the related unaudited consolidated statements of income and cash flows for the 6-month period ended on such date, present fairly the consolidated financial condition of the Borrower as at such date, and the consolidated results of its operations and its consolidated cash flows for the 6-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by the aforementioned firm of accountants and disclosed therein). The Borrower and its Subsidiaries do not have any material Guarantee Obligations, contingent liabilities and liabilities for taxes, or any long-term leases or unusual forward or long-term commitments, including, without limitation, any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that are not reflected in the most recent financial statements referred to in this paragraph. During the period from December 31, 2001 to and including the date hereof there has been no Disposition by the Borrower or any of its Subsidiaries of any material part of its business or Property. 3.2 No Change. Since December 31, 2001, except as disclosed in the Borrower's Form 10-K for the fiscal year ended December 31, 2001 and Form 10-Q for the fiscal quarters ended March 31, 2002 and June 30, 2002, there has been no development or event that has had or could reasonably be expected to have a Material Adverse Effect except as set forth on Schedule 3.2. 3.3 Corporate Existence; Compliance with Law. Each of the Borrower and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its Property, to lease the Property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of Property or the conduct of its business requires such qualification and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 28 3.4 Corporate Power; Authorization; Enforceable Obligations. The Borrower has the corporate power and authority, and the legal right, to make, deliver and perform the Loan Documents and to borrow hereunder. The Borrower has taken all necessary corporate action to authorize the execution, delivery and performance of the Loan Documents and to authorize the borrowings on the terms and conditions of this Agreement. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or the execution, delivery, performance, validity or enforceability of this Agreement or any of the other Loan Documents, except consents, authorizations, filings and notices described in Schedule 3.4, which consents, authorizations, filings and notices have been obtained or made and are in full force and effect. Each Loan Document has been duly executed and delivered on behalf of the Borrower. This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 3.5 No Legal Bar. The execution, delivery and performance of this Agreement and the other Loan Documents, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or any Contractual Obligation of the Borrower or any of its Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created by the Security Documents). No Requirement of Law or Contractual Obligation applicable to the Borrower or any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect. 3.6 No Material Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against the Borrower or any of its Subsidiaries or against any of their respective properties or revenues (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby, or (b) that could reasonably be expected to have a Material Adverse Effect, except as set forth on Schedule 3.6. 3.7 No Default. Neither the Borrower nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect that could reasonably be expected to have a Material Adverse Effect, except as set forth on Schedule 3.7. No Default or Event of Default has occurred and is continuing. 3.8 Ownership of Property; Liens. Each of the Borrower and its Subsidiaries has title in fee simple to, or a valid leasehold interest in, all its real property, and good title to, or a valid leasehold interest in, all its other Property, and none of such Property is subject to any Lien except as permitted by Section 6.3. 3.9 Intellectual Property. The Borrower and each of its Subsidiaries owns, or is licensed to use, all Intellectual Property necessary for the conduct of its business as currently conducted. No material claim has been asserted and is pending by any Person challenging or 29 questioning the use of any Intellectual Property or the validity or effectiveness of any Intellectual Property, nor does the Borrower know of any valid basis for any such claim. The use of Intellectual Property by the Borrower and its Subsidiaries does not infringe on the rights of any Person in any material respect. 3.10 Taxes. Each of the Borrower and each of its Subsidiaries has filed or caused to be filed all Federal, state and other material tax returns that are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its Property and all other taxes, fees or other charges imposed on it or any of its Property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Borrower or its Subsidiaries, as the case may be); and no tax Lien has been filed, and, to the knowledge of the Borrower, no claim is being asserted, with respect to any such tax, fee or other charge. 3.11 Federal Regulations. No part of the proceeds of any Loans will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect or for any purpose that violates the provisions of the Regulations of the Board. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U-1 referred to in Regulation U. 3.12 Government Approval and Filings. The Public Utilities Commission of Nevada has duly and validly issued an order authorizing the Borrower to enter into this Agreement and the other Loan Documents and to take all actions contemplated hereby or thereby or in connection herewith or therewith, and such order remains in full force and effect in the form issued. The California Public Utilities Commission has issued an order, which remains in full force and effect, exempting the Borrower from any requirement to obtain the consent of the California Public Utilities Commission in connection with any financing transaction or granting of a security interest. No other authorization, approval, order, decree, ruling or other action by, or notice to or filing with, any Governmental Authority is required for the due execution, delivery and performance by the Borrower of this Agreement or any of the other Loan Documents. 3.13 Labor Matters. There are no strikes or other labor disputes against the Borrower or any of its Subsidiaries pending or, to the knowledge of the Borrower, threatened that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. Hours worked by and payment made to employees of the Borrower and its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. All payments due from the Borrower or any of its Subsidiaries on account of employee health and welfare insurance that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect if not paid have been paid or accrued as a liability on the books of the Borrower or the relevant Subsidiary. 30 3.14 ERISA. Neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by a material amount. Neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan that has resulted or could reasonably be expected to result in a material liability under ERISA, and neither the Borrower nor any Commonly Controlled Entity would become subject to any material liability under ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization or Insolvent. 3.15 Investment Company Act; Other Regulations. The Borrower is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. The Borrower is not subject to regulation under any Requirement of Law (other than Regulation X of the Board) which limits its ability to incur Indebtedness (other than public utility laws and regulations of Nevada administered by the Public Utilities Commission of Nevada and the public utility laws and regulations of California administered by the California Public Utilities Commission (as to which the Borrower has received an exemptive order which remains in full force and effect)). 3.16 Subsidiaries. (a) The Subsidiaries listed on Schedule 3.16 constitute all the Subsidiaries of the Borrower at the date hereof. Schedule 3.16 sets forth as of the Closing Date the name and jurisdiction of incorporation of each Subsidiary and, as to each Subsidiary, the percentage of each class of Capital Stock owned by the Borrower. (b) There are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments of any nature relating to any Capital Stock of the Borrower or any Subsidiary, except as disclosed on Schedule 3.16. 3.17 Use of Proceeds. The proceeds of the Loans shall be used to refinance existing indebtedness of the Borrower. 3.18 Environmental Matters. Other than exceptions to any of the following that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect: (a) The Borrower and its Subsidiaries: (i) are, and within the period of all applicable statutes of limitation have been, in compliance with all applicable Environmental Laws; (ii) hold all Environmental Permits (each of which is in full force and effect) required for any of their current or intended operations or for any property owned, leased, or otherwise 31 operated by any of them; (iii) are, and within the period of all applicable statutes of limitation have been, in compliance with all of their Environmental Permits; and (iv) reasonably believe that: each of their Environmental Permits will be timely renewed and complied with, without material expense; any additional Environmental Permits that may be required of any of them will be timely obtained and complied with, without material expense; and compliance with any Environmental Law that is or is expected to become applicable to any of them will be timely attained and maintained, without material expense. (b) Materials of Environmental Concern are present at, on, under, in, or about any real property now or formerly owned, leased or operated by the Borrower or any of its Subsidiaries, or at any other location (including, without limitation, any location to which Materials of Environmental Concern have been sent for re-use or recycling or for treatment, storage, or disposal) which could not reasonably be expected, individually or in the aggregate, to (i) give rise to liability of the Borrower or any of its Subsidiaries under any applicable Environmental Law or otherwise result in costs to the Borrower or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect, or (ii) interfere with the Borrower's or any of its Subsidiaries' continued operations, or (iii) materially adversely affect the fair saleable value of any real property owned or leased by the Borrower or any of its Subsidiaries. (c) There is no judicial, administrative, or arbitral proceeding (including any notice of violation or alleged violation) under or relating to any Environmental Law to which the Borrower or any of its Subsidiaries is, or to the knowledge of the Borrower or any of its Subsidiaries will be, named as a party that is pending or, to the knowledge of the Borrower or any of its Subsidiaries, threatened. (d) Neither the Borrower nor any of its Subsidiaries has received any written request for information, or been notified that it is a potentially responsible party under or relating to the federal Comprehensive Environmental Response, Compensation, and Liability Act or any similar Environmental Law, or with respect to any Materials of Environmental Concern. (e) Neither the Borrower nor any of its Subsidiaries has entered into or agreed to any consent decree, order, or settlement or other agreement, or is subject to any judgment, decree, or order or other agreement, in any judicial, administrative, arbitral, or other forum for dispute resolution, relating to compliance with or liability under any Environmental Law. (f) Neither the Borrower nor any of its Subsidiaries has assumed or retained, by contract or operation of law, any liabilities of any kind, fixed or contingent, known or unknown, under any Environmental Law or with respect to any Material of Environmental Concern. 3.19 Accuracy of Information, etc. No statement or information contained in this Agreement, any other Loan Document, the Confidential Information Memorandum or any other document, certificate or statement furnished to the Administrative Agent or the Lenders or any of them, by or on behalf of the Borrower for use in connection with the transactions contemplated by this Agreement or the other Loan Documents, contained as of the date such statement, information, document or certificate was so furnished (or, in the case of the 32 Confidential Information Memorandum, as of the date of this Agreement), any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements contained herein or therein not misleading. The projections and pro forma financial information contained in the materials referenced above are based upon good faith estimates and assumptions believed by management of the Borrower to be reasonable at the time made, it being recognized by the Lenders that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period or periods covered by such financial information may differ from the projected results set forth therein by a material amount. There is no fact known to the Borrower that could reasonably be expected to have a Material Adverse Effect that has not been expressly disclosed herein, in the other Loan Documents, in the Confidential Information Memorandum or in any other documents, certificates and statements furnished to the Agents and the Lenders for use in connection with the transactions contemplated hereby and by the other Loan Documents. 3.20 Bond Delivery Agreement; G&R Series C Mortgage Bond. (a) The Bond Delivery Agreement is effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable security interest in any right, title and interest of the Borrower in the G&R Series C Mortgage Bond and proceeds thereof, and, when perfected by delivery of the G&R Series C Mortgage Bond to the Administrative Agent for the benefit of the Lenders, the Lien granted pursuant to the Bond Delivery Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest, if any, of the Borrower in such G&R Series C Mortgage Bond and the proceeds thereof, as security for the Obligations, in each case prior and superior in right to any other Person. (b) The G&R Series C Mortgage Bond has been duly and validly issued and is entitled to the security and benefits of the General and Refunding Mortgage Indenture; is secured equally and ratably with, and only with, all other securities issued and outstanding under the General and Refunding Mortgage Indenture; is secured by direct and valid, duly perfected Liens on and security interests in the Mortgaged Property (as defined in the General and Refunding Mortgage Indenture), subject only to the prior Lien of the First Mortgage Indenture and to Permitted Liens (as such term is defined in the General and Refunding Mortgage Indenture); and constitutes collateral security for the obligations of the Borrower as purported to be provided in the General and Refunding Mortgage Indenture and herein. 3.21 Solvency. The Borrower is, and after giving effect to the incurrence of all Indebtedness and obligations being incurred in connection herewith and therewith will be and will continue to be, Solvent. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions to Loans. The agreement of each Lender to make the Loan requested to be made by it hereunder is subject to the satisfaction, prior to or concurrently with the making of such Loan on the Closing Date, of the following conditions precedent: 33 (a) Loan Documents. The Administrative Agent shall have received (i) this Agreement, executed and delivered by a duly authorized officer of the Borrower, (ii) the Bond Delivery Agreement, executed and delivered by a duly authorized officer of the Borrower and (iii) a Lender Addendum executed and delivered by each Lender and accepted by the Borrower. (b) Pro Forma Balance Sheet; Financial Statements. The Lenders shall have received (i) the Pro Forma Balance Sheet, (ii) audited consolidated financial statements of the Borrower for the 2000 and 2001 fiscal years and (iii) unaudited interim consolidated financial statements of the Borrower for each fiscal month and quarterly period ended subsequent to the date of the latest applicable financial statements delivered pursuant to clause (ii) of this paragraph as to which such financial statements are available; and such financial statements shall not, in the reasonable judgment of the Lenders, reflect any material adverse change in the consolidated financial condition of the Borrower, as reflected in the financial statements or projections contained in the Confidential Information Memorandum. (c) Approvals. All governmental and third party approvals (including, without limitation, any required approvals and/or exemptive orders of the Public Utilities Commission of Nevada, the California Public Utilities Commission and any relevant Federal regulatory bodies) necessary in connection with the transactions contemplated herein, the issuance and pledging of the G&R Series C Mortgage Bond and the continuing operations of the Borrower and its Subsidiaries shall have been obtained and be in full force and effect; and the Administrative Agent shall have received evidence satisfactory to it that the foregoing have been accomplished. (d) Related Agreements. The Administrative Agent shall have received (in a form reasonably satisfactory to the Administrative Agent), true and correct copies, certified as to authenticity by the Borrower, such documents or instruments as may be reasonably requested by the Administrative Agent, including, without limitation, a copy of any debt instrument, security agreement or other material contract to which the Borrower may be a party. (e) Fees. The Lenders, the Administrative Agent and the Arranger shall have received all fees required to be paid, and all expenses for which invoices have been presented (including reasonable fees, disbursements and other charges of counsel to the Agents), on or before the Closing Date. All such amounts will be paid with proceeds of Loans made on the Closing Date and will be reflected in the funding instructions given by the Borrower to the Administrative Agent on or before the Closing Date. (f) Five-Year Projections. The Lenders shall have received satisfactory five-year projections for fiscal years 2002-2006 and a satisfactory written analysis of the business and prospects of the Borrower and its Subsidiaries for the period from the Closing Date through the final maturity date of the Loans. (g) Closing Certificate. The Administrative Agent shall have received a certificate of the Borrower, dated the Closing Date, substantially in the form of Exhibit C, with appropriate insertions and attachments. 34 (h) Legal Opinions. The Administrative Agent shall have received the following executed legal opinions: (i) the legal opinion of Choate, Hall & Stewart, special counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit E-1; and (ii) the legal opinion of Woodburn & Wedge, Nevada counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit E-2; Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require. (i) G&R Series C Mortgage Bond Documents. The Administrative Agent shall have received copies of the following documents (all as defined in the General and Refunding Mortgage Indenture): either a supplemental indenture or an "Officer's Certificate" setting forth the terms of the G&R Series C Mortgage Bond; a "Company Order" requesting authentication of the G&R Series C Mortgage Bond by the trustee under the General and Refunding Mortgage Indenture; and all legal opinions provided in connection with the issuance of the G&R Series C Mortgage Bond. The G&R Series C Mortgage Bond shall have been duly issued and delivered to the Administrative Agent. (j) Representations and Warranties. Each of the representations and warranties made by the Borrower in or pursuant to the Loan Documents shall be true and correct on and as of Closing Date as if made on and as of the Closing Date. (k) No Default. No Default or Event of Default shall have occurred and be continuing on the Closing Date or after giving effect to the Loans requested to be made on the Closing Date. The borrowing of the Loans by the Borrower hereunder on the Closing Date shall constitute a representation and warranty by the Borrower as of the Closing Date that the conditions contained in Section 4.1(j) and (k) have been satisfied. The Administrative Agent shall notify the Lenders promptly of the occurrence of the Closing Date. SECTION 5. AFFIRMATIVE COVENANTS The Borrower hereby agrees that, so long as any Commitment is in effect or any Loan or other amount is owing to any Lender or any Agent hereunder, the Borrower shall and shall cause each of its Subsidiaries to: 5.1 Financial Statements. Furnish to each Agent and each Lender: (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Borrower, a copy of the audited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such year and the related audited consolidated statements of income and of cash flows for such year, setting forth in each case in comparative 35 form the figures as of the end of and for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Deloitte & Touche LLP or other independent certified public accountants of nationally recognized standing; and (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Borrower, the unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures as of the end of and for the corresponding period in the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments); all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). 5.2 Certificates; Other Information. Furnish to each Agent and each Lender, or, in the case of clause (f), to the relevant Lender: (a) concurrently with the delivery of the financial statements referred to in Section 5.1(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate (it being understood that such certificate shall be limited to the items that independent certified public accountants are permitted to cover in such certificates pursuant to their professional standards and customs of the profession); (b) concurrently with the delivery of any financial statements pursuant to Section 5.1, (i) a certificate of a Responsible Officer stating that, to the best of such Responsible Officer's knowledge, the Borrower and each of its Subsidiaries during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (ii) in the case of quarterly or annual financial statements, a Compliance Certificate containing all information and calculations necessary for determining compliance by the Borrower and its Subsidiaries with the provisions of this Agreement referred to therein as of the last day of the fiscal quarter or fiscal year of the Borrower, as the case may be; (c) as soon as available, and in any event no later than 90 days after the end of each fiscal year of the Borrower, a detailed consolidated budget for the following fiscal year (including a projected consolidated balance sheet of the Borrower and its Subsidiaries as of the end of the following fiscal year, and the related consolidated statements of projected cash flow, projected changes in financial position and projected income), and, as soon as available, 36 significant revisions, if any, of such budget and projections with respect to such fiscal year (collectively, the "Projections"), which Projections shall in each case be accompanied by a certificate of a Responsible Officer stating that such Projections are based on reasonable estimates, information and assumptions and that such Responsible Officer has no reason to believe that such Projections are incorrect or misleading in any material respect; (d) within 45 days after the end of each fiscal quarter of the Borrower, a narrative discussion and analysis of the financial condition and results of operations of the Borrower and its Subsidiaries for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter, as compared to the portion of the Projections covering such periods and to the comparable periods of the previous year (it being understood that the delivery of the management's discussion and analysis sections of the Forms 10-K and 10-Q containing the financial statements delivered pursuant to Section 5.1(a) and (b) shall satisfy the requirement in this Section 5.2(c)); (e) within five days after the same are sent, copies of all financial statements and reports that the Borrower sends to the holders of any class of its debt securities or public equity securities and, within five days after the same are filed, copies of all financial statements and reports that the Borrower may make to, or file with, the SEC; (f) promptly after obtaining knowledge thereof: (i) any development, event, or condition that, individually or in the aggregate with other developments, events or conditions, could reasonably be expected to result in the payment by the Borrower and its Subsidiaries, in the aggregate, of a Material Environmental Amount; and (ii) any notice that any governmental authority may deny any application for an Environmental Permit sought by, or revoke or refuse to renew any Environmental Permit held by, the Borrower, which could reasonably be expected to have a Material Adverse Effect; and (g) promptly, such additional financial and other information as any Lender may from time to time reasonably request. 5.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrower or its Subsidiaries, as the case may be. 5.4 Conduct of Business and Maintenance of Existence, etc. (a) (i) Preserve, renew and keep in full force and effect its corporate existence and (ii) take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business, except, in each case, as otherwise permitted by Section 6.4 and except, in the case of clause (ii) above, to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (b) comply with all Contractual Obligations and Requirements of Law, except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 37 5.5 Maintenance of Property; Insurance. (a) Keep all Property and systems useful and necessary in its business in good working order and condition, ordinary wear and tear excepted and (b) maintain with financially sound and reputable insurance companies insurance on all its Property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business. 5.6 Inspection of Property; Books and Records; Discussions. (a) Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities and (b) permit representatives of any Lender (at such Lender's expenses, except during the continuation of an Event of Default) to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Borrower and its Subsidiaries with officers and employees of the Borrower and its Subsidiaries and with its independent certified public accountants. 5.7 Notices. Promptly give notice to the Administrative Agent and each Lender of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the Borrower or any of its Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between the Borrower or any of its Subsidiaries and any Governmental Authority, that in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (c) any litigation or proceeding affecting the Borrower or any of its Subsidiaries in which the amount involved is $5,000,000 or more and not covered by insurance or in which injunctive or similar relief is sought; (d) the following events, as soon as possible and in any event within 30 days after the Borrower knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any Plan; and (e) any development or event that has had or could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Borrower or the relevant Subsidiary proposes to take with respect thereto. 38 5.8 Environmental Laws. (a) Comply in all material respects with, and ensure compliance in all material respects by all tenants and subtenants, if any, with, all applicable Environmental Laws, and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws. (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws. 5.9 Termination of Existing Credit Agreement. Not later than three days after the Closing Date, deliver evidence satisfactory to the Administrative Agent that the Existing Credit Agreement shall have been terminated, all amounts thereunder shall have been paid in full and all Liens and security interests granted in connection therewith shall have been terminated. SECTION 6. NEGATIVE COVENANTS The Borrower hereby agrees that, so long as any Commitment is in effect or any Loan or other amount is owing to any Lender or any Agent hereunder, the Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: 6.1 Financial Condition Covenants. (a) Consolidated Total Debt Ratio. Permit the Consolidated Total Debt Ratio on any date during any period set forth below to exceed the ratio set forth below opposite such period:
Consolidated Period Total Debt Ratio - ------ ---------------- FQ4 2002; FQ1 2003; FQ2 2003; FQ3 2003 and .650 to 1.0 FQ4 2003 FQ1 2004; FQ2 2004; .625 to 1.0 FQ3 2004 and FQ4 2004 FQ1 2005 and each fiscal .600 to 1.0 quarter thereafter
(b) Consolidated Interest Coverage Ratio. Permit the Consolidated Interest Coverage Ratio for any period of four consecutive fiscal quarters of the Borrower ending with any fiscal quarter set forth below to be less than the ratio set forth below opposite such fiscal quarter: 39
Consolidated Period Interest Coverage Ratio - ------ ----------------------- FQ4 2002; FQ1 2003 1.75 to 1.0 FQ2 2003; FQ3 2003; 2.50 to 1.0 FQ4 2003 FQ1 2004; FQ2 2004; 2.75 to 1.0 FQ3 2004 FQ4 2004 and each fiscal 3.00 to 1.0 quarter thereafter
6.2 Limitation on Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness of the Borrower pursuant to any Loan Document or pursuant to the G&R Series C Mortgage Bond; (b) Indebtedness of the Borrower to any Subsidiary; (c) Indebtedness (including, without limitation, Capital Lease Obligations) secured by Liens permitted by Section 6.3(g) in an aggregate principal amount not to exceed $10,000,000 at any one time outstanding; (d) Indebtedness outstanding on the date hereof and listed on Schedule 6.2(d) and any refinancings, refundings, renewals or extensions thereof (without any increase in the principal amount thereof or any shortening of the maturity of any principal amount thereof); (e) Guarantee Obligations made in the ordinary course of business by the Borrower or any of its Subsidiaries of obligations of the Borrower; (f) Indebtedness consisting of letters of credit issued for the Borrower's account for purposes of supporting the Borrower's obligations now or hereafter owing to gas, electric power or other energy suppliers in an aggregate principal amount not to exceed $20,000,000 at any one time outstanding; (g) Indebtedness consisting of securities issued pursuant to the General and Refunding Mortgage Indenture that are pledged to secure (i) claims against the Borrower relating to the Borrower's obligations existing on the Closing Date pursuant to terminated agreements with gas, electric power and other energy suppliers (such securities issued pursuant to this clause (i) to be in an aggregate principal amount not to exceed $100,000,000 at any one time outstanding), (ii) the Borrower's obligations in respect of letters of credit permitted pursuant to Section 6.2(f) (such securities issued pursuant to this clause (ii) to be in an aggregate principal amount not to exceed $20,000,000 at any time outstanding), (iii) obligations of the Borrower and its Subsidiaries in connection with the Receivables Sale Transaction (such securities issued pursuant to this clause (iii) to be in an aggregate principal amount not exceeding $75,000,000) and (iv) the Indebtedness permitted by Section 6.2(i) (such securities issued pursuant to this clause (iv) to be in an aggregate principal amount not exceeding $80,000,000); (h) Subordinated notes issued by a Subsidiary to the Borrower in connection with the Receivables Sale Transaction; 40 (i) Any refinancing of the Borrower's obligations in respect of the Washoe County Nevada Water Facilities Refunding Revenue Bonds (Sierra Pacific Power Company Project) Series 2001 outstanding on the date hereof in an aggregate principal amount of $80,000,000, provided that the maturity date of any such refinancing shall not be earlier than October 30, 2006; (j) Indebtedness pursuant to the Existing Credit Agreement or consisting of securities issued pursuant to the General and Refunding Mortgage Indenture that are pledged to secure Indebtedness pursuant to the Existing Credit Agreement; provided that such Indebtedness shall be paid in full in accordance with Section 5.9; and (k) additional Indebtedness of the Borrower or any of its Subsidiaries in an aggregate principal amount (for the Borrower and all Subsidiaries) not to exceed $50,000,000 at any one time outstanding. 6.3 Limitation on Liens. Create, incur, assume or suffer to exist any Lien upon any of its Property, whether now owned or hereafter acquired, except for: (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Borrower or its Subsidiaries, as the case may be, in conformity with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or that are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business that, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the Property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (f) Liens in existence on the date hereof listed on Schedule 6.3(f), securing Indebtedness permitted by Section 6.2(d), provided that no such Lien is spread to cover any additional Property after the Closing Date and that the amount of Indebtedness secured thereby is not increased; (g) Liens securing Indebtedness of the Borrower or any other Subsidiary incurred pursuant to Section 6.2(c) to finance the acquisition of fixed or capital assets, provided that (i) such Liens shall be created substantially simultaneously with the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any Property other than the 41 Property financed by such Indebtedness, (iii) the amount of Indebtedness secured thereby is not increased; (h) Liens created pursuant to the Security Documents; (i) any interest or title of a lessor under any lease entered into by the Borrower or any other Subsidiary in the ordinary course of its business and covering only the assets so leased; (j) Liens of (i) the First Mortgage Indenture securing Indebtedness outstanding on the Closing Date and (ii) the General and Refunding Mortgage Indenture; (k) Liens on First Mortgage Bonds issued as collateral for pollution control or gas or water facility revenue bonds issued for the benefit of the Borrower or its Subsidiaries (and related rights and interests) to secure obligations of the Borrower or such Subsidiaries for the benefit of the holders of such bonds, provided that such bonds are not secured by any other assets or Properties of the Borrower or its Subsidiaries; (l) Liens on "transition property" arising pursuant to Section 843 of the California Public Utility Code for the benefit of holders of rate reduction bonds issued pursuant to a valid financing order of the California Public Utilities Commission; (m) Liens on securities issued under the General and Refunding Mortgage Indenture and permitted by Section 6.2(g) securing the obligations described in Section 6.2(g); (n) Liens on securities issued under the General and Refunding Mortgage Indenture and permitted by Section 6.2(j) securing the obligations described in Section 6.2(j); (o) Liens created pursuant to the Receivables Sale Documentation; or (p) Liens not otherwise permitted by this Section 6.3 so long as neither (i) the aggregate outstanding principal amount of the obligations secured thereby nor (ii) the aggregate fair market value (determined, in the case of each such Lien, as of the date such Lien is incurred) of the assets subject thereto exceeds (as to the Borrower and all Subsidiaries) $10,000,000 at any one time. 6.4 Limitation on Fundamental Changes. Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of all or substantially all of its Property or business, except that: (a) any Subsidiary of the Borrower may be merged or consolidated with or into the Borrower (provided that the Borrower shall be the continuing or surviving corporation); and (b) any Subsidiary of the Borrower may Dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Borrower. 42 6.5 Limitation on Disposition of Property. Dispose of any of its Property (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any Person, except: (a) the Disposition of obsolete or worn out property in the ordinary course of business; (b) the sale of inventory in the ordinary course of business; (c) the sale or issuance of any Subsidiary's Capital Stock to the Borrower; (d) the Disposition of assets pursuant to the Receivables Sale Transaction; (e) the Disposition of other assets having a fair market value not to exceed $1,000,000 in the aggregate for any fiscal year of the Borrower; (f) the Disposition of certain parcels of land listed on Schedule 6.5; and (g) any Recovery Event, provided, that the requirements of Section 2.7(c) are complied with in connection therewith. 6.6 Limitation on Restricted Payments. Declare or pay any dividend on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any Capital Stock of Resources, the Borrower or any Subsidiary, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Borrower or any Subsidiary (collectively, "Restricted Payments"), except that: (a) any Subsidiary may make Restricted Payments to the Borrower; (b) so long as after giving effect to the making of such Restricted Payment no Default or Event of Default would be continuing, the Borrower may pay cash dividends to Resources on any date (a "Payment Date") in an amount (the "Restricted Amount") not exceeding the sum of (i) the amount payable by Resources on such Payment Date in respect of interest on Indebtedness of Resources and in respect of payment obligations on account of Resources' premium income equity securities and (ii) the amount of general and administrative expenses of Resources (but not any Subsidiary of Resources) payable on or within 30 days after such Payment Date; provided that the Restricted Amount shall not exceed $90,000,000 in the aggregate for the first twelve months following the Closing Date, $80,000,000 in the aggregate for the second twelve months following the Closing Date and $60,000,000 in the aggregate for the third twelve months following the Closing Date. (c) so long as after giving effect to the making of such Restricted Payment no Default or Event of Default would be continuing, the Borrower may pay cash dividends to Resources on any Payment Date in an amount which, when aggregated with the amount of cash dividends paid by the Borrower to Resources from and after the Closing Date and prior to such Payment Date (including dividends paid pursuant to Section 6.6(b) and Section 6.6(d)), does not 43 exceed the sum of (i) 50% of cumulative Consolidated Net Income for the period commencing with the fiscal quarter ending [September 30, 2002] and ending with the fiscal quarter most recently ended prior to such Payment Date (such period, "Calculation Period") plus (ii) the aggregate amount of cash received by the Borrower from Resources as equity contributions in respect of common stock during such Calculation Period; and (d) so long as after giving effect to the making of such Restricted Payment no Default or Event of Default would be continuing, the Borrower may make Restricted Payments in an aggregate amount not to exceed $10,000,000 during the term of this Agreement. 6.7 Limitation on Capital Expenditures. Make or commit to make any Capital Expenditure, except (a) Capital Expenditures of the Borrower and its Subsidiaries in the ordinary course of business not exceeding the following amounts in each of the following fiscal years:
Fiscal Year Amount - ----------- ------ 2002 $105,000,000 2003 $132,000,000 2004 and each fiscal year $115,000,000 thereafter
provided, that (i) up to 50% of any such amount referred to above, if not so expended in the fiscal year for which it is permitted, may be carried over for expenditure in the next succeeding fiscal year and (ii) Capital Expenditures made pursuant to this clause (a) during any fiscal year shall be deemed made, first, in respect of amounts permitted for such fiscal year as provided above and second, in respect of amounts carried over from the prior fiscal year pursuant to subclause (i) above and (b) Capital Expenditures made with the proceeds of any Reinvestment Deferred Amount. 6.8 Limitation on Investments. Make any advance, loan, extension of credit (by way of guaranty or otherwise) or capital contribution to, or purchase any Capital Stock, bonds, notes, debentures or other debt securities of, or any assets constituting an ongoing business from, or make any other investment in, any other Person (all of the foregoing, "Investments"), except: (a) extensions of trade credit in the ordinary course of business; (b) investments in Cash Equivalents; (c) Investments arising in connection with the incurrence of Indebtedness permitted by Section 6.2(b) and (e); (d) loans and advances to employees of the Borrower or any Subsidiaries of the Borrower in the ordinary course of business (including, without limitation, for travel, entertainment and relocation expenses) in an aggregate amount the Borrower and Subsidiaries of the Borrower not to exceed $1,000,000 at any one time outstanding; 44 (e) Investments in assets useful in the Borrower's business made by the Borrower or any of its Subsidiaries with the proceeds of any Reinvestment Deferred Amount; and (f) in addition to Investments otherwise expressly permitted by this Section, Investments by the Borrower or any of its Subsidiaries in an aggregate amount (valued at cost) not to exceed $5,000,000 during the term of this Agreement. 6.9 Modifications of Instruments, etc. Amend or modify (a) its certificate of incorporation (other than to reflect the redemption of the class A preferred stock issued by the Borrower and the elimination of the covenants directly related thereto) or (b) the General and Refunding Mortgage Indenture or (c) the First Mortgage Indenture, in each case in any manner determined by the Administrative Agent to be adverse to the Lenders. 6.10 Limitation on Transactions with Affiliates. Except as provided in the last sentence of this Section, enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property, the rendering of any service or the payment of any management, advisory or similar fees, with any Affiliate (other than the Borrower) unless such transaction is (a) otherwise permitted under this Agreement, (b) in the ordinary course of business of the Borrower or such Subsidiary, as the case may be, and (c) upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person that is not an Affiliate. This Section 6.10 shall not apply to transactions between the Borrower and its Subsidiaries in connection with the Receivables Sale Transaction. 6.11 Limitation on Sales and Leasebacks. Enter into any arrangement with any Person providing for the leasing by the Borrower or any Subsidiary of real or personal property which has been or is to be sold or transferred by the Borrower or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Borrower or such Subsidiary. 6.12 Limitation on Changes in Fiscal Periods. Permit the fiscal year of the Borrower to end on a day other than December 31 or change the Borrower's method of determining fiscal quarters. 6.13 Limitation on Negative Pledge Clauses. Enter into or suffer to exist or become effective any agreement that (a) prohibits or limits the ability of the Borrower or any of its Subsidiaries (other than the Receivables Sale Transaction) to create, incur, assume or suffer to exist any Lien upon any of its Property or revenues, whether now owned or hereafter acquired, to secure the Obligations, other than (i) this Agreement and the other Loan Documents, (ii) any agreements governing any purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby) and (iii) any restriction in effect on the date hereof or (b) contains covenants more restrictive than the covenants in this Section 6, unless the Borrower offers to amend this Agreement, concurrently with the effectiveness of such other agreement, to provide covenants under this Agreement equivalent to the more restrictive covenants under such other agreement. 45 6.14 Limitation on Restrictions on Subsidiary Distributions. Other than the Receivables Sale Transaction, enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (a) make Restricted Payments in respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness owed to, the Borrower or any other Subsidiary, (b) make Investments in the Borrower or any other Subsidiary or (c) transfer any of its assets to the Borrower or any other Subsidiary, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Loan Documents and (ii) any restrictions with respect to a Subsidiary imposed pursuant to an agreement that has been entered into in connection with the Disposition of all or substantially all of the Capital Stock or assets of such Subsidiary. 6.15 Limitation on Subordinated Debt. (a) Optionally prepay, optionally retire, optionally redeem, optionally purchase, optionally defease, optionally exchange, or make any mandatory prepayment or any mandatory repurchase of any debt subordinated to the prior payment of the Term Loans and the other obligations under the Loan Documents ("Subordinated Debt") or (b) amend, supplement or otherwise modify any documentation governing any Subordinated Debt (other than (i) amendments to such Subordinated Debt which reduce the interest rate or extend the maturity thereof and (ii) waivers of compliance by the Borrower with any of the terms or conditions of such Subordinated Debt (except those terms or conditions which by their terms are for the benefit of the Lenders)). 6.16 Limitation on Lines of Business. Enter into any business, either directly or through any Subsidiary, except for those businesses in which the Borrower and its Subsidiaries are engaged on the date of this Agreement or that are reasonably related thereto. 6.17 Limitation on Amendments to Other Documents. Amend, supplement or otherwise modify (pursuant to a waiver or otherwise) the terms and conditions of the Receivables Sale Documentation in any manner that could reasonably be expected to have a Material Adverse Effect. 6.18 Limitation on Hedge Agreements. Enter into any Hedge Agreement other than Hedge Agreements entered into in the ordinary course of business, and not for speculative purposes, to protect against changes in interest rates, commodity prices (including energy prices) or foreign exchange rates. 6.19 Limitations on Release from Liens. Cause the Liens of the General and Refunding Mortgage Indenture and related security documents, upon any assets to be released, except in connection with the Disposition of such assets; provided that within 180 days after any such release, the Borrower will either (a) Dispose of such assets or (b) subject such assets again to the Lien of the General and Refunding Mortgage Indenture. SECTION 7. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Loan when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan, or 46 any other amount payable hereunder or under any other Loan Document, within five days after any such interest or other amount becomes due in accordance with the terms hereof or thereof; or (b) Any representation or warranty made or deemed made by the Borrower herein or in any other Loan Document or that is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been inaccurate in any material respect on or as of the date made or deemed made or furnished; or (c) The Borrower shall default in the observance or performance of any agreement contained in clause (i) or (ii) of Section 5.4(a), Section 5.7(a), Section 5.9 or Section 6; or (d) The Borrower shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 days; or (e) (i) The Borrower or any of its Subsidiaries shall (A) default in making any payment of any principal of any Indebtedness (including, without limitation, any Guarantee Obligation, but excluding the Loans) on the scheduled or original due date with respect thereto; or (B) default in making any payment of any interest on any such Indebtedness beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created; or (C) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or to become subject to or mandatory offer to purchase by the obligor thereunder or (in the case of any such Indebtedness constituting a Guarantee Obligation) to become payable; or (ii) the Borrower or any of its Subsidiaries shall, other than in respect of those Hedge Agreements listed on Schedule 7(e)(ii), (A) default in making any payment of any amount owing to a counterparty under any Hedge Agreement beyond the period of grace, if any, provided in such Hedge Agreement; or (B) default in the observance or performance of any other agreement or condition relating to any such Hedge Agreement or contained in such Hedge Agreement or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the counterparty under such Hedge Agreement to cause, with the giving of notice if required, the Borrower or such Subsidiary to make a termination payment, payment of liquidated damages or similar payment under such Hedge Agreement (collectively, "Payment Amounts"); provided, that a default, event or condition described in clause (i) or (ii) of this paragraph (e) shall not at any time constitute an Event of Default unless, at such time, one or more defaults, events or conditions of the type described in clauses (i) and (ii) of this paragraph (e) shall have occurred and be continuing with respect to Indebtedness and/ or Payment Amounts the outstanding principal amount of which exceeds in the aggregate $10,000,000; or 47 (f) (i) The Borrower or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Borrower or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above that (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Borrower or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Borrower or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders shall be likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could, in the sole judgment of the Required Lenders, reasonably be expected to have a Material Adverse Effect; or (h) One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving for the Borrower and its Subsidiaries taken as a whole a liability (not paid or fully covered by insurance as to which the relevant insurance company has acknowledged coverage) of $10,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or 48 (i) Any of the Security Documents or the General and Refunding Mortgage Indenture (or any security documents executed in connection therewith) shall cease, for any reason to be in full force and effect, or the Borrower or any Affiliate of the Borrower shall so assert, or any Lien created by any of the Security Documents or the General and Refunding Mortgage Indenture (or any security documents executed in connection therewith) shall cease to be enforceable and of the same effect and priority purported to be created thereby; or (j) Any Change of Control shall occur; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Borrower, automatically the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents shall immediately become due and payable, and (B) if such event is any other Event of Default, with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents to be due and payable forthwith, whereupon the same shall immediately become due and payable. SECTION 8. THE AGENTS 8.1 Appointment. Each Lender hereby irrevocably designates and appoints the Agents as the agents of such Lender under this Agreement and the other Loan Documents, and each Lender irrevocably authorizes each Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to such Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, no Agent shall have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against any Agent. 8.2 Delegation of Duties. Each Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. No Agent shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 8.3 Exculpatory Provisions. Neither any Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any officer thereof contained in this Agreement or any other Loan Document or 49 in any certificate, report, statement or other document referred to or provided for in, or received by the Agents under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Agents shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower. 8.4 Reliance by Agents. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any instrument, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by such Agent. The Agents may deem and treat the payee of any Term Note as the owner thereof for all purposes unless such Term Note shall have been transferred in accordance with Section 9.6 and all actions required by such Section in connection with such transfer shall have been taken. Each Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders (or, if so specified by this Agreement, all Lenders or any other instructing group of Lenders specified by this Agreement) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Each Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or, if so specified by this Agreement, all Lenders or any other instructing group of Lenders specified by this Agreement), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. 8.5 Notice of Default. No Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless such Agent shall have received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent shall receive such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, if so specified by this Agreement, all Lenders or any other instructing group of Lenders specified by this Agreement); provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 8.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly acknowledges that neither any of the Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by any Agent hereafter taken, including any review of the affairs of the 50 Borrower or any affiliate of the Borrower, shall be deemed to constitute any representation or warranty by any Agent to any Lender. Each Lender represents to the Agents that it has, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and its affiliates and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower and its affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, no Agent shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower or any affiliate of the Borrower that may come into the possession of such Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 8.7 Indemnification. The Lenders agree to indemnify each Agent in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Aggregate Exposure Percentages in effect on the date on which indemnification is sought under this Section (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with such Aggregate Exposure Percentages immediately prior to such date), for, and to save each Agent harmless from and against, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against such Agent in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from such Agent's gross negligence or willful misconduct. The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder. 8.8 Agent in Its Individual Capacity. Each Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though such Agent were not an Agent. With respect to its Loans made or renewed by it and with respect to any Letter of Credit issued or participated in by it, each Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not an Agent, and the terms "Lender" and "Lenders" shall include each Agent in its individual capacity. 51 8.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 10 days' notice to the Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall (unless an Event of Default under Section 8(a) or Section 8(f) with respect to the Borrower shall have occurred and be continuing) be subject to approval by the Borrower (which approval shall not be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no successor agent has accepted appointment as Administrative Agent by the date that is 10 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective, and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. The Syndication Agent may, at any time, by notice to the Lenders and the Administrative Agent, resign as Syndication Agent hereunder, whereupon the duties, rights, obligations and responsibilities of the Syndication Agent hereunder shall automatically be assumed by, and inure to the benefit of, the Administrative Agent, without any further act by the Syndication Agent, the Administrative Agent or any Lender. After any retiring Agent's resignation as Agent, the provisions of this Section 8 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. 8.10 The Arranger; the Syndication Agent. Neither the Arranger nor the Syndication Agent, in their respective capacities as such, shall have no duties or responsibilities, and shall incur no liability, under this Agreement and the other Loan Documents. SECTION 9. MISCELLANEOUS 9.1 Amendments and Waivers. Neither this Agreement or any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 9.1. The Required Lenders and the Borrower may, or (with the written consent of the Required Lenders) the Agents and the Borrower may, from time to time, (a) enter into written amendments, supplements or modifications hereto and to the other Loan Documents (including amendments and restatements hereof or thereof) for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Borrower hereunder or thereunder or (b) waive, on such terms and conditions as may be specified in the instrument of waiver, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall: (i) forgive the principal amount or extend the final scheduled date of maturity of any Loan, extend the scheduled date of any 52 amortization payment in respect of any Loan, reduce the stated rate of any interest or fee payable hereunder or extend the scheduled date of any payment thereof, or increase the amount or extend the expiration date of any Commitment of any Lender, in each case without the consent of each Lender directly affected thereby; (ii) amend, modify or waive any provision of this Section or reduce any percentage specified in the definition of Required Lenders, consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents or release the G&R Series C Mortgage Bond, in whole or in part, each case without the consent of all Lenders; (iii) amend, modify or waive any provision of Section 8 or any other provision affecting the rights of any Agent without the consent of any Agent directly affected thereby; (iv) amend, modify or waive any provision of Section 2.13 without the consent of each Lender directly affected thereby; or (v) amend, modify or waive any provision of Section 9.6 without the consent of each Lender. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Borrower, the Lenders, the Agents and all future holders of the Loans. In the case of any waiver, the Borrower, the Lenders and the Agents shall be restored to their former position and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. Any such waiver, amendment, supplement or modification shall be effected by a written instrument signed by the parties required to sign pursuant to the foregoing provisions of this Section; provided, that delivery of an executed signature page of any such instrument by facsimile transmission shall be effective as delivery of a manually executed counterpart thereof. The Administrative Agent, as holder of the G&R Series C Mortgage Bond, will not consent to any amendment or other modification of the General and Refunding Mortgage Indenture that requires the consent of holders of all securities issued thereunder, without the consent of each Lender. 9.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed (a) in the case of the Borrower and the Agents, as follows and (b) in the case of the Lenders, as set forth in an administrative questionnaire delivered to the Administrative Agent or on Schedule I to the Lender Addendum to which such Lender is a party or, in the case of a Lender which becomes a party to this Agreement pursuant to an Assignment 53 and Acceptance, in such Assignment and Acceptance or (c) in the case of any party, to such other address as such party may hereafter notify to the other parties hereto: The Borrower: Sierra Pacific Power Company 6100 Neil Road Reno, Nevada 89520 [Attention: Richard K. Atkinson] Telecopy: (775) 834-____ Telephone: (775) 834-5640 The Syndication Agent: Lehman Commercial Paper Inc. 745 Seventh Avenue New York, New York 10019 Attention: __________________ Telecopy: ______________ Telephone: _______________ The Administrative Agent: Lehman Commercial Paper Inc. 745 Seventh Avenue New York, New York 10019 Attention: ___________________ Telecopy: ______________ Telephone: _____________
provided that any notice, request or demand to or upon the any Agent or any Lender shall not be effective until received. 9.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of any Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 9.4 Survival of Representations and Warranties. All representations and warranties made herein, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans hereunder. 9.5 Payment of Expenses. The Borrower agrees (a) to pay or reimburse the Agents for all their reasonable out-of-pocket costs and expenses incurred in connection with the syndication of the Term Loan Facility and the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement, the G&R Series C Mortgage Bond, and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby 54 and thereby, including, without limitation, the reasonable fees and disbursements and other charges of counsel to the Administrative Agent and the charges of Intralinks, (b) to pay or reimburse each Lender and the Agents for all their costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the G&R Series C Mortgage Bond, the other Loan Documents and any other documents prepared in connection herewith or therewith, including, without limitation, the fees and disbursements of counsel (including the allocated fees and disbursements and other charges of in-house counsel) to each Lender and of counsel to the Agents, (c) to pay, indemnify, or reimburse each Lender and the Agents for, and hold each Lender and the Agents harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, the G&R Series C Mortgage Bond, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the G&R Series C Mortgage Bond, the other Loan Documents and any such other documents, and (d) to pay, indemnify or reimburse each Lender, each Agent, their respective affiliates, and their respective officers, directors, trustees, employees, advisors, agents and controlling persons (each, an "Indemnitee") for, and hold each Indemnitee harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the G&R Series C Mortgage Bond, the other Loan Documents and any such other documents, including, without limitation, any of the foregoing relating to the use of proceeds of the Loans or the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Borrower any of its Subsidiaries or any of the Properties and the fees and disbursements and other charges of legal counsel in connection with claims, actions or proceedings by any Indemnitee against the Borrower hereunder (all the foregoing in this clause (d), collectively, the "Indemnified Liabilities"), provided, that the Borrower shall have no obligation hereunder to any Indemnitee with respect to Indemnified Liabilities to the extent such Indemnified Liabilities are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnitee. No Indemnitee shall be liable for any damages arising from the use by unauthorized persons of Information or other materials sent through electronic, telecommunications or other information transmission systems that are intercepted by such persons or for any special, indirect, consequential or punitive damages in connection with the Term Loan Facility. Without limiting the foregoing, and to the extent permitted by applicable law, the Borrower agrees not to assert and to cause its Subsidiaries not to assert, and hereby waives and agrees to cause its Subsidiaries so to waive, all rights for contribution or any other rights of recovery with respect to all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, under or related to Environmental Laws, that any of them might have by statute or otherwise against any Indemnitee. All amounts due under this Section shall be payable not later than 30 days after written demand therefor. Statements payable by the Borrower pursuant to this Section shall be submitted to ___________ (Telephone No._____________) (Fax No. ______________), at the address of the Borrower set forth in Section 9.2, or to such other Person or address as may be hereafter designated by the Borrower in a notice to the Administrative 55 Agent. The agreements in this Section shall survive repayment of the Loans and all other amounts payable hereunder. 9.6 Successors and Assigns; Participations and Assignments. (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Agents, all future holders of the Loans and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agents and each Lender. (b) Any Lender may, without the consent of the Borrower, in accordance with applicable law, at any time sell to one or more banks, financial institutions or other entities (each, a "Participant") participating interests in any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan for all purposes under this Agreement and the other Loan Documents, and the Borrower and the Agents shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. In no event shall any Participant under any such participation have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by the Borrower therefrom, except to the extent that such amendment, waiver or consent would require the consent of all Lenders pursuant to Section 9.1. The Borrower agrees that if amounts outstanding under this Agreement and the Loans are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement, provided that, in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in Section 9.7(a) as fully as if such Participant were a Lender hereunder. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.14, 2.15 and 2.16 with respect to its participation in the Commitments and the Loans outstanding from time to time as if such Participant were a Lender; provided that, in the case of Section 2.15, such Participant shall have complied with the requirements of said Section, and provided, further, that no Participant shall be entitled to receive any greater amount pursuant to any such Section than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender (an "Assignor") may, in accordance with applicable law and upon written notice to the Administrative Agent, at any time and from time to time assign to any Lender or any affiliate, Related Fund or Control Investment Affiliate thereof or, with the consent of the Administrative Agent (which, in each case, shall not be unreasonably withheld or delayed), to an additional bank, financial institution or other entity (an "Assignee") all or any part of its rights and obligations under this Agreement pursuant to an Assignment and Acceptance, substantially in the form of Exhibit D, executed by such Assignee and such 56 Assignor (and, where the consent of the Administrative Agent is required pursuant to the foregoing provisions, by the Administrative Agent) and delivered to the Administrative Agent for its acceptance and recording in the Register; provided that no such assignment to an Assignee (other than any Lender or any affiliate thereof or any Related Fund) shall be in an aggregate principal amount of less than $1,000,000 (other than in the case of an assignment of all of a Lender's interests under this Agreement), unless otherwise agreed by the Borrower and the Administrative Agent. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with Commitments and/or Loans as set forth therein, and (y) the Assignor thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of an Assignor's rights and obligations under this Agreement, such Assignor shall cease to be a party hereto, except as to Section 2.14, 2.15 and 9.5 in respect of the period prior to such effective date). For purposes of the minimum assignment amounts set forth in this paragraph, multiple assignments by two or more Related Funds shall be aggregated. (d) The Administrative Agent shall, on behalf of the Borrower, maintain at its address referred to in Section 9.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, each Agent and the Lenders shall treat each Person whose name is recorded in the Register as the owner of the Loans and any Term Notes evidencing such Loans recorded therein for all purposes of this Agreement. Any assignment of any Loan, whether or not evidenced by a Term Note, shall be effective only upon appropriate entries with respect thereto being made in the Register (and each Term Note shall expressly so provide). Any assignment or transfer of all or part of a Loan evidenced by a Term Note shall be registered on the Register only upon surrender for registration of assignment or transfer of the Term Note evidencing such Loan, accompanied by a duly executed Assignment and Acceptance; thereupon one or more new Term Notes in the same aggregate principal amount shall be issued to the designated Assignee, and the old Term Notes shall be returned by the Administrative Agent to the Borrower marked "canceled". The Register shall be available for inspection by the Borrower or any Lender (with respect to any entry relating to such Lender's Loans) at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an Assignor and an Assignee (and, in any case where the consent of any other Person is required by Section 9.6(c), by each such other Person) together with payment to the Administrative Agent of a registration and processing fee of $3,500 (payable by the Assignor or Assignee, as agreed between such parties) (treating multiple, simultaneous assignments by two or more Related Funds as a single assignment) (except that no such registration and processing fee shall be payable (y) in connection with an assignment by or to a Lehman Entity or (z) in the case of an Assignee which is already a Lender or is an affiliate or Related Fund of a Lender or a Person under common management with a Lender), the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto 57 record the information contained therein in the Register and give notice of such acceptance and recordation to the Borrower. On or prior to such effective date, the Borrower, at its own expense, upon request, shall execute and deliver to the Administrative Agent (in exchange for the applicable Term Notes, of the assigning Lender) a new applicable Term Note to the order of such Assignee in an amount equal to the applicable Loans, assumed or acquired by it pursuant to such Assignment and Acceptance and, if the Assignor has retained a Loan, as the case may be, upon request, a new Term Note, to the order of the Assignor in an amount equal to the applicable Loan, as the case may be, retained by it hereunder. Such new Term Note or Term Notes shall be dated the Closing Date and shall otherwise be in the form of the Term Note or Term Notes replaced thereby. (f) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this Section concerning assignments of Loans and Term Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests in Loans and Term Notes, including, without limitation, any pledge or assignment by a Lender of any Loan or Term Note to any Federal Reserve Bank in accordance with applicable law. (g) Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC"), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower, the option to provide to the Borrower all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Loan 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 hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto 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 Granting Lender). In furtherance of the foregoing, each party hereto hereby 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 commercial paper or other indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any state thereof. In addition, notwithstanding anything to the contrary in this Section 9.6(g), any SPC may (A) with notice to, but without the prior written consent of, the Borrower and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender, or with the prior written consent of the Borrower and the Administrative Agent (which consent shall not be unreasonably withheld) to any financial institutions providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans, and (B) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC; provided that non-public information with respect to the Borrower may be disclosed only with the Borrower's consent which will not be unreasonably withheld. This paragraph (g) may not be amended 58 without the written consent of any SPC with Loans outstanding at the time of such proposed amendment. 9.7 Adjustments; Set-off. (a) If any Lender (a "Benefitted Lender") shall at any time receive any payment of all or part of the Obligations owing to it, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 7(f), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Obligations, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Obligations, or shall provide such other Lenders with the benefits of any such collateral, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to or the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by the Borrower hereunder (whether at the stated maturity, by acceleration or otherwise), to set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Borrower. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application. 9.8 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Agreement or of a Lender Addendum by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent. 9.9 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9.10 Integration. This Agreement and the other Loan Documents represent the entire agreement of the Borrower, the Agents, the Arranger and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or 59 warranties by the Arranger, any Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 9.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 9.12 Submission To Jurisdiction; Waivers. The Borrower hereby irrevocably and unconditionally: (a) submits for itself and its Property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower at its address set forth in Section 9.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. 9.13 Acknowledgments. The Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) neither the Arranger, any Agent nor any Lender has any fiduciary relationship with or duty to the Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Arranger, the Agents and the Lenders, on one hand, and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Arranger, the Agents and the Lenders or among the Borrower and the Lenders. 60 9.14 Confidentiality. Each of the Agents and the Lenders agrees to keep confidential all non-public information provided to it by the Borrower pursuant to this Agreement that is designated by the Borrower as confidential; provided that nothing herein shall prevent any Agent or any Lender from disclosing any such information (a) to the Arranger, any Agent, any other Lender or any affiliate of any thereof, (b) to any Participant or Assignee (each, a "Transferee") or prospective Transferee that agrees to comply with the provisions of this Section or substantially equivalent provisions, (c) to any of its employees, directors, agents, attorneys, accountants and other professional advisors, (d) to any financial institution that is a direct or indirect contractual counterparty in swap agreements or such contractual counterparty's professional advisor (so long as such contractual counterparty or professional advisor to such contractual counterparty agrees to be bound by the provisions of this Section), (e) upon the request or demand of any Governmental Authority having jurisdiction over it, (f) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (g) in connection with any litigation or similar proceeding, (h) that has been publicly disclosed other than in breach of this Section, (i) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about a Lender's investment portfolio in connection with ratings issued with respect to such Lender or (j) in connection with the exercise of any remedy hereunder or under any other Loan Document. 9.15 [Reserved]. 9.16 Accounting Changes. In the event that any "Accounting Change" (as defined below) shall occur and such change results in a change in the method of calculation of financial covenants, standards or terms in this Agreement, then the Borrower and the Administrative Agent agree to enter into negotiations in order to amend such provisions of this Agreement so as to equitably reflect such Accounting Change with the desired result that the criteria for evaluating the Borrower's financial condition shall be the same after such Accounting Change as if such Accounting Change had not been made. Until such time as such an amendment shall have been executed and delivered by the Borrower, the Administrative Agent and the Required Lenders, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed as if such Accounting Change had not occurred. "Accounting Change" refers to any change in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or, if applicable, the SEC. 9.17 Delivery of Lender Addenda. Each initial Lender shall become a party to this Agreement by delivering to the Administrative Agent a Lender Addendum duly executed by such Lender, the Borrower and the Administrative Agent. 9.18 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 61 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. SIERRA PACIFIC POWER COMPANY By: __________________________ Name: Title: LEHMAN BROTHERS INC., as Arranger By: __________________________ Name: Title: LEHMAN COMMERCIAL PAPER INC., as Syndication Agent By: __________________________ Name: Title: LEHMAN COMMERCIAL PAPER INC., as Administrative Agent By: __________________________ Name: Title: SCHEDULE 3.2 DISCLOSED MATTERS None. lxii SCHEDULE 3.4 CONSENTS, AUTHORIZATIONS, FILINGS AND NOTICES 1. Order of the Public Utilities Commission of Nevada dated September 21, 2001, Docket No. 01-6028. 2. Decision 00-03-049 of the California Public Utilities Commission dated March 16, 2000. lxiii SCHEDULE 3.6 MATERIAL LITIGATION 1. In early May of 2002, Coral Energy Canada, Enron North America Corporation, Enron Power Marketing, Inc. ("Enron"), J. Aron & Company, National Fuel Marketing Company, Nexen Marketing, Reliant Canada Incorporated, Reliant Energy Services Incorporated and Retex, Inc. Reliant Energy Services, Inc. and several smaller suppliers notified the Borrower that they would be terminating their power and gas deliveries to the Borrower under the Western Systems Power Pool Agreement ("WSPPA"). On September 30, 2002, El Paso Merchant Energy Group notified the Borrower that it was terminating its power deliveries to the Borrower under the WSPAA. Each of these terminating suppliers has asserted, or has indicated that it will assert, a claim against the Borrower for liquidated damages. See Schedule 3.7. 2. Enron Power Marketing, Inc. v. Nevada Power Company and Sierra Pacific Power Company (In re Enron Corp., et al., Case No. 01-16034). On June 5, 2002, Enron filed suit against the Borrower in its bankruptcy case in the Bankruptcy Court for the Southern District of New York asserting claims for liquidated damages related to the termination of its power supply agreement with the Borrower of $93.5 million. Enron's claim is subject to the Borrower's defense that such claim is already at issue in the Borrower's Federal Energy Regulatory Commission ("FERC") proceeding against Enron under Section 206 of the Federal Power Act challenging the contract prices of the terminated power supply agreement. In connection with the lawsuit filed by Enron in the Bankruptcy Court, Enron has filed a motion to require the Borrower promptly to pay the full amount of their claim pending the final resolution of the lawsuit. 3. Sierra Pacific Power Company v. Public Utilities Commission of Nevada. On August 22, 2002, the Borrower filed a lawsuit in the First Judicial District Court of the State of Nevada in and for Carson City seeking judicial review of the May 28, 2002 decision of the Public Utilities Commission of Nevada (the "PUCN") denying the recovery of $53.1 million of the Borrower's deferred energy costs incurred on behalf of its customers in 2001. 4. In September 1994, Region VII of the United States Environmental Protection Agency ("the EPA") notified the Borrower that it was being named as a potentially responsible party ("PRP") regarding past improper handling of Polychlorinated Biphenyls by PCB Treatment, Inc., located in Kansas City, Kansas and Kansas City, Missouri (the "Sites"). The EPA is requesting that the Borrower voluntarily pay an undefined, pro rata share of the ultimate clean-up costs at the Sites. A number of the largest PRP's formed a steering committee (the "Committee"), which is chaired by the Borrower. The responsibility of the Committee is to direct clean-up activities, determine appropriate cost allocation, and pursue actions against recalcitrant parties, if necessary. The EPA issued an administrative order on consent requiring signatories to perform certain investigative work at the Sites. The Site evaluations have been completed. The EPA is developing an allocation formula to allocate the remediation costs. The Borrower has recorded a preliminary liability for the Sites of $650,000 of which approximately $136,000 has been spent lxiv through June 30, 2002. Once evaluations are completed, the Borrower will be in a better position to estimate and record the ultimate liabilities for the Sites. lxv SCHEDULE 3.7 CONTRACTUAL OBLIGATIONS Each of the below-listed parties has exercised its respective contractual right to terminate gas and/or electric deliveries to the Borrower under the Western Systems Power Pool Agreement: (1) Coral Energy Canada (2) El Paso Merchant Energy Group (3) Enron North America Corporation (4) Enron Power Marketing, Inc. (5) J. Aron & Company (6) National Fuel Marketing Company (7) Nexen Marketing (8) Reliant Canada Incorporated (9) Reliant Energy Services Incorporated (10) Retex, Inc. lxvi SCHEDULE 3.16 SUBSIDIARIES
STATES IN WHICH QUALIFIED COMPANY STATE OF INCORPORATION AS A FOREIGN CORPORATION - ------- ---------------------- ------------------------- SPPC Receivables Finance Delaware Nevada Corporation Pinon Pine Company Nevada N/A Pinon Pine Investment Co. Nevada N/A Pinon Pine Investment Co. LLC Nevada N/A Sierra Pacific Power Capital Delaware (business trust) N/A Trust I SPPC Funding LLC Delaware California, Nevada GPSF-B Delaware N/A
Each of the Subsidiaries listed on this Schedule 3.16 are wholly-owned subsidiaries of the Borrower. lxvii SCHEDULE 6.2(d) EXISTING INDEBTEDNESS
A. TAX-EXEMPT ISSUES Humboldt County, Nevada Variable Rate Demand Pollution Control Refunding Revenue Bonds (Sierra Pacific Power Company Project) Series 1987.......................................................... $39,500,000 Washoe County, Nevada Variable Rate Demand Gas Facilities Revenue Bonds (Sierra Pacific Power Company Project) Series 1987.......................................................... $17,500,000 Washoe County, Nevada Variable Rate Demand Gas and Water Facilities Refunding Revenue Bonds (Sierra Pacific Power Company Project) Series 1987.................................................... $45,000,000 Humboldt County, Nevada Pollution Control Refunding Revenue Bonds (Sierra Pacific Power Company Project) Series 1992A................................................... $10,250,000 Humboldt County, Nevada Pollution Control Refunding Revenue Bonds (Sierra Pacific Power Company Project) Series 1992B................................................... $ 1,000,000 Washoe County, Nevada Gas Facilities Revenue Bonds (Sierra Pacific Power Company Project) Series 1990.................................................................. $20,000,000 Washoe County, Nevada Variable Rate Demand Water Facilities Revenue Bonds (Sierra Pacific Power Company Project) Series 1987.......................................................... $75,000,000 Washoe County, Nevada Gas Facilities Revenue Bonds (Sierra Pacific Power Company Project) Series 1992.................................................................. $21,200,000
A. TAX-EXEMPT ISSUES Washoe County, Nevada Water Facilities Refunding Revenue Bonds (Sierra Pacific Power Company Project) Series 1993A................................................... $ 9,800,000 Washoe County, Nevada Gas and Water Facilities Refunding Revenue Bonds (Sierra Pacific Power Company Project) Series 1993B................................................... $30,000,000 Washoe County, Nevada Water Facilities Refunding Revenue Bonds (Sierra Pacific Power Company Project) Series 2001.......................................................... $80,000,000 B. MEDIUM-TERM NOTES ----------------- 6.95% Series A due 2022............................................................... $37,000,000 7.875% Series A due 2022.............................................................. $46,000,000 8.61% Series A due 2022............................................................... $27,000,000 7.10% Series B due 2023............................................................... $32,500,000 7.14% Series B due 2023............................................................... $25,500,000 6.81% Series C due 2006............................................................... $10,000,000 6.82% Series C due 2006............................................................... $ 5,000,000 6.83% Series C due 2006............................................................... $ 5,000,000 6.81% Series C due 2006............................................................... $10,000,000 6.65% Series C due 2006............................................................... $ 7,000,000 6.62% Series C due 2006............................................................... $13,000,000 5.59% Series D due 2003............................................................... $13,000,000 5.50% Series D due 2003............................................................... $ 5,000,000
C. ADDITIONAL INDEBTEDNESS OF BORROWER A. On April 9, 1999, a subsidiary of Borrower (SPPC Funding LLC) issued its 6.40% Notes, Series 1999-1 due 2009 to California Industrial and Economic Development Bank Special Purpose Trust SPPC-1, the outstanding balance of which as of August 31, 2002 was $9,404,715. This Note is secured by a security interest in certain Transition Property of Borrower, to the extent that such Transition Property is deemed not to have been transferred from Borrower to SPPC Funding LLC. B. 8% General and Refunding Mortgage Bonds, Series A, due June 1, 2008 in the aggregate principal amount of $320,000,000. 2 C. Credit Agreement dated as of November 30, 2001, among Sierra Pacific Power Company, Union Bank of California, N.A., as sole Bookrunner and Administrative Agent, Wells Fargo Bank, N.A., as Syndication Agent, Bank One, N.A., BNP Paribas and Mellon Bank, N.A., as Co-Documentation Agents, the Lenders party thereto from time to time, and Union Bank of California, N.A. and Wells Fargo Bank, N.A., as Co-Lead Arrangers relating to $150 million credit facility. The credit facility is secured by the Borrower's General and Refunding Mortgage Bond, Series B, due November 28, 2002, in the principal amount of $150 million. D. Amendment No. 1 to the Credit Agreement dated as of November 30, 2001, among Sierra Pacific Power Company, Union Bank of California, N.A., as sole Bookrunner and Administrative Agent, Wells Fargo Bank, N.A., as Syndication Agent, Bank One, N.A., BNP Paribas and Mellon Bank, N.A., as Co-Documentation Agents, the Lenders party thereto from time to time, and Union Bank of California, N.A. and Wells Fargo Bank, N.A., as Co-Lead Arrangers relating to $150 million credit facility, dated June 25, 2002. E. Lease dated January 30, 1986 between the Borrower and Silliman Associates Limited Partnership relating to the Borrower's corporate headquarters building. F. Letter of Amendment dated May 18, 1987 to Lease dated January 30, 1986 between the Borrower and Silliman Associates Limited Partnership relating to the Borrower's corporate headquarters building. 3 SCHEDULE 6.3(f) EXISTING LIENS I. PLEDGED SECURITIES A. TAX-EXEMPT ISSUES. The Borrower has entered into financing agreements with Washoe County and Humboldt County, Nevada pursuant to which those counties have issued tax-exempt bonds to fund various Borrower-sponsored projects. The Borrower's obligations under each such financing agreement are secured by First Mortgage Bonds issued under the Borrower's Indenture of Mortgage dated as of December 1, 1940, as supplemented and amended (the "First Mortgage Indenture") and pledged to the relevant tax-exempt bond trustee. The First Mortgage Indenture imposes a lien on substantially all of Borrower's property. In addition, the Counties have granted to the Trustee in each transaction a security interest in Borrower's obligations to the County under the relevant financing agreement. The following is a list of the tax-exempt financings and the series of the Borrower's First Mortgage Bonds securing such obligations:
FIRST MORTGAGE TAX-EXEMPT ISSUE PRINCIPAL AMOUNT BOND SECURITY - ---------------- ---------------- -------------- Humboldt County, Nevada Variable Rate $39,500,000 6.55% Series AA due 2013 Demand Pollution Control Refunding Revenue Bonds (Sierra Pacific Power Company Project) Series 1987 Washoe County, Nevada Variable Rate $17,500,000 6.65% Series BB due 2017 Demand Gas Facilities Revenue Bonds (Sierra Pacific Power Company Project) Series 1987 Washoe County, Nevada Variable Rate $45,000,000 6.30% Series DD due 2014 Demand Gas and Water Facilities Refunding Revenue Bonds (Sierra Pacific Power Company Project) Series 1987 Humboldt County, Nevada $10,250,000 6.30% Series EE due 2022 Pollution Control Refunding Revenue Bonds (Sierra Pacific Power Company Project) Series 1992A
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FIRST MORTGAGE TAX-EXEMPT ISSUE PRINCIPAL AMOUNT BOND SECURITY - ---------------- ---------------- -------------- Humboldt County, Nevada $ 1,000,000 6.35% Series FF due 2012 Pollution Control Refunding Revenue Bonds (Sierra Pacific Power Company Project) Series 1992B Washoe County, Nevada $20,000,000 6.55% Series GG due 2020 Gas Facilities Revenue Bonds (Sierra Pacific Power Company Project) Series 1990 Washoe County, Nevada Variable Rate $75,000,000 6.65% Series HH due 2017 Demand Water Facilities Revenue Bonds (Sierra Pacific Power Company Project) Series 1987 Washoe County, Nevada $21,200,000 6.70% Series II due 2032 Gas Facilities Revenue Bonds (Sierra Pacific Power Company Project) Series 1992 Washoe County, Nevada $ 9,800,000 5.90% Series JJ due 2023 Water Facilities Refunding Revenue Bonds (Sierra Pacific Power Company Project) Series 1993A Washoe County, Nevada Gas and $30,000,000 5.90% Series KK due 2023 Water Facilities Refunding Revenue Bonds (Sierra Pacific Power Company Project) Series 1993B
B. MEDIUM-TERM NOTES. The Borrower has issued Medium-Term Notes under a Collateral Trust Indenture dated as of June 1, 1992 between the Borrower and Bankers Trust Company, as Trustee. Each series of Medium-Term Notes is secured by a separate First Mortgage Bond of the Borrower issued pursuant to the Borrower's First Mortgage Indenture. The following Medium-Term Notes of the Borrower are currently outstanding:
FIRST MORTGAGE TITLE OF MEDIUM-TERM NOTES PRINCIPAL AMOUNT BOND SECURITY - -------------------------- ---------------- -------------- 6.95% Series A Medium-Term Notes $37,000,000 12% Series CC due 2022 due 2022 7.875% Series A Medium-Term Notes $46,000,000 12% Series CC due 2022 due 2022
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FIRST MORTGAGE TITLE OF MEDIUM-TERM NOTES PRINCIPAL AMOUNT BOND SECURITY - -------------------------- ---------------- -------------- 8.61% Series A Medium-Term Notes $27,000,000 12% Series CC due 2022 due 2022 7.10% Series B Medium-Term Notes $32,500,000 10% Series LL due 2033 due 2023 7.14% Series B Medium-Term Notes $25,500,000 10% Series LL due 2033 due 2023 6.81%Series C Medium-Term Notes $10,000,000 9% Series MM due 2035 due 2006 6.82% Series C Medium-Term Notes $ 5,000,000 9% Series MM due 2035 due 2006 6.83% Series C Medium-Term Notes $ 5,000,000 9% Series MM due 2035 due 2006 6.81% Series C Medium-Term Notes $10,000,000 9% Series MM due 2035 due 2006 6.65% Series C Medium-Term Notes $ 7,000,000 9% Series MM due 2035 due 2006 6.62% Series C Medium-Term Notes $13,000,000 9% Series MM due 2035 due 2006 5.59% Series D Medium-Term Notes $13,000,000 9% Series NN due 2037 due 2003 5.50% Series D Medium-Term Notes $ 5,000,000 9% Series NN due 2037 due 2003
II. ADDITIONAL MORTGAGES A. On April 9, 1999, a subsidiary of Borrower (SPPC Funding LLC) issued its 6.40% Notes, Series 1999-1 due 2009 to California Industrial and Economic Development Bank Special Purpose Trust SPPC-1, the outstanding balance of which as of August 31, 2002 was $9,404,715. This Note is secured by a security interest in certain Transition Property of Borrower, to the extent that such Transition Property is deemed not to have been transferred from Borrower to SPPC Funding LLC. B. General and Refunding Mortgage Indenture, dated as of May 1, 2001, as supplemented by the First Supplemental Indenture dated as of May 1, 2001 (as amended and supplemented to the date hereof, the "G&R Indenture"), imposes a lien on substantially all 6 properties owned by the Borrower located in the State of Nevada, which lien, as to such properties, is junior, subject and subordinate to the lien of First Mortgage Indenture. C. On April 8, 2002, the Borrower issued and delivered its General and Refunding Mortgage Bond, Series B, due November 28, 2002, in the principal amount of $150 million to secure the Credit Agreement dated as of November 30, 2001, among Sierra Pacific Power Company, Union Bank of California, N.A., as sole Bookrunner and Administrative Agent, Wells Fargo Bank, N.A., as Syndication Agent, Bank One, N.A., BNP Paribas and Mellon Bank, N.A., as Co-Documentation Agents, the Lenders party thereto from time to time, and Union Bank of California, N.A. and Wells Fargo Bank, N.A., as Co-Lead Arrangers relating to $150 million credit facility. III. CASH MANAGEMENT ACTIVITIES A. Wells Fargo Bank, N.A. has a lien in the principal amount of approximately $3 million on certain of the Borrower's deposit accounts, instruments, investment accounts and investment properties (including cash, cash equivalents and marketable securities), in each case solely to secure the Borrower's cash management activities. 7 SCHEDULE 6.5 SCHEDULED ASSET SALES In addition to the properties listed below, the Borrower anticipates selling approximately $5,000,000 of miscellaneous property by the end of the First Quarter of 2003. I. LEGAL DESCRIPTION: Assessor Parcel Number 038-430-11 EXPLANATION: The following described property in Washoe County, Nevada as conveyed to the Truckee River General Electric Company from Reno Power, Light and Water Company item number 11 of the deed recorded July 7, 1922, File No. 25829, Records of Washoe County, Nevada. LAND DESCRIPTION: A portion of 115 Acres more or less of the NE1/4 of Sec.16, T19N, R18E described as beginning at the section corner common to Sections 9, 10, 15 and 16, T19N, R18E and running thence along the section line between Sections 9 and 16, N88(degree) 54'W, 1640.8 feet; Thence S12(degree) 52'W, 76.47 feet; Thence S71(degree) 13'W, 208.56 feet; Thence S24(degree)14'W, 362.34 feet; Thence S40(degree) 55'W, 495.0 feet; Thence S7(degree) 24'E, 514.8 feet; Thence S26(degree) 30'E, 1342.54 feet; Thence S88(degree) 03'E, 1584.59 feet; Thence S88(degree) 03'E, 1584.59 feet to the quarter corner between Sections 15 and 16; Thence N1(degree) 45'E, 2581.78 feet to the point of beginning and being a fractional part of the NE 1/4 of Sec. 16, T19N, R18E. Excepting therefrom 9.963 acres conveyed on April 30, 1915 to Central Pacific Railway Company and subject to an easement of the same date to the above Company for right of way across a portion of the described property. Containing 40.05 acres more or less APPRAISED VALUE: $180,000.00 Date of Appraisal: May 3, 2002 II. LEGAL DESCRIPTION: 8 Assessor Parcel Number 038-270-11 EXPLANATION: The following 3 described properties in Washoe County, Nevada compose a single Assessor Parcel Number. LAND DESCRIPTION: (1) Conveyed to the Truckee River General Electric Company from Mortimer Fleishhacker, an unmarried person, the following portions of the deed recorded July 13, 1900, Book 21, Page 265, Records of Washoe County, Nevada. The Southeast 1/4 of the Northeast 1/4 of Section 31, T19N, R18E, MDB&M. The Northwest1/4of the Southeast1/4of Section 31, T19N. R18E, MDB&M. Also that portion of the Southwest 1/4 of the Northeast 1/4 of Section 31, T19N, R18E, MDB&M lying on the Southeast side of the Truckee River. (2) Conveyed to the Truckee River General Electric Company from County Treasurer of Washoe County, D.B. Boyd, by deed recorded March 1, 1952, File No. 203885, Book 286, Page 163, Records of Washoe County, Nevada. That certain lot or parcel of land situated in said County and described as the Fractional part of the S 1/2 of Lot 1 in the SW 1/4 of Section 31, T19N, R18E. MDB&M, and comprising 10.81 acres. (3) Conveyed to the Truckee River General Electric Company from Mortimer Fleishhacker by Deed CONTAINING 93.83 ACRES MORE OR LESS APPRAISED VALUE: $330,000.00 Date of Appraisal: May 3, 2002 III. LEGAL DESCRIPTION: APN 084-120-18 9 EXPLANATION: The following described property in Washoe County, Nevada as shown on Parcel Map for Sierra Pacific Power Company recorded January 12, 2001, File No. 2515252, Official Records of Washoe County, Nevada. LAND DESCRIPTION: Parcel 1 of Parcel Map 3734 Official Records of Washoe County CONTAINING 51.79 ACRES APPRAISED VALUE: $155,370.00 Date of Appraisal: June 12, 2002 IV. LEGAL DESCRIPTION: APN 084-120-19 EXPLANATION: The following described property in Washoe County, Nevada as shown on Parcel Map for Sierra Pacific Power Company recorded January 12, 2001, File No. 2515252, Official Records of Washoe County, Nevada. LAND DESCRIPTION: Parcel 2 of Parcel Map 3734 Official Records of Washoe County CONTAINING 7.89 ACRES APPRAISED VALUE: $23,670.00 Date of Appraisal: June 12, 2002 V. LEGAL DESCRIPTION: 10 APN 038-182-05 EXPLANATION: The following described property in Washoe County, Nevada as conveyed to Sierra Pacific Power Company from John E. Leeming, Jr. and Laura Leeming, husband and wife, by deed recorded September 17, 1987, File No. 1192527, Book 261, Page 107, Official Records of Washoe County, Nevada. LAND DESCRIPTION: Being all that portion of the SW 1/4 of the SW 1/4 of Section 14, Township 19 North, Range 18 East, MDBM, described as follows: Bounded on the North by the Southerly line of the parcel conveyed to Sierra Pacific Power Company, by deed recorded September 6, 1930, in Book 83, Page 497, Deed Records; on the East by the parcel conveyed to E. Canapa by deed recorded January 21, 1926, in Book 28, Page 185, Deed Records; on the South by the South line of said Section 14 and on the West by the West line of said Section14. CONTAINING 1.0 ACRE APPRAISED VALUE: $80,000.00 Date of Appraisal: June 12, 2002 VI. LEGAL DESCRIPTION: APN 016-010-02, 03, 05, 07, and 016-020-01 in Nevada County APN 019-050-07 and 019-060-05, 06 in Sierra County EXPLANATION: The following described property in Nevada County, California and Sierra County, California as conveyed to Sierra Pacific Power Company from Hobart Estate Company, A. Crawford Greene, President and H.G. Stevenson, Secretary by deed recorded December 7, 1940, File No. 4017, Book 64, Page 341, Records of Nevada County, California and by deed recorded December 6, 1940, File No. 13149, Book 39, Page 157, Records of Sierra County, California. LAND DESCRIPTION: 11 All real property owned by the said party of the first part in Sections 2, 3, 4, 5, and 9 Township 18 North, Range 15 East, and Sections 33, 34 and 35, Township 19 North, Range 15 East MDB&M, and all water rights incidental or appurtenant thereto and any and all rights which the said party of the first part may have to impound or store water thereon: and all right, title, estate and interest which the said party of the first part may have in and to that certain private telephone line from Independence Lake to Hobart Mills and all rights and easements which the said party of the first part may have to maintain and use the said telephone line. FAIR MARKET VALUE: $22,000,000.00 12 SCHEDULE 7(e)(ii) HEDGING OBLIGATIONS Each of the below-listed parties has exercised its respective contractual right to terminate gas and/or electric deliveries to the Borrower under the Western Systems Power Pool Agreement: (1) Coral Energy Canada (2) El Paso Merchant Energy Group (3) Enron North America Corporation (4) Enron Power Marketing, Inc. (5) J. Aron & Company (6) National Fuel Marketing Company (7) Nexen Marketing (8) Reliant Canada Incorporated (9) Reliant Energy Services Incorporated (10) Retex, Inc. 13 EXHIBIT A =============================================================================== BOND DELIVERY AGREEMENT Between SIERRA PACIFIC POWER COMPANY and LEHMAN COMMERCIAL PAPER INC., As Administrative Agent Dated as of October 30, 2002 RELATING TO $100,000,000 GENERAL AND REFUNDING MORTGAGE BONDS, SERIES C, DUE OCTOBER 31, 2005 OF SIERRA PACIFIC POWER COMPANY =============================================================================== THIS BOND DELIVERY AGREEMENT, made and entered into as of October 30, 2002 (the "Agreement"), by and between SIERRA PACIFIC POWER COMPANY, a corporation duly organized and existing under the laws of the State of Nevada (the "Company"), and LEHMAN COMMERCIAL PAPER INC., in its capacity as Administrative Agent under the Term Loan Agreement defined below (the "Agent"). W I T N E S S E T H: WHEREAS, the Company has entered into the Term Loan Agreement, dated as of October 30, 2002 (as amended, supplemented, restated or otherwise modified from time to time, the "Term Loan Agreement"), among the Company, the Agent, the lenders party thereto from time to time (the "Lenders") and others; and WHEREAS, pursuant to the Term Loan Agreement, the Lenders have agreed to make Loans (as defined in the Term Loan Agreement) to the Company, and it is a condition precedent to the obligation of the Lenders that the Company execute and deliver this Agreement and deliver the Bond (as defined below) to the Agent pursuant hereto; and WHEREAS, to secure the repayment of the Obligations incurred pursuant to the Term Loan Agreement, the Company has issued and hereby delivers to the Agent, for its benefit and the ratable benefit of the Lenders under the Term Loan Agreement, a General and Refunding Mortgage Bond, Series C, due October 31, 2005, No. C-1, in the principal amount of $100,000,000 (the "Bond"), issued under that certain General and Refunding Mortgage Indenture, dated as of May 1, 2001, between the Company and The Bank of New York, as trustee (the "Trustee"), as heretofore or hereafter supplemented, modified or amended from time to time (the "Indenture"). NOW, THEREFORE, in consideration of the premises and in order to induce the Lenders to enter into the Term Loan Agreement and to make Loans to the Company thereunder, the Company does hereby, subject to the terms hereof, covenant and agree with the Agent, as follows: ARTICLE I REPRESENTATIONS AND WARRANTIES OF THE COMPANY SECTION 1.1. The Company hereby represents and warrants that: (a) It is a corporation duly incorporated and in good standing under the laws of the State of Nevada, is not in violation of any provisions of its Articles of Incorporation or its by-laws, has corporate power to enter into and to perform its obligations under this Agreement, has duly authorized the execution and delivery of this Agreement by proper corporate action, and neither this Agreement nor the obligations on its part herein contained contravene or constitute a default under any agreement, instrument or indenture or any provision of its Articles of Incorporation or its by-laws or any other requirement of law; 1 (b) When delivered to the Agent hereunder, the Bond will have been duly and validly authorized, authenticated, issued and delivered and will constitute the legally valid and binding obligation of the Company, entitled to the benefits as provided by the Indenture; and (c) The Company expects that the performance by it of its obligations hereunder will result in a financial benefit to it. ARTICLE II DELIVERY OF THE BOND SECTION 2.1. The Company hereby delivers the Bond to the Agent, fully registered in the name of the Agent, to secure payment of the principal of the Loans to the Company made pursuant to the Term Loan Agreement and all interest thereon and fees, costs, expenses and other amounts payable by the Company thereunder (all such interest, fees, costs, expenses and other amounts, the "Interest and Other Amounts"). SECTION 2.2. The Bond is delivered by the Company, and such delivery is acknowledged and accepted by the Agent, upon and subject to the following terms and conditions: (a) NO TRANSFER OF BOND; EXCEPTION. Except as required to effect an assignment to a successor-in-interest as Administrative Agent under the Term Loan Agreement, the Agent shall not sell, assign or transfer the Bond held by it. The Company may take such actions as it shall deem to be desirable, including the placing of a legend on such Bond in substantially the following form: "This Bond is not transferable except to a successor to the Administrative Agent under the Term Loan Agreement referred to herein." and the issuance of stop transfer instructions to the Trustee and any registrar under the Indenture, to effect compliance with this restriction. (b) RELEASE OF BOND UPON TERMINATION OF TERM LOAN AGREEMENT. It is the intent of this Agreement that the Agent shall at all times (during the term of this Agreement) hold, as security for the payment of the principal of the Loans and all Interest and Other Amounts, a face amount of the Bond equal to the aggregate initial principal amount of the Loans under the Term Loan Agreement, it being understood and agreed that the actual amount of principal payable in respect of the Bond on any date of determination shall be its face amount or such lesser amount as shall be equal to the aggregate principal amount of the Loans outstanding under the Term Loan Agreement on such date (including, without limitation, all Loans made pursuant to the Term Loan Agreement on such date). Accordingly, the Agent agrees to surrender the Bond to the Company when all of the principal of the Loans made pursuant to the Term Loan Agreement shall have been indefeasibly paid in full in cash, all accrued and unpaid Interest and Other Amounts payable pursuant to the Term Loan Agreement shall have been indefeasibly paid in full in cash, and the Term Loan Agreement shall have been terminated. 2 (c) VOTING OF THE BOND. The Agent, as holder of the Bond, shall attend or be represented by proxy at any meeting of bondholders under the Indenture as to which it is entitled to vote under the Indenture. Either at such meeting, or otherwise where approval or consent of holders of securities of the Company is sought without a meeting, the Agent shall vote the Bond, or shall consent with respect thereto, proportionately with what the signer of a Bondholder's Certificate, as defined below, reasonably believes was the vote or consent of the holders of all securities issued and outstanding under the Indenture (other than the Bond). For purposes of this Section 2.2(c), "Bondholder's Certificate" means a certificate signed by the temporary Chairman, the temporary Secretary, the permanent Chairman, the permanent Secretary, or an Inspector of Votes at any meeting or meetings of securityholders under the Indenture, or by the Trustee in the case of consents of such securityholders which are sought without a meeting, which states what the signer thereof reasonably believes was the proportionate votes or consents of the holders of all securities (other than the Bond) outstanding under the Indenture and counted for the purposes of determining whether such securityholders have approved or consented to the matter put before them. The provisions of this Section 2.2(c) relating to voting or consent with respect to the Bond shall not apply, and the Agent may vote or consent with respect to the Bonds without restriction in accordance with the terms of the Indenture, if either (i) there shall have occurred and be continuing an Event of Default under the Indenture or an "Event of Default" under the Term Loan Agreement or (ii) the matter with respect to which the vote or consent is taken is a matter which, under the terms of the Indenture, requires the approval or consent of the holders of all securities then outstanding and affected by such matter. SECTION 2.3. To the extent, if any, of the Company's right, title and interest in the Bond, the Company hereby grants to the Agent, for the ratable benefit of the Lenders, a security interest in all such right, title and interest. The Agent shall have, in respect of such security interest, all rights of a secured party under Article 9 of the Uniform Commercial Code in effect in the State of New York. ARTICLE III TERM; TERMINATION SECTION 3.1. This Agreement shall remain in full force and effect until terminated in accordance with this Article III and shall not be affected, modified or impaired by the happening from time to time of any event, including, without limitation, any of the following, whether or not with notice to, or consent of, the Company: (a) the extension of the time for payment of any principal of or interest on the Loans made pursuant to the Term Loan Agreement or any Interest and Other Amounts payable thereunder or of the time for performance of any other obligation, covenant or agreement under the Indenture; 3 (b) the modification, amendment, compromise, settlement, release, waiver or termination (whether material or otherwise) of any obligation, covenant or agreement of the Company under the Indenture; (c) the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all the assets, marshalling of assets, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition with creditors or readjustment of, or other similar proceedings affecting, the Company or any of its assets, or any allegation of the invalidity, or contest of the validity, of this Agreement in any such proceeding; (d) to the extent permitted by law, the release or discharge, whether by operation of law or otherwise, of the Company from the performance or observance of any obligation, covenant or agreement under this Agreement; or (e) the default or failure of the Company fully to perform or observe any obligation, covenant or agreement under this Agreement. SECTION 3.2. Upon the indefeasible payment in full in cash of the principal of the Loans made pursuant to the Term Loan Agreement and all Interest and Other Amounts payable thereunder and the termination of the Term Loan Agreement, this Agreement shall terminate, and the Agent shall return the Bond to the Company. ARTICLE IV MISCELLANEOUS SECTION 4.1. The Company shall fully satisfy and discharge all of the obligations for the payment of the Bond in accordance with its terms, the terms of the Indenture and the terms of this Agreement, it being the intention that such obligations shall be separate and independent covenants from any agreements of the Company with the Agent under the Term Loan Agreement and that such obligations of the Company hereunder shall continue unaffected unless otherwise expressly provided in this Agreement. SECTION 4.2. The Company, at its own expense, shall do such acts and things, and execute and deliver such conveyances, assignments, assurances, agreements, financing statements and instruments, as may at any time be required or desirable in connection with this Agreement or relative to the Bond, in order to assign, assure and confirm to the Agent a first priority perfected ownership interest in the Bond. SECTION 4.3. This Agreement is entered into by the Company for the benefit of the Agent and any successor-in-interest to the Agent as Administrative Agent under the Term Loan Agreement, who shall be entitled to enforce performance and observance of this Agreement to the same extent as if it were a party signatory hereto. SECTION 4.4. No remedy herein conferred upon or reserved to the Agent is intended to be exclusive of any other available 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 4 hereafter existing at law or in equity. In the event any provision contained in this Agreement should be breached by the Company and thereafter duly waived by the Agent, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. No waiver, amendment, release or modification of this Agreement shall be established by conduct, custom or course of dealing, but solely by an instrument in writing duly executed by the Agent. SECTION 4.5. All amendments of this Agreement shall be in writing. SECTION 4.6. This Agreement (together with the Term Loan Agreement) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof, and may be executed in several counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. SECTION 4.7. In the event any one or more phrases, clauses, sentences, Sections or Articles of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not affect the validity or enforceability of the remaining portions hereof. SECTION 4.8. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 4.9. Any notices, requests or other communications given or made hereunder or pursuant hereto shall be in writing and shall be deemed to have been validly given or made when delivered or mailed, postage prepaid, addressed as follows: IF TO THE COMPANY: Sierra Pacific Power Company 6100 Neil Road P.O. Box 10100 Reno, Nevada 89520-04006 Attn: Richard K. Atkinson IF TO THE AGENT: As provided in the Term Loan Agreement or addressed to either party at such other address as such party shall hereafter furnish to the other party hereto in writing. SECTION 4.10. THE captions of headings of the Articles and Sections herein have been inserted for the convenience of reference only and shall in no way affect the construction or interpretation of this Agreement. 5 IN WITNESS WHEREOF, the Company and the Agent have caused this Agreement to be executed in their respective corporate names as of the date first above written. SIERRA PACIFIC POWER COMPANY By: ____________________________________________ Name: Richard K. Atkinson Title: Vice President, Investment Relations aan Treasurer LEHMAN COMMERCIAL PAPER INC., in its capacity as Administrative Agent By: ____________________________________________ Name: Title: EXHIBIT B FORM OF COMPLIANCE CERTIFICATE This Compliance Certificate is delivered pursuant to Section 5.2 of the Term Loan Agreement, dated as of October __, 2002, as amended, supplemented or modified from time to time (the "Loan Agreement"), among SIERRA PACIFIC POWER COMPANY, a Nevada corporation (the "Borrower"), the Lenders parties thereto, LEHMAN BROTHERS INC., as Arranger, LEHMAN COMMERCIAL PAPER INC., as Administrative Agent, and others. Terms defined in the Loan Agreement are used herein as therein defined. The undersigned hereby certifies to the Arranger, the Agents and the Lenders as follows: 1. I am the duly elected, qualified and acting [Chief Financial Officer] [Treasurer] of the Borrower. 2. I have reviewed and am familiar with the contents of this Certificate. 3. I have reviewed the terms of the Loan Agreement and the Loan Documents and have made or caused to be made under my supervision, a review in reasonable detail of the transactions and condition of the Borrower during the accounting period covered by the financial statements attached hereto as Attachment 1 (the "Financial Statements"). Such review did not disclose the existence during or at the end of the accounting period covered by the Financial Statements, and I have no knowledge of the existence, as of the date of this Certificate, of any condition or event which constitutes a Default or Event of Default [, except as set forth below]. 4. Attached hereto as Attachment 2 are the computations showing compliance with the covenants set forth in Section 6.1, 6.2, 6.5, 6.6 and 6.7 of the Loan Agreement. IN WITNESS WHEREOF, the undersigned has executed this Compliance Certificate as of the date set forth below. SIERRA PACIFIC POWER COMPANY By: ____________________________________________ Title: Date: October __, 2002 Attachment 2 to Exhibit B The information described herein is as of ______, 200__, and pertains to the period from _________, 200_ to ________________ __, 200_. [Set forth Covenant Calculations] EXHIBIT C FORM OF CLOSING CERTIFICATE This Closing Certificate is delivered pursuant to Section 4.1(g) of the Term Loan Agreement, dated as of October __, 2002 (the "Loan Agreement"; among SIERRA PACIFIC POWER COMPANY, a Nevada corporation (the "Borrower"), the Lenders parties thereto, LEHMAN BROTHERS INC., as Arranger, LEHMAN COMMERCIAL PAPER INC., as Administrative Agent, and others. Terms defined in the Loan Agreement are used herein as therein defined. The undersigned [INSERT TITLE OF OFFICER] of SIERRA PACIFIC POWER COMPANY (the "Company") hereby certifies to the Arranger, the Agents and the Lenders as follows: 1. The representations and warranties of the Company set forth in each of the Loan Documents to which it is a party or which are contained in any certificate furnished by or on behalf of the Company pursuant to any of the Loan Documents to which it is a party are true and correct in all material respects on and as of the date hereof with the same effect as if made on the date hereof, except for representations and warranties expressly stated to relate to a specific earlier date, in which case such representations and warranties were true and correct in all material respects as of such earlier date. 2. No Default or Event of Default has occurred and is continuing as of the date hereof or after giving effect to the Loans to be made on the date hereof. 3. The conditions precedent set forth in Section 4.1 of the Loan Agreement were satisfied as of the Closing Date. 4. There are no liquidation or dissolution proceedings pending or to my knowledge threatened against the Company, nor has any other event occurred adversely affecting or threatening the continued corporate existence of the Company. 5. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization. IN WITNESS WHEREOF, the undersigned have executed the Closing Certificate as of the date set forth below. - ----------------------------------------------- Name: Richard K. Atkinson Title: Vice President, Investor Relations and Treasurer Date: October, 2002 EXHIBIT D FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to the Term Loan Agreement, dated as of October __, 2002 (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement"), among SIERRA PACIFIC POWER COMPANY (the "Borrower"), the Lenders parties thereto, Lehman Brothers Inc., as Arranger, Lehman Commercial Paper Inc., as Administrative Agent, and others. Unless otherwise defined herein, terms defined in the Loan Agreement and used herein shall have the meanings given to them in the Loan Agreement. The Assignor identified on Schedule l hereto (the "Assignor") and the Assignee identified on Schedule l hereto (the "Assignee") agree as follows: 1. The Assignor hereby irrevocably sells and assigns to the Assignee without recourse to the Assignor, and the Assignee hereby irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Date (as defined below), the interest described in Schedule 1 hereto (the "Assigned Interest") in and to the Assignor's rights and obligations under the Loan Agreement with respect to the Term Loan Facility (the "Assigned Facility"), in a principal amount as set forth on Schedule 1 hereto. 2. The Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Loan Agreement or with respect to the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto, other than that the Assignor has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim; (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower, any of its Subsidiaries or any other obligor or the performance or observance by the Borrower, any of its Subsidiaries or any other obligor of any of their respective obligations under the Loan Agreement or any other Loan Document or any other instrument or document furnished pursuant hereto or thereto; and (c) attaches any Note held by it evidencing the Assigned Facility and (i) requests that the Administrative Agent, upon request by the Assignee, exchange the attached Note for a new Note payable to the Assignee and (ii) if the Assignor has retained any interest in the Assigned Facility, requests that the Administrative Agent exchange the attached Note for a new Note payable to the Assignor, in each case in amounts which reflect the assignment being made hereby (and after giving effect to any other assignments which have become effective on the Effective Date). 3. The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (b) confirms that it has received a copy of the Loan Agreement, together with copies of the financial statements delivered pursuant to Section 3.1 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (c) agrees that it will, independently and without reliance upon the Assignor, the Agents or any other 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 the Loan Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (d) appoints and authorizes the Agents to take such action as agent on its behalf and to exercise such powers and discretion under the Loan Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto as are delegated to the Agents by the terms thereof, together with such powers as are incidental thereto; and (e) agrees that it will be bound by the provisions of the Loan Agreement and will perform in accordance with its terms all the obligations which by the terms of the Loan Agreement are required to be performed by it as a Lender including, if it is organized under the laws of a jurisdiction outside the United States, its obligation pursuant to Section 2.15(d) of the Loan Agreement. 4. The effective date of this Assignment and Acceptance shall be the Effective Date of Assignment described in Schedule 1 hereto (the "Effective Date"). Following the execution of this Assignment and Acceptance, it will be delivered to the Administrative Agent for acceptance by it and recording by the Administrative Agent pursuant to the Loan Agreement, effective as of the Effective Date (which shall not, unless otherwise agreed to by the Administrative Agent, be earlier than five Business Days after the date of such acceptance and recording by the Administrative Agent). 5. Upon such acceptance and recording, from and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) [to the Assignor for amounts which have accrued to the Effective Date and to the Assignee for amounts which have accrued subsequent to the Effective Date] [to the Assignee whether such amounts have accrued prior to the Effective Date or accrue subsequent to the Effective Date. The Assignor and the Assignee shall make all appropriate adjustments in payments by the Agent for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves.] 6. From and after the Effective Date, (a) the Assignee shall be a party to the Loan Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and under the other Loan Documents and shall be bound by the provisions thereof and (b) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Agreement. 7. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed as of the date first above written by their respective duly authorized officers on Schedule 1 hereto. Schedule 1 to Assignment and Acceptance Name of Assignor: _______________________ Name of Assignee: _______________________ Effective Date of Assignment: _________________
Credit Principal Facility Assigned Amount Assigned ----------------- --------------- Term Loan Facility $_______
[Name of Assignee] [Name of Assignee] By: _____________________________ By: _____________________________ Title: Title: Accepted: [Consented To:] LEHMAN COMMERCIAL PAPER, INC, as [SIERRA PACIFIC POWER COMPANY Administrative Agent By: _____________________________ By: _____________________________ Title: Title: [LEHMAN COMMERCIAL PAPER, INC, as Administrative Agent By: _____________________________ Title: EXHIBIT F FORM OF TERM NOTE THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE CREDIT AGREEMENT REFERRED TO BELOW. TRANSFERS OF THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MUST BE RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT TO THE TERMS OF SUCH LOAN AGREEMENT. $____________ New York, New York October __, 2002 FOR VALUE RECEIVED, the undersigned, SIERRA PACIFIC POWER COMPANY, a Nevada corporation (the "Borrower"), hereby unconditionally promises to pay to ________(the "Lender") or its registered assigns at the Payment Office specified in the Loan Agreement (as hereinafter defined) in lawful money of the United States and in immediately available funds, the principal amount of (a) ____________DOLLARS ($____), or, if less, (b) the unpaid principal amount of the Loan made by the Lender pursuant to Section 2.1 of the Loan Agreement. The principal amount shall be paid in the amounts and on the dates specified in Section 2.3 of the Loan Agreement. The Borrower further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified in Section 2.10 of the Loan Agreement. The holder of this Note is authorized to indorse on the schedules annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof the date, Type and amount of the Loan and the date and amount of each payment or prepayment of principal with respect thereto, each conversion of all or a portion thereof to another Type, each continuation of all or a portion thereof as the same Type and, in the case of Eurodollar Loans, the length of each Interest Period with respect thereto. Each such indorsement shall constitute prima facie evidence of the accuracy of the information indorsed. The failure to make any such indorsement or any error in any such indorsement shall not affect the obligations of the Borrower in respect of the Loan. This Note (a) is one of the Term Notes referred to in the Term Loan Agreement dated as of October __, 2002 (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement"), among the Borrower, the Lender, the other Lenders parties thereto, Lehman Commercial Paper Inc., as Administrative Agent, Lehman Brothers Inc., as Arranger, and others, (b) is subject to the provisions of the Loan Agreement and (c) is subject to optional and mandatory prepayment in whole or in part as provided in the Loan Agreement. This Term Note is secured and guaranteed as provided in the Loan Documents. Reference is hereby made to the Loan Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and the guarantees, the terms and conditions upon which the security interests and each guarantee were granted and the rights of the holder of this Term Note in respect thereof. Upon the occurrence of any one or more of the Events of Default, all principal and all accrued interest then remaining unpaid on this Term Note shall become, or may be declared to be, immediately due and payable, all as provided in the Loan Agreement. All parties now and hereafter liable with respect to this Term Note, whether maker, principal, surety, guarantor, indorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Unless otherwise defined herein, terms defined in the Loan Agreement and used herein shall have the meanings given to them in the Loan Agreement. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR IN THE LOAN AGREEMENT, THIS TERM NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AND IN ACCORDANCE WITH THE REGISTRATION AND OTHER PROVISIONS OF SECTION 9.6 OF THE LOAN AGREEMENT. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. SIERRA PACIFIC POWER COMPANY By: ________________________________ Name: Title: Schedule A to Term Note LOANS, CONVERSIONS AND REPAYMENTS OF BASE RATE LOANS
- ------------------------------------------------------------------------------------------------------------------------------- Amount Amount of Base Rate Amount of Converted to Amount of Principal of Loans Converted to Unpaid Principal Balance Date Base Rate Loans Base Rate Loans Base Rate Loans Repaid Eurodollar Loans of Base Rate Loans Notation Made By - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- ===============================================================================================================================
Schedule B to Term Note LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
- ---------------------------------------------------------------------------------------------------------------------------------- Amount of Amount Converted Interest Period and Amount of Principal Amount of Eurodollar Unpaid Principal Eurodollar to Eurodollar Eurodollar Rate with of Eurodollar Loans Converted to Balance of Notation Date Loans Loans Respect Thereto Loans Repaid Base Rate Loans Eurodollar Loans Made By - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- ==================================================================================================================================
EXHIBIT G FORM OF EXEMPTION CERTIFICATE Reference is made to the Term Loan Agreement, dated as of October __, 2002 (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement") among SIERRA PACIFIC POWER COMPANY, a Nevada corporation (the "Borrower"), the Lenders parties thereto, LEHMAN BROTHERS INC., as Arranger, LEHMAN COMMERCIAL PAPER INC., as Administrative Agent, and others. Capitalized terms used herein that are not defined herein shall have the meanings ascribed to them in the Loan Agreement. ______________________ (the "Non-U.S. Lender") is providing this certificate pursuant to Section 2.15(d) of the Loan Agreement. The Non-U.S. Lender hereby represents and warrants that: 1. The Non-U.S. Lender is the sole record and beneficial owner of the Loans or the obligations evidenced by Term Note(s) in respect of which it is providing this certificate. 2. The Non-U.S. Lender is not a "bank" for purposes of Section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). In this regard, the Non-U.S. Lender further represents and warrants that: (a) the Non-U.S. Lender is not subject to regulatory or other legal requirements as a bank in any jurisdiction; and (b) the Non-U.S. Lender has not been treated as a bank for purposes of any tax, securities law or other filing or submission made to any Governmental Authority, any application made to a rating agency or qualification for any exemption from tax, securities law or other legal requirements; 3. The Non-U.S. Lender is not a 10-percent shareholder of the Borrower within the meaning of Section 881(c)(3)(B) of the Code; and 4. The Non-U.S. Lender is not a controlled foreign corporation receiving interest from a related person within the meaning of Section 881(c)(3)(C) of the Code. IN WITNESS WHEREOF, the undersigned has executed this certificate as of the date set forth below. [NAME OF NON-U.S. LENDER] By: ________________________________ Name: Title: Date: ____________________ EXHIBIT H FORM OF LENDER ADDENDUM Reference is made to the Term Loan Agreement, dated as of October __, 2002 (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement"), among SIERRA PACIFIC POWER COMPANY, the Lenders parties thereto, Lehman Brothers Inc., as Arranger, Lehman Commercial Paper Inc., as Administrative Agent, and others. Unless otherwise defined herein, terms defined in the Loan Agreement and used herein shall have the meanings given to them in the Loan Agreement. Upon execution and delivery of this Lender Addendum by the parties hereto as provided in Section 9.8 of the Loan Agreement, the undersigned hereby becomes a Lender thereunder having the Commitment set forth in Schedule 1 hereto, effective as of the Closing Date. THIS LENDER ADDENDUM SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. This Lender Addendum may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page hereof by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. IN WITNESS WHEREOF, the parties hereto have caused this Lender Addendum to be duly executed and delivered by their proper and duly authorized officers as of this ____ day of October, 2002 ---------------------------------- Name of Lender By: ______________________________ Name: Title: Accepted and agreed: SIERRA PACIFIC POWER COMPANY By: _______________________________ Name: Title: LEHMAN COMMERCIAL PAPER INC., as Administrative Agent By: _______________________________ Name: Title: Schedule 1 COMMITMENT AND NOTICE ADDRESS 1. Name of Lender: _____________________________ Notice Address: _____________________________ _____________________________ Attention: _____________________________ Telephone: _____________________________ Facsimile: _____________________________ 2. Commitment EXHIBIT I FORM OF BORROWING NOTICE To: Lehman Commercial Paper Inc., as Administrative Agent 3 World Financial Center New York, New York 10285 Attention: [ ] Telecopy: (212) 526-7691 Telephone: (212) 526-0437 Reference is hereby made to the Term Loan Agreement, dated as of October __, 2002 (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement"), among SIERRA PACIFIC POWER COMPANY, a Nevada corporation (the "Borrower"), the Lenders party thereto (the "Lenders"), Lehman Brothers Inc., as Arranger, Lehman Commercial Paper Inc., as Administrative Agent, and others. Terms defined in the Loan Agreement and not otherwise defined herein are used herein with the meanings so defined. The Borrower hereby gives notice to the Administrative Agent that Loans in the amount set forth below are requested to be made on the date indicated below:
Interest Aggregate Type of Loans Period Amount Date of Loans - ------------- ------- --------- ------------- Base Rate Loans N/A _________ October __, 2002 _______ _________ _______ _________ _______ _________
The Borrower hereby requests that the proceeds of Loans described in this Borrowing Notice be made available to it as follows: [insert transmittal instructions]. The Borrower hereby certifies that all conditions contained in the Loan Agreement to the making of any Loan requested have been met or satisfied in full. SIERRA PACIFIC POWER COMPANY By: _______________________________ Title: DATE: October __, 2002 EX-10.4 10 b44528spexv10w4.txt UNIT REDEMPTION, RELEASE & SALE AGREEMENT EXHIBIT 10.4 UNIT REDEMPTION, RELEASE, AND SALE AGREEMENT This Unit Redemption, Release, and Sale Agreement ("Agreement") is entered into by and among Touch America, Inc., a Montana corporation ("TA"); Sierra Pacific Communications, a Nevada corporation ("SPC"); and Sierra Touch America LLC, a Nevada limited liability company ("STA"), as of the 9th day of September, 2002, to be effective on the "Closing Date," as defined below. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Operating Agreement of STA, dated April 25, 2000 (the "Operating Agreement"). Each party may be referred to individually as a "Party" and collectively as the "Parties" in this Agreement. WHEREAS, SPC desires to purchase from STA certain of the telecommunications assets and rights of STA, as described on Exhibit A (the "Assets"), together with all necessary occupancy rights and rights of access to and operation of the Assets (the "Related Rights"), in connection with the following business elements (i) The redemption of the SPC membership interest in STA, effecting the relinquishment of and abandonment by SPC of its ownership interest in STA; (ii) Delivery of SPC's secured promissory note to STA; (iii) STA's covenant to SPC to promptly complete the fiber optic conduit system, which extends from Sacramento, California to Salt Lake City, Utah (the "System"); and (iv) STA's provision of collocation space to SPC, and STA's maintenance of the System, as set forth in this Agreement, its Exhibits and Attachments. WHEREAS, each Party to this Agreement acknowledges that the purchase and conveyance of the Assets and redemption of the SPC membership interest in STA shall not be consummated until the date that SPC has entered into a binding and enforceable agreement to sell the First Conduit extending the entire System route from Sacramento, California to Salt Lake City, Utah (the "First Conduit"), which date shall be not more than sixty (60) days following the date of this Agreement (the "Closing" or "Closing Date"). WHEREAS, each Party to this Agreement acknowledges that SPC has been and is currently negotiating with Qwest Communications Corporation for the sale of the First Conduit to Qwest. NOW, THEREFORE, in consideration of the promises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are mutually acknowledged, and intending to be legally bound hereby, the Parties agree as follows: I. PURCHASE PRICE The total purchase price for the Assets is Forty-Eight Million Five Hundred Thousand Dollars ($48,500,000), as adjusted in Section II below, and payable as set forth in Section III below (the "Purchase Price"). SPC shall be entitled to retain, free and clear of all material encumbrances, any third-party deposits and other consideration previously received by it in connection with the marketing of the First Conduit. URRS Agreement Page 1 Dated: September 9, 2002 II. REDEMPTION OF SPC'S MEMBERSHIP INTEREST STA, SPC, and TA shall take all necessary limited liability company action to redeem the SPC membership interest in STA, causing SPC to relinquish and abandon its ownership units in STA. Such redemption shall be effected pursuant to the terms and conditions of the Redemption Agreement in substantially the form of Appendix A hereto. The Parties agree that the redemption price shall be Thirteen Million Five Hundred Thousand Dollars ($13,500,000) (the "Redemption Price"), which is equivalent to SPC's present cash investment in STA. The Redemption Price shall be offset against the Purchase Price. At the Closing, STA and TA shall execute an amendment to the Operating Agreement to reflect that SPC is no longer a member of STA. SPC shall execute and deliver to TA and STA such documentation, in addition to the Redemption Agreement, as may be reasonably requested by TA or STA to evidence that the SPC membership interest has been redeemed by STA as of the Closing Date. III. PAYMENT OF PURCHASE PRICE After offset of the Redemption Price described in Section II, the Purchase Price in the amount of Thirty-Five Million Dollars ($35,000,000) shall be evidenced by a secured promissory note made by SPC to STA and is attached hereto as Appendix B (the "Note"). Payment and performance of the Note shall be secured by a security agreement wherein SPC shall grant to STA a security interest in all of the Assets conveyed and transferred to SPC at Closing. The Security Agreement is attached hereto as Appendix C (the "Security Agreement"). STA agrees to release its security interest in specific Assets or rights conveyed or sold by SPC promptly upon STA's receipt of payment equal to the full proceeds less directly related transaction fees and expenses ("Net Proceeds") received by SPC from any such sale. Any sale and release of security shall be in accordance with the terms of the Security Agreement. The Note and Security Agreement shall be executed and delivered at Closing. SPC shall directly assign any and all payments it receives from the sale of the First Conduit it intends to sell to Qwest Communications including but not limited to the (i)Second Payment of Five Million Dollars ($5,000,000) payment due on execution of the Amended and Restated Agreement for the Construction and Sale of Conduit between SPC and Qwest, net payable to STA of $4,375,000; and (ii) Final Payment, of $10,000,000 net of transaction fees of $750,000 for $9,250,000. SPC agrees to appoint STA as its agent for the purpose of directly collecting any payment due to STA from Qwest with full authority to direct the manner in which any payment is made. SPC will be responsible for transaction fees and only those proceeds actually received by STA will be deducted from SPC's balance due under the Note. IV. ALLOCATION OF PURCHASE PRICE The Purchase Price shall be allocated among the Assets in the manner set forth in Exhibit A. V. TRANSFER AND CONVEYANCE OF ASSETS BY STA 1. ASSETS TO BE TRANSFERRED At the Closing, STA shall convey, transfer, and distribute to SPC the following: URRS Agreement Page 2 Dated: September 9, 2002 (a) the First Conduit; and (b) the Reno Metro Conduit; and (c) the Related Rights for (a) and (b) above Additionally at the Closing, STA shall convey, transfer, and distribute to SPC the following assets, by conveying to SPC an indefeasible right of use ("IRU") for the useful life of such assets ("useful life" of an asset is defined in Section 1.13 of the Conduit and Dark Fiber IRU and Sale Agreement, Appendix E): (d) Sixty (60) strands of fiber extending between Sacramento, California and Salt Lake City, Utah (e) Two (2) conduits extending between Reno, Nevada and Spanish Fork, Utah ("IRU Conduits"). 2. CONDUITS, AND RELATED RIGHTS At the Closing, STA shall convey to SPC ownership of the First Conduit and transfer the Related Rights, by an assignment and bill of sale which is attached hereto as Appendix D (the "Assignment and Bill of Sale"). STA shall partially assign to SPC the Related Rights owned or secured by STA. Such partial assignment of rights shall be of the same quality of title and duration as such rights are vested in STA. If STA is unable to directly assign to SPC any Related Right, then STA shall grant access rights to SPC - to the extent that such rights are legally transferable - through license, IRU, or otherwise, so that SPC has full rights of occupancy and access to the First Conduit. STA shall cooperate with SPC in obtaining any required consents to such transfers from private entities or governmental authorities, and each Party shall be responsible for any annual recurring fees it is assessed or charged in connection with its occupancy rights. If a governmental entity requires SPC or its permitted assigns to obtain a separate license or permit, then SPC shall be responsible to obtain such license or permit at SPC's sole cost and expense. STA agrees to use commercially reasonable efforts in cooperating with SPC with respect to SPC's efforts to secure such licenses or permits. STA shall assign to SPC all assignable contract, easement, and other occupancy rights held by STA and necessary for SPC to occupy any Union Pacific Railroad ("UPR") right of way along the entire System route. If the UPR requires a separate agreement and additional compensation specific to the placement of SPC's fiber in the First Conduit or the IRU Conduits, then SPC shall be solely responsible to secure an agreement with the UPR and to pay any additional compensation required by the UPR. 3. OP-AMP ("OA") SITES STA shall convey to SPC interests in real property on which STA's OA Sites are situated. Such real property interests shall be of the same quality of title as possessed by STA. The size and location of each parcel of real property conveyed to SPC is set forth with particularity on Exhibit B attached hereto. SPC understands and agrees that STA shall not convey to SPC any real property at or near STA's OA Sites in Provo, UT, Auburn, CA; Blue Canyon, CA; or Truckee, CA. SPC shall be solely responsible for all costs and expenses associated with constructing SPC's OA facilities, including, but not limited to, costs and expenses relating to site preparation, construction, and placement of conduit and fiber. Notwithstanding any provision of this Agreement or any other agreement entered into by URRS Agreement Page 3 Dated: September 9, 2002 the Parties to the contrary, SPC specifically understands and agrees that STA's obligation to deliver executed and transferable conveyance documents relating to the First Conduit shall not arise until SPC pays to STA Thirteen Million Six Hundred Twenty Five Thousand Dollars ($13,625,000) toward satisfaction and reduction of the Purchase Price. The IRU Agreement shall also include provision for a Collocation Agreement substantially in the form of Appendix G allowing SPC to purchase or lease access to and space in Op-Amp sites owned by STA. The IRU will be delivered free and clear of all material liens, security interests, pledges, easements, claims, conditions, covenants, and restrictions that may have a material adverse effect on SPC's rights to use and occupy the property conveyed by the IRU, subject to immaterial exceptions that SPC approves and the security interest granted to STA in the Security Agreement. VI. SPC TRANSFER AND CONVEYANCE OF ASSETS In addition to execution of the Note and Security Agreement, at Closing, SPC shall transfer and convey by IRU to STA an interest in twelve (12) fibers from the Reno metropolitan network and in four (4) fibers from the Las Vegas metropolitan network The Parties shall execute a separate IRU Agreement (the "Metro IRU Agreement"), Appendix K, to convey the above fibers. Such Metro IRU shall be freely assignable by STA. SPC shall also provide to STA a detailed route map, including, without limitation, streets and point-of-presence ("POP") locations, and a detailed list showing the collocation space, POP space, equipment, and related facilities needed for the use, operate, and maintenance of such Metro fibers that relate to each fiber network. VII. STA COVENANTS 1. SYSTEM COMPLETION. STA acknowledges that SPC will negotiate the sale of the First Conduit to Qwest Communications Corporation, substantially in the form of Appendix M hereto (the "Qwest Agreement"). STA shall use its commercial best efforts to promptly complete the System according to the schedule set forth on Exhibit E of the Qwest Agreement, including without limitation, the construction, testing, and maintenance thereof (including the maintenance and retention of all licenses, permits, authorizations, and other rights, in whatever form necessary, to access, operate, and maintain the System) and the payment of operational costs related thereto, and shall perform such other obligations related thereto and existing at the Effective Date. STA further agrees to promptly and in good faith cooperate with SPC in the timely discharge of SPC's obligations under the Qwest Agreement, where the character and time of performance of such obligations require the assistance, collaboration, support, or consent of STA. 2. SUBSTITUTE BUILDER. STA agrees that if STA becomes unable to comply with its obligation to complete the System described in section VII.1 above, or if SPC receives a notice of default under section 4.01(a) of the Qwest Agreement and such default is caused by STA's failure or inability to complete the System in accordance with the Specifications and within the time period described therein, or if STA does not send SPC a Notice of Completion on or before May 1, 2002, SPC shall URRS Agreement Page 4 Dated: September 9, 2002 have the right, following notice to STA and without prejudice to any other right or remedy, to cause the System to be completed in accordance with the Specifications. In such event STA will recognize SPC or SPC's agent, designee, or transferee (the "Substitute Builder") and will promptly consent to the pledge and collateral assignment of STA's right, title and interest in, to, and under any System construction or professional services agreements to the Substitute Builder, and will acknowledge the right of the Substitute Builder to make all demands, give all notices, take all actions and exercise all rights of STA under such agreements; and will further undertake and assign, as necessary, all actions required to permit the Substitute Builder to fully perform. It is specifically agreed that all costs incurred by SPC as a result of causing the system to be completed pursuant to this Section VII.2, which shall include but not be limited to all gearing-up costs, labor, materials, handling and storage costs, capital costs, contractors, administrative and general costs, related overhead costs, penalties and other assessments, shall operate to reduce SPC's indebtedness to STA under the Note. 3. APPROVAL OF STA TRANSACTIONS. STA agrees to hold meetings of its respective members and Management Committee not later than September 10, 2002, for the purpose of approving the terms of this Agreement, the Exhibits and Appendices, and the transactions contemplated hereby and thereby. VIII. SPC COVENANTS 1. APPROVAL OF STA TRANSACTIONS. SPC, as a member of the Management Committee, shall undertake such action and vote for the approval of such resolutions that may be presented to the Management Committee to authorize, adopt, and approve the transactions contemplated by this Agreement and the Appendices hereto. 2. OCCUPANCY AND ACCESS RIGHTS. At the Closing, SPC shall execute such instruments of conveyance, assignment, and transfer necessary to convey or assign to STA all private and public easements, licenses, government authorizations, permits (including environmental permits), and access rights (collectively, "occupancy rights") held by SPC for the System, to the extent such occupancy rights are legally transferable. SPC shall, at its own cost and expense, obtain all necessary "consents to assign" any occupancy rights to STA and use its commercial best efforts to cause the occupancy rights held by SPC to be validly transferred to STA. 3. SALE OF SPC ASSETS OR SALE OF SPC CAPITAL STOCK. As long as an outstanding balance remains on the Note, SPC shall provide or cause to be provided to STA prompt written notice of any change in control of all or substantially all of SPC assets. SPC shall make no cash or other distributions to its parent company, Sierra Pacific Resources, a Nevada corporation ("SPR"), or any other related entity prior to fully satisfying its obligations under this Note, provided, however, that this prohibition shall not act to prohibit SPC from raising additional capital necessary to build or maintain SPC's business, including, without limitation, the receipt of investment funds from SPR or a non-affiliated entity, the entering into of a joint venture arrangement affecting SPC, or the entering into of a transaction that dilutes SPR's ownership interest in SPC in exchange for cash associated with SPC's operating or capital expenditure requirements, provided, further, that SPC shall provide STA with at least thirty (30) URRS Agreement Page 5 Dated: September 9, 2002 days' written notice of the intent to raise such additional capital. In the event that any stock or equity interest in SPC is sold, conveyed, or transferred by SPC's present owner, SPC covenants, and agrees that this Note shall be paid in full before the transaction is consummated. SPC shall cause a legend to be placed on the existing stock certificate of SPC held by SPR evidencing this restriction. Until this note is paid in full, SPC shall provide on a quarterly basis, financial statements including income statements, balance sheets, and cash flow reports; and annually audited balance sheet and income statement accurately and completely showing the financial condition of SPC. IX. TA COVENANTS 1. APPROVAL OF STA TRANSACTIONS. TA, as a member of the Management Committee, shall undertake such action and vote for the approval of such resolutions that may be presented to the Management Committee to authorize, adopt, and approve the transactions contemplated by this Agreement and the Appendices hereto. 2. APPROVAL OF STA PERFORMANCE. TA, as the sole member and manager of STA after the Closing, shall cause STA to perform its obligations set forth in the Agreement. X. ADDITIONAL AGREEMENTS In addition to the Note to be executed by SPC at the Closing, Appendix B, and the Security Agreement to be executed by SPC at Closing, Appendix C, SPC and STA shall execute, at the Closing, the following documents except the Collocation Agreement that will be executed when collocation services are ordered: 1. IRU AGREEMENT. A definitive IRU agreement, Appendix E, will be executed at the Closing and which shall govern the Parties' rights and obligations relating to the sixty (60) strands of fiber extending from Sacramento, CA to Salt Lake City, UT and two (2) conduits extending from Reno, NV to Spanish Fork, UT. The Agreement shall provide that, beginning on August 1, 2003, SPC shall pay to STA Twenty Dollars ($20.00) per month, per route mile, for the entire System route from Sacramento, CA to Salt Lake City, UT, for maintenance of the backbone route. 2. COLLOCATION AGREEMENT. A collocation agreement in substantially the form of Appendix G (the "Collocation Agreement") shall establish the rights and responsibilities of the Parties regarding collocation and interconnection of the Parties' facilities. This sample agreement reflects current pricing available but is subject to change. Collocation fees for space and services are set forth in the Collocation Agreement. Such collocation fees are not part of the consideration for this Agreement and are in addition to SPC's obligation to repay the Note. 3. MEMBERSHIP REDEMPTION AGREEMENT. A Membership Redemption Agreement, Appendix A (the "Membership Interest URRS Agreement Page 6 Dated: September 9, 2002 Redemption Agreement"), will be executed at Closing and shall establish the rights and responsibilities of TA and SPC with respect to the redemption of SPC's membership interest in STA and SPC's relinquishment and abandonment thereof. 4. QUITCLAIM DEED. A definitive quitclaim deed, Appendix I (the "QuitClaim Deed Metro Conduit"), will be executed at Closing and shall reflect the distribution of the real-property portion of the Metro Conduit to SPC. 5. ASSIGNMENT AND BILL OF SALE. A definitive assignment and bill of sale, Appendix J (the "Metro Conduit Assignment and Bill of Sale"), will be executed at Closing and shall reflect the distribution of the personal-property portion of the Metro Conduit to SPC. 6. METRO IRU AGREEMENT. A definitive IRU agreement, Appendix K, (the "Metro IRU Agreement"), will be executed at Closing and shall establish the Parties' rights and obligations with respect to twelve (12) fibers from the Reno metropolitan network and four (4) fibers from the Las Vegas metropolitan network, shall be executed by the Parties at Closing. XI. REPRESENTATIONS AND WARRANTIES EACH of STA, SPC, and TA represents and warrants to each other (except with respect to Item 6) as of the date hereof and shall represent and warrant on the Closing Date that: 1. It has the full right and authority to enter into, execute, deliver, and perform its obligations under this Agreement. 2. It has taken all requisite corporate action to approve the execution, delivery, and performance of this Agreement. 3. This Agreement shall constitute a legal, valid, and binding obligation enforceable against such party in accordance with its terms, except as the enforceability thereof may be affected by (i) applicable bankruptcy, insolvency, reorganization, or other laws of general application relating to or affecting the enforcement of creditors' rights generally, and (ii) the effect of rules of law governing the availability of equitable remedies. 4. Execution, delivery, and performance of this Agreement shall not violate any of the organizational documents of such party, applicable existing regulations, rules, statutes, or court orders or any local, state, or federal government agency, court or body or any agreement, document, indenture, or instrument to which it is a party. 5. Except as set forth on Schedule I, there are no actions, suits, claims, demands, or other proceedings or investigations, either administrative or judicial, pending or threatened, affecting the Assets or the transactions contemplated by this Agreement, at law or in equity, before or by any federal, state, municipal, or other governmental department, that can reasonably be expected to result in any materially adverse change (in the aggregate) in the condition of the Assets. 6. STA shall represent and warrant to SPC that, as of the Closing Sale, (i) STA, to its URRS Agreement Page 7 Dated: September 9, 2002 knowledge, has good and marketable title to all of the Assets, and except as otherwise disclosed on Schedule II, the Assets are subject to no material liens, security interests, claims, leases, or encumbrances; and (ii) STA has duly and validly redeemed the SPC membership interest pursuant to applicable Nevada law. STA agrees to pass on and assign to SPC or its asigns any assignable warranties gven to STA by third party vendors, supplies, contractors or manufacturers that relate to construction of the System. XII. LIABILITIES Except as otherwise expressly provided herein, and subject to the provisions of Article XIII, SPC shall not assume or otherwise be responsible for any liability or obligation previously disclosed by SPC relating to the System or claims of such liability or obligation, matured or unmatured, liquidated or unliquidated, fixed or contingent, or known or unknown, whether arising out of occurrences prior to, at or after the date hereof. STA will retain all liabilities that are not specifically assumed by SPC. XIII. INDEMNIFICATION 1. INDEMNIFICATION BY STA. STA shall indemnify, defend, and hold harmless SPC and SPC's successors and assigns from and against any claim, demand, obligation, liability, loss, cost, damage, or expense, including interest, penalties, and reasonable attorneys' fees, caused by or arising out of (i) any breach or default in the performance by STA of any obligation of STA contained in this Agreement; or (ii) any liability arising out of the construction, management, ownership, or operation of the System or otherwise asserted against STA as of, or arising after, the Closing Date; provided, however, that if SPC shall have failed to disclose to TA in writing any such claim, demand, obligation, liability, loss, cost, damage or expense of which it had actual knowledge prior to the execution of this Agreement, then SPC shall remain liable for fifty percent (50%) of the total cost and expense (including attorneys fees) of defending and satisfying such non-disclosed liability. 2. INDEMNIFICATION BY SPC. SPC shall indemnify, defend, and hold harmless STA and STA's successors and assigns from and against any claim, demand, obligation, liability, loss, cost, damage, or expense, including interest, penalties, and reasonable attorneys' fees, caused by or arising out of (i) any breach or default in the performance by SPC of any obligation of SPC contained in this Agreement; (ii) the assumption in writing by SPC on or before the Closing Date of any liability; (iii) any liability arising after the Closing date with respect to its ownership and operation of the Assets or Related Rights; or (iv) any sale or transfer of System, Assets or rights in the System by SPC to any third party including, but not limited to, Qwest Communications Corporation. 3. COOPERATION BY SPC. SPC agrees, at its own cost and expense, to promptly and in good faith cooperate with STA URRS Agreement Page 8 Dated: September 9, 2002 in the defense and prosecution of any litigation whether currently pending or arising in the future that relates to the System. This obligation includes, but is not limited to, making available employees or persons under the control of SPC or its affiliates available for testimony at depositions or at trials, the production of documents and consultation with STA and its attorneys. Additionally, should STA require support or assistance in further negotiations or resolution of issues arising from SPC's activities associated with the construction of the Assets, SPC shall at its own cost and expense promptly and in good faith cooperate with STA in the resolution of said issues. XIV. CONDITION TO OBLIGATIONS OF TA AND STA Notwithstanding anything to the contrary in this Agreement or in any Appendix hereto, SPC agrees that a condition to the obligations of TA and STA to proceed with the redemption of SPC's membership interest and to the other performance obligations of TA and STA described herein are contingent on the payment by SPC to STA of Four Million Three Hundred Seventy Five Thousand Dollars ($4,375,000), paid promptly following the execution of the Qwest Agreement substantially in the form of Exhibit M hereto. If SPC fails to make the above payment or fails to reach a binding agreement with Qwest, or Qwest fails to perform such agreement, TA and STA shall have the absolute right to terminate this Agreement or to insist on specific performance of this Agreement. XV. MISCELLANEOUS 1. MUTUAL COOPERATION. The Parties agree and covenant to execute all documents and to take all actions necessary to effectuate this Agreement in a prompt and timely manner, to fully cooperate with each other to complete transactions with third parties related to this Agreement, and to perform all other acts required hereby or thereby. 2. CONFIDENTIALITY. EXCEPT in any filing required to be made by either Party, or as may be required in connection with the submission or approvals by the Parties to any regulatory agency or third party whose prior consent is required to effect the proposed transaction, no Party shall make or cause to be made, any press release or public announcement with respect to the proposed transaction or the execution of this Agreement or otherwise communicate with any news media in respect thereof without the prior written consent of the other Party, and the Parties shall cooperate as to the timing and contents of any such press release or public announcement. 3. ENTIRE AGREEMENT; INAPPLICABILITY OF "DEADLOCKS" PROVISIONS OF OPERATING AGREEMENT OF STA. This Agreement, and all exhibits, constitute the only agreement among the Parties with respect to the acquisition of SPC's interest in STA by TA, and the related transactions described herein. This Agreement, and all exhibits, supersede all prior oral and written agreements with respect to the subject matter hereof. This Agreement, and all exhibits, may not be modified except by a written instrument executed by all of the Parties. No dispute arising out of or relating to this Agreement, the Note, the Security Agreement, any related agreements or instruments, or brought URRS Agreement Page 9 Dated: September 9, 2002 under applicable law, shall be subject to the provisions of Article X ("Deadlocks"), or any other provisions, of the Operating Agreement of STA dated as of April 25, 2000. 4. LIMITATION OF LIABILITY. In no event shall either Party be liable for any punitive, consequential, incidental, indirect, or special damages or lost profits incurred or alleged to have to been incurred by anyone whether arising out of tort, breach of contract, breach of warranty, strict liability, or any other claim. 5. JOINT WORK PRODUCT. This Agreement is the joint work of the Parties; accordingly, in the event of an ambiguity, no presumption shall be imposed against any Party for reason of document preparation. 6. NOTICES. Any notice or other communication required or which may be given hereunder shall be in writing and shall be delivered personally, telegraphed, telexed or telecopied, or sent by certified, registered mail, postage prepaid, and shall be deemed given when so delivered personally, telegraphed, telexed, or telecopied (with a confirming telephone call) or if mailed, four days after the date of mailing, as follows (or to such successor entity or such new address as a party may notify to the other): SPC: Richard Coyle Mark Backus President Attorney 5860 S. Pecos, Bldg. G, Ste. 100 6226 West Sahara Avenue Reno, NV 89120 Las Vegas, NV 89151 Tele: 702.949.7910 Tele: 702.367.5692 Fax: 702.949.7928 Fax: 702.227.2069 TA: Mike Zimmerman Tom Joyce Vice President Attorney 130 North Main 130 North Main Butte, MT 59701 Butte, MT 59701 Tele: 406-497-5426 Tele: 406-497-5521 Fax: 406-497-5240 Fax: 406-497-5203 7. APPLICABLE LAW; JURISDICTION AND VENUE. This Agreement shall be governed and construed in accordance with the laws of the State of Nevada. 8. NO ASSIGNMENT. This Agreement and any right hereunder may not assigned by any Party without the prior written consent of the other Parties, except by operation of law. 9. NO THIRD PARTY RIGHTS. This Agreement is not intended and shall not be construed to create any rights in any parties URRS Agreement Page 10 Dated: September 9, 2002 other than SPC and TA and STA, and no person shall assert any rights as third-party beneficiary hereunder. 10. SEVERABILITY. If any provision of this Agreement is held to be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected, impaired, or invalidated thereby. 11. COUNTERPARTS AND FACSIMILE COPIES. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute on and the same instrument. The Parties agree that facsimile copies may be accepted as original signatures. 12. HEADINGS. The headings in this Agreement are intended solely for convenience of reference and shall be given no effect in the interpretation of this Agreement. 13. APPENDICES. Terms of appendices referenced or attached hereto govern the rights and responsibilities of the Parties with respect to the subject matter thereof. 14. EXPENSES. Each Party will bear its own costs and expenses with respect to this Agreement and any other transactions contemplated herein including, without limitation, legal fees and fees of other advisors. URRS Agreement Page 11 Dated: September 9, 2002 IN WITNESS WHEREOF, and intending to be bound hereby, the Parties have caused this Agreement to be executed by their duly authorized representatives as of the date set forth above. SIERRA PACIFIC COMMUNICATIONS, A NEVADA CORPORATION By: ________________________ RICHARD J. COYLE, JR. Its President TOUCH AMERICA, INC., A MONTANA CORPORATION By: ________________________ MICHAEL J. MELDAHL Its President SIERRA TOUCH AMERICA LLC, A NEVADA LIMITED LIABILITY COMPANY By: _______________________ By: ___________________________ RICHARD COYLE, MANAGER MICHAEL J. MELDAHL, MANAGER By: _______________________ By: ___________________________ PETER FENNEY, MANAGER KEVIN DENNEHY, MANAGER URRS Agreement Page 12 Dated: September 9, 2002 EXHIBIT A ASSETS AND ALLOCATION OF PURCHASE PRICE 1. One (1) of the original six (6) conduits installed for the System and which extends the full length of the System route as follows: (i) one (1) one-and-one-quarter inch (1.25") conduit of approximately one hundred forty-six (146) miles in length between Sacramento, California and Reno, Nevada ("Leg One"); (ii) one (1) two inch (2") conduit of approximately three hundred fifty (350) miles in length between Reno, Nevada and Ely, Nevada ("Leg Two"); (iii) one (1) two inch (2"") conduit of approximately three hundred sixteen (316) miles in length between Ely, Nevada and Salt Lake City, Utah ("Leg Three"). for Twenty Million Dollars ($20,000,000). 2. An Indefeasible Right of Use (IRU) for the useful life of the asset in two (2) additional conduits in excess of the original six (6) conduits installed for the System and which extend in that segment of the System route from Reno, Nevada to Spanish Fork, Utah, for Seven Million Dollars ($7,000,000). 3. All Reno metropolitan area conduits in the System route in excess of the original six (6) conduits installed for the System, for Ten Million Five Hundred Thousand Dollars ($10,500,000). 4. An IRU for the useful life of the asset in sixty (60) strands of System fiber, which extend the full length of the System route from Sacramento, California to Salt Lake City, Utah, for Nine Million Dollars ($9,000,000). 5. One full, equally sized quadrant at each OA site on the real property on which STA's OA sites are situated, as well as easements through the remaining quadrants as set forth on Exhibit B (and subject to the qualifications therein and herein), for a one-time fee of Two Million Dollars ($2,000,000). STA will be under no obligation to convey land for OA sites in the following locations at or near: Provo, Utah; Auburn, California; Blue Canyon, California; and Truckee, California. URRS Agreement Page 13 Dated: September 9, 2002 Exhibit A EXHIBIT B DESCRIPTION OF REAL PROPERTY TO BE CONVEYED TO SPC VERDI, NEVADA TO SACRAMENTO, CALIFORNIA This portion of the route consists of approximately 131 miles (691,680') in length. The telecommunications system along the route from the Union Pacific Railroad milepost 227, approximately 8/10 of a mile east of the California - Nevada State Line near Verdi Nevada to Hirshdale Road UPRR MP 218.3, approximately 11 miles (58,080'). From Hirshdale Road to West Truckee, approximately 16.5 miles (87,120'). West Truckee to Soda Spring, approximately 6.8 miles (35,904'). Soda Springs to Cisco Grove approximately 9.1 miles (48,048'). Cisco Grove to Blue Canyon approximately 12 miles (63,360'). Blue Canyon to Colfax UPRR MP 142, approximately 21 miles (110,880'). UPRR MP 142 to Sacramento UPRR MP 89 approximately 53.7 mile (283,536'). Sacramento UPRR MP 89 to 1005 North B Street approximately 1 mile (5280'). RENO METRO The fiber optic cable line will start .8 of a mile from the California border into Nevada and ties in with a Williams handhole between UPRR and 1-80 and ends at the Wells Fargo building at 200 South Virginia Street. Phase II begins at 200 South Virginia Street, Wells Fargo building, and ends at South Meadows Parkway. LONG HAUL The fiber optic cable line will start at the intersection of South Meadows Parkway and South Virginia Street in Reno and follow the highway right-of-way south from Reno along U.S. highway 395 to East Lake Boulevard. From East Lake Boulevard, the cable will continue southward along a corridor to Goni Road and then to Arrowhead Drive in Carson City. At Arrowhead Drive it will head eastward to US Highway 50 and continue east crossing the rest of Nevada, passing through the cities of Fallon, Austin, Eureka, and Ely and continuing into Delta Utah. At Delta the route would follow US Highway 6 northeastward to State Route 132 In Lynndyl, Utah. At State Route 132 the cable would continue northeast to just west of Nephi, Utah, where it would intersect State Route 91. On State Route 91 the fiber optic cable would continue northward through Mona to Santaquin, Utah. The cable would then head northeast, following side roads and a portion of State Route 115 on the west side of Interstate 15 (1-15). Just north of Spanish Fork the fiber optic cable would cross under 1-15 and tie in with another fiber optic cable system on 4800 South, approximately 0.2 miles east of 1-15. The route would then continue north on I-15 to Provo, UT, run along city streets into the Provo POP located at the corner of East 100 and North 100, then along city streets to I-15, then north on I-15 to the vicinity of the Bangerter Highway, north to west 700 south, along city streets to 161 Regent Street, north on Regent Street to the termination point at 100 South State Street. CALIFORNIA - - Verdi Nevada on UPRR MP 227 to MP 218.3 at Hirshdale Rd. spread 5.1. - - Hirshdale Rd. to West Truckee, spread 5.2. - - West Truckee to Soda Springs, spread 5.3 - - Soda Springs to Cisco Grove, spread 5.4 - - Cisco Grove to Blue Canyon, spread 5.5 - - Blue Canyon to Colfax UPRR MP 142, spread 5.6 - - Colfax UPRR MP 142 to Sacramento UPRR 89, spread 6 URRS Agreement Page 14 Dated: September 9, 2002 Exhibit B - - Sacramento UPRR 89 to 1005 North "B" Street, Sacramento Ca, spread 7 NEVADA - - Reno Metro, Phase 1 is approximately 74,406 feet - - Phase 2 is approximately 51,069 feet. - - Spread 1, South Meadow Parkway to Lyon County line Is approximately 321,496 feet. - - Spread 2, Churchill County line to the Lander County line is approximately 567,791 feet. - - Spread 3, Lender County line to the White Pine County line is approximately 578,458 feet. - - Spread 4, White Pine County to Utah border is approximately 702,319 feet. UTAH - - Spread 5, Millard County at the Nevada/Utah border to Juab County line is approximately 616,238 feet. - - Spread 6, Juab County line to north of Spanish Fork approximately 0.2 miles east of 1-15 end is approximately 355,097 feet. - - Spanish Fork to Provo, UT approximately 7.95 miles (42,000 feet). - - Provo north to Salt Lake City, UT approximately 59.14 miles (312,265 feet). URRS Agreement Page 15 Dated: September 9, 2002 Exhibit B MAP OF THE RIGHT-OF-WAY [GRAPHIC] URRS Agreement Page 16 Dated: September 9, 2002 Exhibit B SCHEDULE I LITIGATION 1. Bayport Pipeline, Inc. v. STA and Mastec North America, Inc.; Case No. CV-02-0187-HDM (VPC); United States District Court for the District of Nevada; alleged breach of contract action. 2. Cleveland Inspection Services, Inc. v. Sierra Pacific Communications and Touch America, Inc.; Cause No. 0020905259; Salt Lake City, UT; lien foreclosure action. 3. Sorensen Construction, Inc. v. STA; Cause No. 020901281; Salt Lake City, UT; lien foreclosure action. URRS Agreement Page 17 Dated: September 9, 2002 Schedule I SCHEDULE II MATERIAL LIENS, ENCUMBRANCES AND CLAIMS 1. Bayport Pipeline, Inc. obtained a Writ of Attachment from the Federal District Court in the amount of $793,000 on the fiber optic system constructed by STA in Lyon, Carson City, Churchill, and Washoe Counties in Nevada. 2. Cleveland Inspection Services, Inc. filed a lien in Salt Lake City, Utah against property that STA has an interest pursuant to a construction contract with Adesta, Inc. in the amount of $663,723.75. 3. Sorensen Construction, Inc. filed a lien in Salt Lake County, Utah on property that STA has an interest pursuant to a construction contract with America Fiber Systems, Inc. in the amount of $415,945.00. 4. Master Construction, Inc. and Master Professional Services, Inc. claim STA owes them approximately $5,000,000. STA disputes these claims. No liens have been filed or legal action taken to date. 5. STA entered into a contract with Adesta Communications whereby Adesta agreed to build install conduits and associated facilities, along the Route. Adesta failed to fully perform the contract and filed bankruptcy. STA paid Adesta $634,790 and would have owed Adesta $1,903,790 if the contract as completed. Adesta rejected all of its contracts in Utah in bankruptcy and no longer has an interest in the conduits. The liens filed by Clevland and Sorensen resulted from Adesta's nonpayment and failure to complete its project. SPC Material Liens Upon closing of this transaction, the only lien or security interest SPC has granted will be the security interests granted to Qwest Communications Corporation as set forth in Appendix M "Amended and Restated Agreement to Purchase Conduit System" Section 2.05 subject to the default provisions set forth in Section 4.01. URRS Agreement Page 18 Dated: September 9, 2002 Schedule II APPENDIX A MEMBERSHIP INTEREST REDEMPTION AGREEMENT This Membership Interest Redemption Agreement (the "Agreement") is entered into and shall be effective as of September 9, 2002 by and among SIERRA TOUCH AMERICA LLC, a Nevada limited liability company, (the "Company")], SIERRA PACIFIC COMMUNICATIONS, a Nevada corporation (the "Withdrawing Member"), a member of the Company, and TOUCH AMERICA, INC., a Montana corporation the continuing member of the Company (the "Continuing Member). The Withdrawing Member, the Continuing Member, and the Company are sometimes referred to individually as a "Party" and collectively as the "Parties". RECITALS A. The Withdrawing Member and the Continuing Member formed the Company under Chapter 86 of the Nevada Revised Statutes (the "Act") pursuant to those certain Articles of Organization filed with the Nevada Secretary of State on April 24, 2000, and the Operating Agreement of the Company dated April 25, 2000 (the "Operating Agreement"). B. The Parties have agreed that the Withdrawing Member's entire right, title, and interest in the Company (the "Interest") shall be redeemed by the Company and the Withdrawing Member shall withdraw from the Company, all as set forth herein. Based on the foregoing, and in consideration of the mutual agreements, covenants, and conditions contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows: 1. REDEMPTION OF INTEREST The Interest shall be redeemed by the Company effective as of the close of business on September 9, 2002, (the "Effective Date"), all in accordance with the provisions set forth in this Agreement. The Withdrawing Member shall sell, assign, and transfer the entire Interest to the Company as of the close of business on the Effective Date. 2. WITHDRAWAL Upon completion of the sale, assignment, and transfer of the Interest to the Company as set forth herein, the Withdrawing Member shall withdraw from the Company as of the close of business on the Effective Date. 3. CONSIDERATION In consideration for the redemption of the Interest, to which the Parties have agreed has a value of $13,500,000.00, and other good and valuable consideration to be received by the Company, the Company agrees to distribute to the Withdrawing Member the Assets and Related Rights, each as defined in that certain Unit Redemption, Release and Sale Agreement of even date herewith among the Parties (the "Sale Agreement"). Upon consummation of the transactions contemplated in the Sale Agreement, the Withdrawing Member shall not retain an interest in, or be entitled to receive distributions of, any other assets of the Company. URRS Agreement Page 19 Dated: September 9, 2002 Appendix A 4. INDEMNIFICATION The Parties hereto shall indemnify, defend and hold each other harmless to the extent and pursuant to the provisions of Article XIII in the Sale Agreement. 5. CONTINUATION OF COMPANY The Parties hereby agree that the Company shall continue and shall not be dissolved because of the redemption of the Interest or the withdrawal of the Withdrawing Member. 6. REPRESENTATIONS, WARRANTIES, AND COVENANTS 6.1. REPRESENTATIONS AND WARRANTIES OF EACH PARTY The Company, the Withdrawing Member, and the Continuing Member each hereby represents and warrants to and covenants to each other Party that: (a) Neither the execution nor the delivery of this Agreement, the incurrence of the obligations herein set forth, the consummation of the transactions herein contemplated, nor the compliance with the terms of this Agreement will conflict with, or result in a breach of, any of the terms, conditions, or provisions of, or constitute a default under, any bond, note, or other evidence or indebtedness or any contract, indenture, mortgage, deed of trust, loan agreement, lease, or other agreement or instrument to which such Party is a party or by which such Party may be bound. (b) Such Party has the right, power, legal capacity, and authority to execute and enter into this Agreement and to execute all other documents and perform all other acts as may be necessary in connection with the performance of this Agreement. (c) No approval or consent not heretofore obtained by any person or entity is necessary in connection with the execution of this Agreement by such Party or the performance of such Party's obligations under this Agreement. (d) Such Party has received independent tax and legal advice from its attorneys with respect to the advisability of executing this Agreement. (e) Such Party has made such investigation of the facts pertaining to this Agreement, and all of the matters pertaining thereto, as he deems necessary. (f) Except as expressly provided herein, no person has made any statement or representation to such Party regarding any fact relied upon by such Party in entering into this Agreement and each Party specifically does not rely upon any statement, representation, or promise of any other person in executing this Agreement. (g) Such Party will not take any action which would interfere with the performance of this Agreement by any other Party or which would adversely affect any of the rights provided for herein. 6.2. TITLE TO INTEREST The Withdrawing Member hereby represents and warrants to and covenants to each other Party that the Withdrawing Member owns the Interest free and clear of any and all liens, claims, encumbrances, and adverse equities. URRS Agreement Page 20 Dated: September 9, 2002 Appendix A 6.3. COMPANY ASSETS The Parties have agreed to value the Withdrawing Member's interest in the Company's assets at US $ 13,500,000.00 6.4. WITHDRAWING MEMBER'S DISTRIBUTIVE SHARE OF CURRENT COMPANY INCOME The Withdrawing Member's distributive share of the Company's income,gain, loss, and deduction for taxable year of the Company that includes the Effective Date shall be determined on the basis of an interim closing of the books of the Company as of the close of business on the Effective Date and shall not be based upon a proration of such items for the entire taxable year. The Withdrawing Member shall not be allocated a distributive share of any Company items for any subsequent year except to the extent such allocations are required by or are consistent with the provisions set forth in this Agreement. 6.5. TAX RETURNS The Parties shall each file all required Federal, state, and local income tax returns and related returns and reports in a manner consistent with the foregoing provisions of this Section 6. In the event a Party does not comply with the preceding sentence, the noncomplying Party shall indemnify and hold the other Parties wholly and completely harmless from all cost, liability, and damage that such other Parties may incur (including, without limitation, incremental tax liabilities, legal fees, accounting fees, and other expenses) as a consequence of such failure to comply. 6.6. FILINGS AND NOTICES The Company may prepare and file fictitious business name statements and such other statements or documents as the Continuing Member deems appropriate to reflect the withdrawal of the Withdrawing Member from the Company and the continuation of the business of the Company. 7. MISCELLANEOUS 7.1. ATTORNEYS' FEES In the event any Party shall maintain or commence any action, proceeding, or motion against any other Party to enforce this Agreement or any provision thereof, the prevailing Party therein shall be entitled to recover his actual attorneys' fees and costs therein incurred. Each Party agrees that if such Party hereafter commences, joins in, or in any manner asserts against any other Party any of the claims released hereunder, then it will pay to the other Party, in addition to any other damages caused to the other Party thereby, all actual attorneys' fees and costs incurred in defending or otherwise responding to such suit or claim. 7.2. SURVIVAL All of the terms, representations, warranties, and other provisions of this Agreement shall survive and remain in effect after the Effective Date. URRS Agreement Page 21 Dated: September 9, 2002 Appendix A 7.3. EXECUTION OF DOCUMENTS Each Party agrees to execute all documents necessary to carry out the purpose of this Agreement and to cooperate with each other for the expeditious filing of any and all documents and the fulfillment of the terms of this Agreement. 7.4. SUCCESSORS AND ASSIGNS This Agreement shall inure to the benefit of the transferees, successors, assigns, heirs, beneficiaries, executors, administrators, members, agents, employees, and representatives of each Party. 7.5. GOVERNING LAW This Agreement has been entered into in the State of Nevada and the Agreement, including any rights, remedies, or obligations provided for thereunder, shall be construed and enforced in accordance with the laws of the State of Nevada and the Act. 7.6. NOTICES Any notice, payment, demand, or communication required or permitted to be given by any provision of this Agreement shall be in writing and shall be delivered personally to the Party or to an officer of the Party to whom the same is directed, or sent by regular, registered, or certified mail, addressed to the person to whom directed at the following address, or to such other address as such Party may from time to time specify by notice to the Parties: (a) If to the Company or the Continuing Member: Mike Zimmerman Tom Joyce Vice President Attorney 130 North Main 130 North Main Butte, MT 59701 Butte, MT 59701 Tele: 406-497-5426 Tele: 406-497-5521 Fax: 406-497-5240 Fax: 406-497-5203 (b) If to the Withdrawing Member: Richard Coyle Mark Backus President Attorney 5860 S. Pecos, Bldg. G, Ste. 100 6226 West Sahara Avenue Las Vegas, NV 89120 Las Vegas, NV 89151 Tele: 702.949.7910 Tele: 702.367.5692 Fax: 702.949.7928 Fax: 702.227.2069 Any such notice shall be deemed to be delivered, given, and received for all purposes as of the date so delivered, if delivered personally or if sent by regular mail, or as of the date on which the same was deposited in a regularly maintained receptacle for the deposit of United States mail, if sent by registered or certified mail, postage and charges prepaid. Any Party may from time to time specify a different address by choice to the other Parties. 7.7. AMENDMENTS URRS Agreement Page 22 Dated: September 9, 2002 Appendix A Any amendment to this Agreement shall be in writing and executed by each Party hereto. 7.8. ENTIRE AGREEMENT This Agreement contains the entire understanding among the Parties with respect to the subject matter hereof and supersedes any prior written or oral agreements between them respecting the subject matter of this Agreement. There are no representations, agreements, arrangements, or understandings, oral or written, between the Parties relating to the subject matter of this Agreement that are not fully set forth herein. This Agreement amends and restates the Operating Agreement with respect to the subject matter of this Agreement, and shall be considered part of the Operating Agreement for all purposes under the Act. 7.9. DESCRIPTIVE HEADINGS The descriptive headings of the several sections contained in this Agreement are included for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. URRS Agreement Page 23 Dated: September 9, 2002 Appendix A IN WITNESS WHEREOF, the Parties hereto have approved and executed this Agreement as of the date first set forth above. THE COMPANY: THE WITHDRAWING MEMBER: SIERRA TOUCH AMERICA LLC SIERRA PACIFIC COMMUNICATIONS, INC. By: ________________________ By: ___________________________ Name: MICHAEL J. MELDAHL Name: RICHARD J. COYLE, JR. Title: Manager Title: President THE CONTINUING MEMBER: TOUCH AMERICA, INC. By: _____________________ Name: MICHAEL J. MELDAHL Title: President URRS Agreement Page 24 Dated: September 9, 2002 Appendix A APPENDIX B SECURED PROMISSORY NOTE $35,000,000.00 Butte, Montana September 9, 2002 1. PROMISE TO PAY. The undersigned, Sierra Pacific Communications, a Nevada corporation ("Maker"), hereby promises to pay to the order of Sierra Touch America, LLC, a Nevada limited liability company, or its successors ("Holder"), at such place as the Holder may designate in writing, in lawful money of the United States of America, the principal sum of Thirty-Five Million Dollars ($35,000,000), with interest on the unpaid principal, on the terms and conditions set forth herein. This Note and the rights and obligations of Maker hereunder are subject to the terms and conditions of that certain Unit Redemption, Release, and Sale Agreement among Maker, Holder, and Touch America, Inc., a Montana corporation, dated as of September 9, 2002 (the "Agreement") and that certain Security Agreement between Maker and Holder dated as of September 9, 2002 (the "Security Agreement"). 2. INTEREST RATE. This Note shall bear interest at the rate of eight percent (8%) per annum (the "Interest Rate"), calculated monthly on the outstanding balance and beginning on the date hereof. 3. PAYMENT. Principal and interest shall be paid as follows: If Maker makes no prepayments during the term of this Note, the balance of all unpaid principal and interest on this Note shall be paid in twelve (12) equal monthly installments of Three Million Two Hundred Ninety-Seven Thousand Two Hundred Ninety-Five Dollars ($3,297,295) commencing on July 31, 2003 and on the last day of each and every succeeding calendar month thereafter until the unpaid principal and interest is paid in full, with the twelfth (12th) and final payment due and owing on June 30, 2004. The parties acknowledge and agree that this twelfth (12th) and final payment of the unpaid balance of principal and interest shall be in an amount to retire all indebtedness hereunder. If Maker makes prepayments during the term of this Note, the parties acknowledge and agree that Maker shall not be in default as long as Maker has made payments sufficient to reduce principal amounts outstanding in accordance, at all times, with the amortization schedule developed on Attachment A hereto that will fully amortize the remaining indebtedness in equal monthly installments over the succeeding twelve (12) month period beginning July 31, 2003. Any payments made in addition to such installments after July 31, 2003 will operate to reduce the principal owed and shorten the term of indebtedness, but shall not relieve Maker of making any installment payments as provided in the amortization schedule. Maker and Holder agree that, if Maker receives funds required to be applied toward prepayment of this Note, the amortization schedule on Attachment A shall be adjusted to reflect the outstanding balance owed as of July 31, 2003. 4. PREPAYMENT. Maker shall have the right to prepay, without penalty, this Note in full or in part at any time, provided, however, that Maker covenants and agrees that, during the term of this Note, it shall apply all net proceeds derived from (a) sales of any assets held by Holder prior to Maker's September 9, 2002 exit from Holder, (b) sales of any assets of Maker, including, without limitation, Maker's metropolitan-area network, and (c) transactions described in Paragraph 6 hereof, toward prepayment of the Note. URRS Agreement Page 25 Dated: September 9, 2002 Appendix B 5. APPLICATION OF PAYMENTS. Payments made hereunder shall be applied first to accrued interest, and then to principal. 6. COVENANTS OF MAKER AND MAKER'S PARENT COMPANY. Maker shall make no cash or other distributions to its parent company, Sierra Pacific Resources, a Nevada corporation ("SPR"), or any other related entity prior to fully satisfying its obligations under this Note, provided, however, that this prohibition shall not act to prohibit SPR or Maker from raising additional capital necessary to build or maintain Maker's business, including, without limitation, the receipt of investment funds from SPR or a non-affiliated entity, the entering into of a joint venture arrangement affecting Maker, or the entering into of a transaction that dilutes SPR's ownership interest in Maker in exchange for cash associated with Maker's operating or capital expenditure requirements, provided, further, that Holder shall be provided with at least thirty (30) days' written notice of the intent of SPR or Maker, as applicable, to raise such additional capital, and the raising of such additional capital shall be subject to Holder's sole and absolute discretion. In the event that any stock or equity interest in Maker is sold, conveyed, or transferred by Maker's present owner, Maker covenants, and agrees that this Note shall be paid in full before the transaction is consummated. SPC shall cause a legend to be placed on the existing stock certificate of SPC held by SPR evidencing this restriction. 7. ACCELERATION; CROSS-DEFAULT; DEFAULT INTEREST RATE. This Note shall be in default if payment of any installment is not made when due or if there occurs any failure or default in Maker's observance or performance of any covenants, terms, or provisions of (1) the Agreement, provided, however, that such failure or default shall remain unremedied for fifteen (15) days after Maker has become aware of such failure or default; (2) the Security Agreement; (3) any other instruments relating to or securing this Note executed by Maker; or (4) any instruments evidencing, securing, or relating to any other indebtedness of Maker to Holder. Upon such default or at any time thereafter, the whole sum of principal and accrued interest hereunder shall, at the option of Holder, become immediately due and payable, anything herein or any instrument securing this Note to the contrary notwithstanding, time being of the essence. As long as this Note is in default, then, at the option of Holder, without prior notice, this Note shall bear interest at a rate equal to the lesser of eighteen percent (18%) per annum or the maximum rate permitted by applicable law (the "Default Interest Rate"). 8. CURING OF MONETARY DEFAULTS. A default in payment of any amount due hereunder may be cured, at the sole and absolute discretion of Holder, only by payment in full of the installment or installments in default, plus the additional interest due at the Default Interest Rate, plus any late charges that may be due hereunder or under any other instrument evidencing, securing, or relating to Maker's debt to Holder, plus any reasonable attorneys' fees incurred by Holder by reason of such default. 9. NONWAIVER. Failure to exercise any right Holder may have or be entitled to in the event of any default hereunder shall not constitute a waiver of such right or any other right in the event of any subsequent default. No dispute arising out of or relating to this Note, the Security Agreement, the Agreement, any related agreements or instruments, or brought under applicable law, shall be subject to the provisions of Article X ("Deadlocks"), or any other provisions, of the Operating Agreement of Holder dated as of April 25, 2000. 10. WAIVER OF PRESENTMENT. Maker waives presentment for payment, protest and demand, notice of protest, demand, dishonor, or nonpayment of this Note, and consents that Holder may extend the time of payment or otherwise modify the terms of payment of any part or the whole of the debt evidenced by this Note, by agreement between Holder and Maker, and such consent shall not URRS Agreement Page 26 Dated: September 9, 2002 Appendix B alter or diminish the liability of Maker or the enforceability of this Note. Except as otherwise provided, each and every party signing or endorsing this Note binds itself as a principal and not as a surety. In any action or proceeding to recover any sum herein provided for, no defense of adequacy of security or that resort must first be had to security or to any other person shall be asserted. Except as otherwise provided, this Note shall bind the undersigned and its or their successors and assigns, jointly and severally. 11. SECURITY OF NOTE. This Note is secured by the Security Agreement, which covers all of Maker's property including, without limitation, furniture, fixtures, equipment, accounts receivable, contract rights, and general intangibles. Maker understands and agrees that the Security Agreement provides inspection rights for Holder with respect to Maker's books and records during the term of this Note, and that it obligates Maker to provide financial and operating certain reports to Holder. 12. COLLECTION COSTS. Maker agrees to pay all costs, including reasonable attorneys' fees, incurred by Holder in any suit, action, or appeal therefrom, with or without suit, in connection with collection hereof or foreclosure under the Security Agreement. 13. DEFINITIONS. All capitalized terms used but not defined herein shall have the meanings defined in the Agreement. 14. NOTICE. Any demand or notice to be made or given under the terms hereof or any instrument now or hereafter securing this Note by Holder hereof to Maker shall be effective when mailed or delivered in the manner specified in the Agreement. 15. APPLICABLE LAW; JURISDICTION AND VENUE. This Note shall be governed by the laws of the State of Nevada. MAKER: SIERRA PACIFIC COMMUNICATIONS, a Nevada corporation By: ___________________________ RICHARD J. COYLE JR., PRESIDENT URRS Agreement Page 27 Dated: September 9, 2002 Appendix B APPENDIX B SECURED PROMISSORY NOTE ATTACHMENT A
OUTSTANDING INTEREST OUTSTANDING PAYMENT OUTSTANDING BALANCE ON OUTSTANDING BALANCE (P + I) MADE AT BALANCE PAYMENT PAYMENT AT BEGINNING BALANCE FOR AT END END AT END DUE DATE NUMBER OF PERIOD PERIOD OF PERIOD OF PERIOD OF PERIOD - -------- ------ --------- ------ --------- --------- --------- 07/31/02 - $ 35,000,000 $ 233,333 $ 35,233,333 - $ 35,233,333 08/31/02 - $ 35,233,333 $ 234,889 $ 35,468,222 - $ 35,468,222 09/30/02 - $ 35,468,222 $ 236,455 $ 35,704,677 - $ 35,704,677 10/31/02 - $ 35,704,677 $ 238,031 $ 35,942,708 - $ 35,942,708 11/30/02 - $ 35,942,708 $ 239,618 $ 36,182,326 - $ 36,182,326 12/31/02 - $ 36,182,326 $ 241,216 $ 36,423,542 - $ 36,423,542 01/31/03 - $ 36,423,542 $ 242,824 $ 36,666,365 - $ 36,666,365 02/28/03 - $ 36,666,365 $ 244,442 $ 36,910,808 - $ 36,910,808 03/31/03 - $ 36,910,808 $ 246,072 $ 37,156,880 - $ 37,156,880 04/30/03 - $ 37,156,880 $ 247,713 $ 37,404,592 - $ 37,404,592 05/31/03 - $ 37,404,592 $ 249,364 $ 37,653,956 - $ 37,653,956 06/30/03 - $ 37,653,956 $ 251,026 $ 37,904,983 - $ 37,904,983 07/31/03 1 $ 37,904,983 $ 252,700 $ 38,157,683 3,297,295 $ 34,860,388 08/31/03 2 $ 34,860,388 $ 232,403 $ 35,092,790 3,297,295 $ 31,795,495 09/30/03 3 $ 31,795,495 $ 211,970 $ 32,007,465 3,297,295 $ 28,710,170 10/31/03 4 $ 28,710,170 $ 191,401 $ 28,901,572 3,297,295 $ 25,604,277 11/30/03 5 $ 25,604,277 $ 170,695 $ 25,774,972 3,297,295 $ 22,477,677 12/31/03 6 $ 22,477,677 $ 149,851 $ 22,627,528 3,297,295 $ 19,330,233 01/31/04 7 $ 19,330,233 $ 128,868 $ 19,459,101 3,297,295 $ 16,161,807 02/28/04 8 $ 16,161,807 $ 107,745 $ 16,269,552 3,297,295 $ 12,972,257 03/31/04 9 $ 12,972,257 $ 86,482 $ 13,058,739 3,297,295 $ 9,761,444 04/30/04 10 $ 9,761,444 $ 65,076 $ 9,826,520 3,297,295 $ 6,529,225 05/31/04 11 $ 6,529,225 $ 43,528 $ 6,572,753 3,297,295 $ 3,275,459 06/30/04 12 $ 3,275,459 $ 21,836 $ 3,297,295 3,297,295 $ -
URRS Agreement Page 28 Dated: September 9, 2002 Appendix B APPENDIX C SECURITY AGREEMENT THE UNDERSIGNED, Sierra Pacific Communications, a Nevada corporation (referred to as "Debtor"), hereby grants to Sierra Touch America, LLC, a Nevada limited liability company (referred to as "Secured Party"), a security interest in all right, title, and interest, whether now owned or hereafter acquired, including the proceeds thereof, in and to the following property of Debtor: (a) Subject to Section 9 herein, all of Debtor's right, title, and interest in any property of whatever nature that was previously owned by Secured Party and distributed to Debtor, (b) all property described on Exhibit A to the Unit Redemption, Release, and Sale Agreement dated September 9, 2002 among Debtor; Secured Party; and Touch America Inc., and (c) all property and property rights that relate in any way to the telecommunications system being constructed by Secured Party from Sacramento, CA to Salt Lake City, UT. The secured property includes, without limitation, accounts, inventory, equipment, fixtures, contract rights, general intangibles, instruments, documents, and other property. All such collateral is collectively referred to herein as the "Property". This Security Agreement is given to secure the payment and performance of all indebtedness, obligations, terms, and conditions imposed upon Debtor by virtue of the following documents and agreements: (i). the Unit Redemption, Release, and Sale Agreement dated as of September 9, 2002 among Debtor, Secured Party, and Touch America, Inc., a Montana corporation ("Agreement"); (ii). the Promissory Note from Debtor to Secured Party in the amount of Thirty-Five Million Dollars ($35,000,000) dated September 9, 2002 ("Promissory Note"); and (iii). this Security Agreement. Default in the payment of any indebtedness or the performance of any obligations under the above-referenced agreements shall constitute a default under this Security Agreement. DEBTOR REPRESENTS, COVENANTS, AND AGREES WITH SECURED PARTY AS FOLLOWS: 1. DEBTOR AND COLLATERAL LOCATION. The address appearing under Debtor's signature below is the address of Debtor's chief executive office. If the Property is not located at the Debtor's address appearing below, it shall be located at the following locations: In the states of California, Nevada, and Utah: In each and every county where the fiber optic facilities subject to this Security Agreement are located. Debtor shall give Secured Party prior written notice of any change in either the Debtor's chief executive office or the location of the Property. URRS Agreement Page 29 Dated: September 9, 2002 Appendix C 2. NOTICES; APPOINTMENT OF AGENT; COLLECTION. The accounts receivable and general intangibles which constitute the collateral under this Security Agreement include accounts receivable, customer lists, supplier lists, computer data, and other materials. In the event of a default, Secured Party is authorized to notify the parties who have a relationship with the Debtor represented by the collateral, and to effect direct collection of any amounts due to Debtor pursuant to those relationships. At the request of Secured Party, Debtor agrees to enter into appropriate notices to such parties. In the event of default, Secured Party is irrevocably appointed Debtor's attorney-in-fact and may in Debtor's name and place make demand, collect, receive, and give acquittance for any and all amounts that may be or become due pursuant to those relationships and in its discretion may file any claim, commence a proceeding, or take any action to enforce or collect payment. Secured Party shall not be obligated to perform any duty or obligation to such parties. 3. OWNERSHIP AND LIENS. Subject to Section 9 (Limited Release of Security Interest on Sale of Property), Debtor owns the Property and the same is free and clear of all security interests and encumbrances of every nature created by Debtor. Debtor shall not create nor permit the existence of any lien or security interest other than that created hereby on the Property without the prior written consent of Secured Party, which consent can be withheld in Secured Party's sole and absolute discretion. 4. ACCOUNTING AND INSPECTION OF BOOKS. a. Debtor agrees to keep adequate records and books of account covering the collateral and to deliver to Secured Party such books if so requested by Secured Party after an event of default. b. Debtor agrees to deliver to Secured Party on demand, or upon the termination of the Debtor's authority to collect by Secured Party, all of the papers in Debtor's possession relating to the collateral covered by this Security Agreement which will facilitate collection or enforcement thereof by Secured Party, including, but not limited to, correspondence, invoices, shipping documents and records, sales slips, orders and order acknowledgements, contracts, and all other instruments relating thereto. c. Secured Party or its authorized agent may at reasonable times and upon reasonable notice examine and make copies of and abstract from books of account and other written records evidencing the collateral. 5. TAXES. Debtor shall pay before delinquency all taxes or other governmental charges that are or may become a lien or charge on the Property and shall pay any tax which may be levied on any obligation secured hereby (except claims whose validity or amount is being contested in good faith by Debtor in appropriate proceedings with provisions having been made to the satisfaction of Secured Party for the payment thereof in the event the contest is determined adversely to Secured Party). 6. REPAIRS AND INSPECTIONS. Debtor shall keep the Property in reasonably good working order and condition, except ordinary wear and tear and casualty losses, and will make needed repairs. 7. INSURANCE. Debtor shall keep the Property continuously insured by an insurer approved by Secured Party against fire, theft, and other hazards designated at any time by Secured Party, in an amount equal to the full insurable value thereof or to all sums secured hereby. In the event of loss, Secured Party shall have full power to collect any and all insurance upon the Property and to apply the same at its option to any obligation secured hereby, whether or not matured, or to the restoration URRS Agreement Page 30 Dated: September 9, 2002 Appendix C or repair of the Property. Secured Party shall have no liability whatsoever for any loss that may occur by reason of the omission or lack of coverage of any such insurance. 8. REMOVAL OR SALE. Without the prior written consent of Secured Party, which can be withheld in Secured Party's sole and absolute discretion, Debtor shall not remove the Property from the locations described in Section 1 of this Security Agreement, and Debtor will not sell or lease the Property or such portion as constitutes, in the reasonable opinion of Secured Party, a substantial portion. This restriction shall not apply to disposition or replacement in the ordinary course of business. 9. LIMITED RELEASE OF SECURITY INTEREST ON SALE OF PROPERTY. Notwithstanding any provision of this Security Agreement, the Agreement, the Promissory Note, or any related agreements to the contrary, if the Debtor (after obtaining the prior written consent of Secured Party, which consent can be withheld in Secured Party's sole and absolute discretion) sells a portion of the Property and remits the entire proceeds from such sale to Secured Party, Secured Party shall release its security interest in the portion of the Property sold to allow the purchaser to obtain clear title thereto. In such event, Secured Party agrees to execute a lien release or other appropriate instrument to release its security interest in the portion of the Property sold. Debtor and Secured Party acknowledge that, contemporaneous with the distribution and conveyance of the Property from STA to SPC, SPC will enter into an agreement with Qwest Communications Corporation ("Qwest") for the sale of a conduit from the Property of approximately eight hundred seventeen (817) miles in length from Sacramento, California to Salt Lake City, Utah; such conduit is described as the "First Conduit" in the Unit Redemption, Release, and Sale Agreement. Upon (i) the consummation of such agreement between Debtor and Qwest and (ii) SPC's payment of Four Million Three Hundred Seventy Five Thousand Dollars ($4,375,000) to Secured Party promptly following the execution of such agreement, Secured party shall remise and release its security interest in Legs One and Two of the Conduit System. As long as STA is not in default and completes construction of the First Conduit, its security interest in Leg Three of the Conduit System will not be released until SPC pays STA a total of Thirteen Million Six Hundred Twenty-Five Thousand Dollars ($13,625,000) for the First Conduit on the Note. 10. EXPENSES INCURRED BY SECURED PARTY. Secured Party is not required to, but may at its option, pay any tax or other charge or expense payable by Debtor and any filing or recording fees and any amounts so paid shall be repayable by Debtor upon demand. Debtor shall also repay upon demand all of Secured Party's expenses incurred in collecting, insuring, conserving, or protecting the collateral or in any inventories, audits, inspections, or other examinations by Secured Party in respect of the collateral. All such sums shall bear interest at the Default Interest Rate under the Promissory Note from the date of payment by the Secured Party until repaid by Debtor and such sums and interest thereon shall be secured hereby. The rights granted by this paragraph are not a waiver of any other rights of Secured Party in the event of default. 11. WAIVERS. This Security Agreement shall not be qualified or supplemented by course of dealing. No waiver or modification by Secured Party of any of the terms or conditions hereof shall be effective unless in writing signed by Secured Party. No waiver nor indulgence by Secured Party as to any required performance by Debtor shall constitute a waiver as to any subsequent required performance or other obligations of Debtor hereunder. URRS Agreement Page 31 Dated: September 9, 2002 Appendix C 12. DEFAULT. Time is of the essence in this Security Agreement, and any of the following events shall constitute "Events of Default": a. Any failure to pay when due principal, interest, or taxes under the Promissory Note; or b. Any default or breach under this Security Agreement or the Agreement, provided, however, that such default or breach shall remain unremedied for fifteen (15) days after Debtor has become aware of such default or breach after Debtor has received notice of such failure or default from Secured Party; or c. The falsity in any material respect of any representation by Debtor in this Security Agreement, the Agreement, or in any financial statement given by Debtor to Secured Party as a basis for any extension of credit secured hereby; or d. If the Property should be seized or levied upon under any legal or governmental process against Debtor or against the Property; or e. If Debtor becomes insolvent or is the subject of a petition in bankruptcy, either voluntary or involuntary, or in any other proceeding under the federal bankruptcy laws, or makes an assignment for the benefit of creditors, or if Debtor is named in or the Property is subjected to a suit for the appointment of a receiver; or f. Loss, substantial damage to, or destruction of any material portion of the Property which is uninsured; or g. Dissolution or liquidation of Debtor. If any of such Events of Default are not remedied, the entire amount of indebtedness secured hereby shall then or at any time thereafter, at the option of Secured Party, become immediately due and payable without notice or demand, and Secured Party shall have an immediate right to pursue the remedies set forth in this Security Agreement. 13. REMEDIES. In the event of a default hereunder, Secured Party shall have all remedies provided by law and, without limiting the generality of the foregoing, shall be entitled as follows: a. Debtor agrees to put Secured Party in possession of the Property on demand; and b. Secured Party is authorized to enter any premises where the Property is situated and take possession of the Property without notice or demand and without legal proceedings; and c. At the request of Secured Party, Debtor will assemble the Property and make it available to Secured Party at a place designated by Secured Party which is reasonably convenient to both parties; and d. Debtor agrees that a period of fifteen (15) days from the time notice is sent, by first-class mail or otherwise, shall be a reasonable period of notification of a sale or other disposition of Property; e. Debtor agrees that any notice or other communication by Secured Party to Debtor shall be sent to the address of the Debtor stated herein or such other address as Debtor may notify Secured URRS Agreement Page 32 Dated: September 9, 2002 Appendix C Party in writing; and f. Debtor agrees to pay on demand the amount of all expenses reasonably incurred by Secured Party in protecting or realizing on the Property in the event that this Security Agreement or any obligation secured by it is referred to an attorney for protecting or defending the priority of Secured Party's interest or for collection or realization procedures. Debtor agrees to pay reasonable attorneys' fees, including fees incurred in both trial and appellate courts, or fees incurred without suit, and expenses of title search and all court costs and costs of public officials. The sum agreed to be paid in this subparagraph shall be secured hereby; and g. If Secured Party disposes of the Property, Debtor agrees to pay any deficiency remaining after application of net proceeds to any indebtedness secured hereby. h. No dispute arising out of or relating to this Security Agreement, the Agreement, the Promissory Note, any related agreements or instruments, or brought under applicable law, shall be subject to the provisions of Article X ("Deadlocks"), or any other provisions, of the Operating Agreement of Secured Party dated as of April 25, 2000. 14. CONSTRUCTION. This Security Agreement, with the Agreement, the Promissory Note, and the associated Uniform Commercial Code Financing Statements (the preparation and filing of which Debtor agrees to facilitate), represent the entire agreement among the parties with respect to the transactions contemplated thereby and supersede all prior agreements, written or oral, with respect thereto. In the event of any conflict between this Security Agreement and the Agreement, the latter shall control. 15. APPLICABLE LAW; JURISDICTION AND VENUE. This Security Agreement shall be governed by the laws of the State of Nevada. Debtor hereby irrevocably submits to the jurisdiction of the Secured Judicial District Court sitting in Reno, Nevada and agrees that venue in any suit or action hereunder may, at the election of any holder hereof, be in any court having jurisdiction and that Debtor shall not claim that any such forum selected by Secured Party is an inconvenient forum. SIGNED this 9th day of September 2002. SIERRA PACIFIC COMMUNICATIONS, a Nevada corporation By _______________________________ RICHARD J. COYLE JR., PRESIDENT Address: 5860 S. Pecos, Bldg. G, Ste. 100 Las Vegas, NV 89120 URRS Agreement Page 33 Dated: September 9, 2002 Appendix C APPENDIX D ASSIGNMENT AND BILL OF SALE SIERRA TOUCH AMERICA, LLC., a Nevada limited liability company (the "Seller"), for good and valuable consideration paid to it by SIERRA PACIFIC COMMUNICATIONS, a Nevada corporation (the "Purchaser"), pursuant to a Unit Redemption, Release, and Sale Agreement dated as of September 9, 2002 between Seller and Purchaser (the "Agreement"), and for other good and valuable consideration, receipt and sufficiency of which are hereby mutually acknowledged, does hereby sell, assign, transfer, convey, and deliver to Purchaser, its successors and assigns, the following: The property and assets described or identified in Section V.2 of the Agreement, or on schedules relating thereto, free and clear of any and all material claims, liens, and encumbrances except as specifically identified or assumed by Purchaser as set forth in the Agreement. Seller hereby covenants and agrees that it will warrant and defend the sale of these assets against each and every person or persons whomsoever claiming against any or all of the same. This instrument shall be binding upon, inure to the benefit of, and be enforceable by, Seller and Purchaser and their respective successors and permitted assigns. IN WITNESS WHEREOF, the undersigned have executed this Assignment and Bill of Sale as of this 9th day of September 2002. SELLER: SIERRA TOUCH AMERICA LLC, a Nevada limited liability company By ____________________________________ MICHAEL J. MELDAHL, Manager PURCHASER: SIERRA PACIFIC COMMUNICATIONS, a Nevada corporation By ___________________________________ RICHARD J. COYLE JR., President URRS Agreement Page 34 Dated: September 9, 2002 Appendix D APPENDIX E CONDUIT AND DARK FIBER IRU AND SALE AGREEMENT This CONDUIT AND DARK FIBER IRU AND SALE AGREEMENT (the "Agreement") is made as of September 9, 2002, between SIERRA TOUCH AMERICA LLC, a Nevada limited liability company, with offices at 130 North Main, Butte, Montana 59701 ("Owner"), and SIERRA PACIFIC COMMUNICATIONS, LLC, a Nevada corporation, with offices at 5860 S. Pecos, Bldg. G, Suite 100, Las Vegas, NV, ("SPC"). WHEREAS, Owner has commenced construction of a fiber optic communication system along the route of Sacramento, California to Salt Lake City, Utah via Reno, Nevada, including optical amplifier and regenerator sites, described in Exhibit B hereto (the "Description of Real Property"), and WHEREAS, upon the terms and conditions set forth below and set forth in the Unit Redemption, Release, and Sale Agreement between Touch America, Inc., Sierra Pacific Communications, and Sierra Pacific Resources, and Sierra Touch America LLC, dated September 9, 2002 (the "URRS Agreement"), SPC desires to acquire from Owner and Owner desires to convey to SPC (a) legal title to one (1) fiber optic conduit installed along the entire Route ("First Conduit"); (b) an indefeasible right of use or IRU in two (2) additional fiber optic conduits installed along the Route between Reno, Nevada and Spanish Fork, Utah (" IRU Conduit"), (c) and an IRU in sixty (60) strands of dark fiber installed along the entire length of the Route; and (d) an interest in Owner's occupancy rights and Owner's OA Sites. NOW, THEREFORE, in consideration of the mutual promises set forth below, the Parties hereby agree as follows: 1. DEFINITIONS As used in this Agreement: 1.1. Authorized Use means a business purpose of SPC's optical fiber telecommunications network for telecommunication traffic of SPC or SPC's Customers. 1.2. Fiber Optic Facilities means fiber optic cable and a number of conduit. 1.3. Strands means individual fiber optic strands within the Fiber Optic Facilities. 1.4. Dark Fiber means one or more Strands subject to this Agreement through which an associated light, signal or light communication transmission must be provided to furnish service. 1.5. SPC Conduit means the (a) one (1) fiber optic conduit installed along the entire Route ("First Conduit") and (b) two (2) additional fiber optic conduits installed along the Route between Reno, Nevada and Spanish Fork, Utah ("IRU Conduit"), as designated by Owner. 1.6. SPC Strands means sixty (60) strands, as designated by Owner, of Dark Fiber of the Fiber Optic Facilities. URRS Agreement Page 35 Dated: September 9, 2002 Appendix E 1.7. Indefeasible Right of Use or IRU means an exclusive right to use SPC's Strands and Conduit. 1.8. Environmental, Health, or Safety Complaint means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, proceeding, judgment, letter or communication from any federal, state, or municipal authority or any other private party involving a Hazardous Discharge from, in or at or along Owner's Route or Owner's facilities installed in the Route or any violation related to Owner's Route or its facilities installed in the Route of any order, permit, or Environmental, Health and Safety Law. 1.9. Environmental, Health and Safety Laws means any federal, state, or local statute, regulation, rule, ordinance or applicable governmental order, decree, or settlement agreement, or principle or requirement of common law, regulating or protecting the environment or human health or safety, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.), as amended, the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), as amended, and the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.), as amended, and regulations promulgated thereunder. 1.10. Hazardous Discharge means any release, spill, leak, pumping, emission, discharge, injection, leaching, pouring, disposing or dumping of a Hazardous Substance. 1.11. Hazardous Substance means any pollutant or contaminant or any hazardous or toxic chemical, waste, material, or substance, including without limitation any defined as such under Environmental, Health and Safety Laws, and including without limitation asbestos, petroleum products and wastes, polychlorinated biphenyl's, and radon gas. 1.12. Service Provider or SP means Owner and Service Recipient or SR means SPC. 1.13. Useful Life means the period from the Acceptance Date of SPC's Strands and SPC's Conduit until the date they are no longer capable of producing commercial revenues. 2. SALE Pursuant to the terms of the URRS Agreement, Owner has agreed to convey to SPC ownership of the First Conduit. 3. GRANT OF IRU 3.1. Upon the terms, covenants and conditions contained in this Agreement and subject to the terms and conditions contained in URRS Agreement, Owner grants to SPC and SPC accepts from Owner an Indefeasible Right of Use of SPC Strands and the IRU Conduit solely for Authorized Use (the "IRU") during the term of the IRU as provided in this Agreement. Except for an interest in the Occupancy Rights and OA Sites as described herein and in the URRS Agreement, SPC shall have no further right, title or other interest in Owner's Route, its Fiber Optic Facilities or SPC's Strands. Owner shall have the right to grant and renew rights to any entity to use Owner's Route, the Fiber Optic Facilities or any other property of Owner (exclusive of the SPC Strands and the URRS Agreement Page 36 Dated: September 9, 2002 Appendix E SPC Conduit during the term of the IRU). 3.2. It is understood and agreed as between the Parties that the grant of the IRUs shall be treated for federal and all applicable state and local tax purposes as the sale and purchase of the SPC Strands and the SPC Conduit, and that on or after the exercise of its IRU, SPC shall be treated as the owner of the SPC Strands and the SPC Conduit for such purposes. The parties agree to file their respective income tax returns, property tax returns and other returns and reports for their respective Assessments on such basis and, except as otherwise required by law, not to take any positions inconsistent therewith. 4. CONSTRUCTION 4.1. Owner shall use reasonable efforts to provide, construct and install the Fiber Optic Facilities on or before May 1, 2003. 4.2. Owner shall test all SPC's Strands in accordance with the procedures specified in Schedule C ("Fiber Cable Splicing, Testing, and Acceptance Procedures ") to verify that SPC's Strands are installed and operational in accordance with the specifications described in Schedule C. Fiber Acceptance Testing shall progress span by span along each segment as cable splicing progresses, so that test results may be reviewed in a timely manner. Owner shall provide SPC reasonable advance notice of the date and time of each Fiber Acceptance Testing such that SPC shall have the opportunity to have a person or persons present to observe Owner's Fiber Acceptance Testing. When Owner has determined that the results of the Fiber Acceptance Testing with respect to a particular span show that the SPC's Strands so tested are installed and operating in conformity with the applicable specifications as set forth in Schedules B and C, Owner shall promptly provide SPC with a copy of such test result. 4.3. If and when Owner gives written notice to SPC that the test results of the Fiber Acceptance Testing are within parameters of the specifications in Schedules B and C with respect to an entire segment, SPC shall provide Owner with written notice accepting (or rejecting by specifying the defect or failure in the Fiber Acceptance Testing that is the basis for such rejection) SPC's Strands. If SPC fails to notify Owner of its acceptance or rejection of the final test results with respect to SPC's Strands comprising a segment within twenty (20) days after SPC's receipt of notice of such test results, SPC shall be deemed to have accepted such segment. If, during the course of such construction, installation and testing, any material deviation from the specifications set forth in Schedules B and C is discovered, the construction or installation of the affected portion of the segment shall be repaired to such specification by Owner at Owner's sole cost and expense. The date of such notice of acceptance (or deemed acceptance) of SPC's Strands for all segments along the Route shall be the "Acceptance Date" for the Route. 5. CONSIDERATION 5.1. As consideration for the SPC Conduit and the SPC Strands, SPC shall pay to Owner the sums set forth in the URRS Agreement and in accordance with the provisions of the URRS Agreement, and related documents. 5.2. Beginning on August 1, 2003, SPC shall pay to Owner an annual maintenance fee URRS Agreement Page 37 Dated: September 9, 2002 Appendix E of Two Hundred Forty dollars ($240.00) per route mile each year during the term of this Agreement for maintenance of the SPC's Strands and the SPC Conduit. Thereafter, SPC shall pay the annual maintenance fee on or before the anniversary date of this Agreement each year. This amount shall be adjusted annually to reflect changes in the U.S. Producer Price Index (Bureau of Labor Standards "All Finished Goods" Series ID WPUSOP3000), but in no event shall such amount be less than $20 per actual route mile per month. 5.3. Except as otherwise specifically provided, SPC shall pay all applicable fees and charges provided for in this Agreement, within thirty (30) days after receipt of invoice. 5.4. All payments not made within thirty (30) days of the due date shall bear a late payment charge of one (1%) percent per month of the unpaid balance or the highest lawful rate, whichever is less. 5.5. The parties acknowledge that pursuant to the URRS Agreement, SPC has granted Owner a security interest in the SPC Strands and the SPC Conduit and any proceeds thereof. 6. TERM. 6.1. As to the SPC Strands and the IRU Conduit, the Term of this Agreement shall begin on the date first above written and shall end upon the expiration of the Useful Life of the SPC Strands and the IRU Conduits. 6.2. Upon the expiration of the Term of this Agreement, SPC's IRU in the SPC Strands and the IRU Conduit shall immediately terminate and all rights of SPC to use the SPC Strands and the IRU Conduit, or any part thereof, shall cease and Owner shall owe SPC no additional duties or consideration. 7. OCCUPANCY RIGHTS. OCCUPANCY RIGHTS FOR THE FIRST CONDUIT. 7.1. Owner has obtained certain easements, leases, licenses, fee interests, rights-of-way, permits, authorizations and other rights necessary to allow Owner to install and operate the Fiber Optic Facilities ("Occupancy Rights"). Subject to the terms of the URRS agreement and as provided therein, Owner shall partially assign to SPC the Occupancy Rights it owns or has secured for SPC's use in accessing the First Conduit. If Owner is unable to directly assign to SPC Occupancy Rights, then Owner shall grant, to the extent it is able, access rights to SPC through license, IRU, or otherwise. If a governmental entity requires SPC or its permitted assigns to obtain a separate license or permit, then SPC shall be responsible to obtain such license or permit at its sole cost and expense. Owner agrees to use commercially reasonable efforts in cooperating with SPC with respect to SPC's efforts to secure such licenses or permits. 7.2. Owner shall assign to SPC the Occupancy Rights for the First Conduit held by Owner to occupy any Union Pacific Railroad right-of-way. 7.3. For those Occupancy Rights for the First Conduit that Owner is unable to partially assign to SPC, Owner shall use commercially reasonable efforts to cause the Occupancy rights to remain effective throughout the term of this IRU. Owner's failure to cause URRS Agreement Page 38 Dated: September 9, 2002 Appendix E Occupancy Rights to remain effective does not constitute a breach of any warranty, representation or covenant of Owner. 7.4. SPC shall pay Owner SPC's proportionate share of any recurring fees, including but limited to any renewal or extension fees, related to the Owner Occupancy Rights that Owner cannot partially assign to SPC. SPC's proportionate share shall be determined as provided in Section 8.14. SPC is responsible directly to third parties for any recurring fees, including but not limited to renewal or extension fees, associated with the Occupancy Rights that Owner partially assigns to SPC. OCCUPANCY RIGHTS FOR THE IRU CONDUITS AND SPC FIBER. 7.5. Owner shall provide the right of access to IRU Conduits and SPC Fiber as set forth herein and in the attached Schedule D. SPC shall comply with provisions and procedures set forth in the Maintenance Agreement as a condition to the access provided in this Section 7.5. 7.5.1. SPC shall have the exclusive right of use of the IRU Conduit, including the exclusive right to have SPC Facilities installed within the IRU Conduit, and to use such SPC Facilities in the conduct of the SPC's business, which shall include without limitation sub-leasing or otherwise allowing use by third parties of any or all of the SPC's Facilities 7.5.2 SPC shall have the right to replace the SPC Facilities at SPC's cost and expense. SPC shall request, in writing, permission from Owner before attempting to access the IRU Conduit and SPC Fiber or SPC Facilities within the Route, which request shall be granted by Owner in its sole discretion, reasonably exercised. SPC shall have the right to have the IRU Conduits connected to other facilities owned or controlled by SPC at any location approved by Owner along the SPC Route. 8. MAINTENANCE AND OPERATION 8.1. Owner shall maintain the SPC Strands and the SPC Conduit in accordance with the requirements and procedures set forth in Schedule D ("Maintenance Specifications and Procedures"). SPC shall cooperate with and assist, as may be reasonably required, Owner in performing said maintenance. 8.2. In the event of service outages, Owner agrees to use commercially diligent efforts to respond promptly and restore SPC's Strands within the parameters of the specifications in Schedule B; provided however, that SPC shall solely be responsible, at its own expense, for restoring an outage caused by a failure of light, signal or light communication transmission. SPC shall also be solely responsible, at its own expense, for the operation, maintenance and repair of all terminal equipment and facilities required in connection with the use of SPC's Strands. 8.3. Owner shall provide SPC access to SPC's Strands by cable stub taken by Owner from the Fiber Optic Facilities and delivered to SPC at a splice point or, as mutually agreed to by the parties, in selected Owner OA Sites at the fiber distribution panel. SPC URRS Agreement Page 39 Dated: September 9, 2002 Appendix E shall designate in writing within 30 days of the Acceptance Date of the SPC's Strands, all splice points along the Route through which it wants access to the SPC Strands. If a splice point is not located at an Owner manhole/handhole, Owner shall, if mutually agreed, construct, at SPC's expense, a manhole/handhole for SPC. All other splice points shall be located at an Owner manhole/handhole. SPC is permitted to request access to additional splice points in the future, provided SPC reimburses Owner for any costs it incurs in providing access to such additional splice points. 8.3.1. Owner shall accomplish sheath opening and stub out of SPC's Strands at the splice points in SPC's and Owner's manholes/handholes. SPC may splice its own fiber optic cable to SPC's Strands only in SPC's manholes/handholes. Owner shall splice SPC's fiber optic cable to SPC's Strands in Owner's manhole/handholes. 8.3.2. The parties may enter into a Collocation Agreement pursuant to which Owner may sell or lease collocation space to SPC at Owner's OA Sites along the Route, such space and related services to be specifically defined in the Collocation Agreement. Should SPC subsequently request additional space in Owner facilities along the Route not identified in the Collocation Agreement, Owner agrees to provide such space if it is available at the time SPC requests such additional space. All billings for collocation space shall be made under the Collocation Agreement, and not this Agreement. 8.4. Within thirty (30) days after the Acceptance Date, Owner shall provide to SPC as-built drawings for the Route. The drawings shall contain ROW detail, splice locations, manhole/handhole locations. 8.5. In exercising its rights under this Agreement, both parties shall at their own expense comply with all applicable Environmental, Health and Safety Laws; the requirements and specifications of the National Electrical Code and the National Electrical Safety Code (all of the foregoing collectively referred to as "EHS Requirements"); other applicable governmental laws, regulations, ordinances, rules, codes, orders, guidance, permits, and approvals; and applicable easement or license conditions. Any notice, report, correspondence, or submissions made by SPC to federal, state, or municipal environmental, safety, or health authorities related to the Owner's Route or Fiber Optic Facilities shall be provided by SPC to Owner promptly, and in no case later than twenty-four (24) hours. SPC also shall promptly provide to Owner a copy of any Environmental, Health or Safety Complaint received by SPC, and in no case late than three (3) business days after SPC's receipt of same. SPC shall ensure that its employees are trained in the proper procedures for entering and operating in the Owner's Route and in its Fiber Optic Facilities, optical amplifier sites and regenerator sites. 8.6. SPC agrees to reimburse Owner the reasonable cost of Owner (i) constructing manholes/handholes for SPC; (ii) accomplishing all sheath openings and stub out of SPC's Strands; and (iii) splicing SPC's fiber optic cable to SPC's Strands. Such charges shall be at Owner's fully loaded labor rates then in effect and Owner's cost of material plus fifteen (15%) per cent. 8.7. Should SPC's splices or other work not be placed and maintained in accordance with the provisions of this Agreement, Owner may at its option correct said condition. Owner shall notify SPC in writing prior to performing such work whenever practicable. However, when such conditions pose an immediate safety threat, interfere with the URRS Agreement Page 40 Dated: September 9, 2002 Appendix E (performance of Owner's service obligations, or pose an immediate threat to the physical integrity of Owner's facilities, Owner, may perform such work and take such action that it deems necessary without first giving notice to SPC. As soon as practicable thereafter, Owner shall advise SPC of the work performed and the action taken and shall endeavor to arrange for re-accommodation of SPC's Strands so affected. SPC shall promptly reimburse Owner for all reasonable costs incurred by Owner for all such work, action, and re-accommodation performed by Owner. 8.8. In the event a Hazardous Discharge or other conditions are discovered or created at or near work being performed by SPC in on or around Owner's Route that may require (i) investigation or remediation or (ii) unforeseen measures to protect the environment, health or safety (collectively "Adverse EH&S Conditions"), the party discovering the condition shall immediately notify the other party. The party in the best position to do so (or, if the parties are equally situated, SPC) shall then immediately take reasonable measures to temporarily contain or otherwise avoid exacerbation of or exposure to the Adverse EH&S Conditions. Unless Owner affirmatively notifies SPC otherwise, SPC shall also take such other actions as applicable EH&S Requirements prescribe. 8.9. SPC shall be responsible for obtaining and maintaining, at its sole expense, from the appropriate public or quasi-public authority, any franchises, licenses, permits or other similar authorizations required to enter upon the property where Owner's Route is located and to operate and maintain the SPC Strands and the SPC Conduit in the Owner's Route. 8.10. SPC, at its sole cost and expense, shall (i) use SPC's Strands and (ii) conduct all work in or around Owner's Route in a safe condition and in a manner reasonably acceptable to Owner, so as not to physically, electronically or inductively conflict or interfere or otherwise adversely affect Owner's Route or the facilities placed therein by Owner, joint users, or other authorized SPC's. Owner agrees to operate its facilities in the Owner's Route in a similar manner. 8.11. SPC must obtain prior written authorization from Owner approving any future work and the party performing such work before SPC shall perform any work in or around Owner's Route. 8.12. In the event SPC receives information that Owner's Route or the Fiber Optic Facilities are damaged, it shall notify Owner of said damage by phone at: 877-638-6621. This is a 24 hour, 7 day per week notification number. In the event Owner receives information that SPC's Strands are damaged, Owner will notify SPC of said damage by phone at SPC's emergency telephone number. The call shall be directed to the Supervisor on Duty, and the caller shall provide the following information. 8.12.1. Name of Company making report. 8.12.2. Location reporting problem. 8.12.3. Name of contact person reporting problem. 8.12.4. Telephone number to call back with progress report. 8.12.5. Description of the problem in as much detail as possible. URRS Agreement Page 41 Dated: September 9, 2002 Appendix E 8.12.6. Time and date the problem occurred or began. 8.12.7. State whether or not the problem presents a jeopardy situation to Owner's Route, the Fiber Optic Facilities or SPC's Strands 8.13. Owner shall designate the particular Strands of Dark Fiber that will constitute the SPC Strands and the particular conduits that will constitute the SPC Conduit and the location and manner in which they will enter and exit Owner's Route 8.14. If Owner moves, replaces or changes the location, alignment or grade of Owner's Route ("Relocation"), Owner shall concurrently relocate the SPC Strands and the IRU Conduit. If the Relocation is because of an event of Force Majeure, pursuant to Section 26.2, or of any governmental or third party authority, including a Taking by right of eminent domain, SPC shall reimburse Owner for SPC's proportionate share of the costs of the Relocation of Owner's Route. To the extent Owner receives reimbursement from a third party which is allocable to a Relocation of Owner's Route, it will credit or reimburse SPC for its proportionate share of the reimbursement. SPC's proportionate share shall be based first on the ratio of the number of IRU Conduit relative to the total number of conduits relocated, then on the number of SPC Strands relative to the total fiber count in the affected conduit. SPC shall be responsible for all costs associated with Relocation of the Sale Conduit. 8.15. SPC shall be deemed the generator of all waste associated with its work related to Owner's Route and shall both remove that waste from the area and dispose of or otherwise manage it at its own expense in compliance with all applicable laws. "Waste" shall include without limitation, any manmade materials (including asbestos) and any soil or other environmental media that may be removed or excavated by SPC, and all hazardous and non-hazardous substances and materials associated with the work that are intended to be discarded, scrapped, or recycled. It shall be presumed that all the substances and material brought to the area of that work that are not incorporated into the work (including without limitation damaged components or tools, leftovers, containers, garbage, scrap, residues, or byproducts), except for substances and materials that SPC intends to use in their original form in connection with similar work, are waste to which the above SPC obligations apply. 9. OWNERSHIP. 9.1. Legal title to the SPC Strands and the IRU Conduit shall at all times be vested in Owner. Neither the provision of the use of the SPC Strands and the IRU Conduit by Owner to SPC hereunder, nor the payments by SPC contemplated hereby, shall create or vest in SPC any easement, interest, or any other ownership or property right of any nature in the SPC Strands or the IRU Conduit, except as granted in Section 3 and Section 7 hereof. Except as provided in the URRS Agreement, SPC shall not grant any security interest in the SPC Strands, the SPC Conduit or any part or component or proceeds thereof. 9.2. Owner may use or permit the use of Owner's Route, the Fiber Optic Facilities and the telecommunications capacity thereof for any lawful purpose. Nothing in this Agreement shall be construed or interpreted to prohibit Owner from leasing or licensing the Fiber Optic Facilities or otherwise providing capacity to others or from installing URRS Agreement Page 42 Dated: September 9, 2002 Appendix E additional fibers or capacity, including without limitation, fiber optic capacity, within Owner's Route (other than the SPC Strands and the SPC Conduit during the term of the IRU) or to prohibit Owner from operating such Fiber Optic Facilities (alone or in combination with others) in competition with SPC. 10. EMINENT DOMAIN. If there is a taking of the SPC Strands or the IRU Conduit by right of eminent domain (a "Taking") which results in the remainder of the SPC Strands or the IRU Conduit being unable to be restored to a condition suitable for SPC's business needs within ninety (90) days from the date of the Taking ("Substantial Taking"), SPC will be permitted to participate, to the extent of its interest and at its expense, in such eminent domain proceeding, and this Agreement may be terminated as a result of such proceedings. In such event the IRU fee and maintenance fee shall abate from the date of Taking and any previously paid IRU fee and/or maintenance fee attributable for any period beyond such date shall be returned to SPC. If there shall be a Taking which does not constitute a Substantial Taking, this Agreement shall not terminate but Owner shall, with due diligence, restore SPC's Strands and IRU Conduit as speedily as practical to its condition before the Taking in accordance with the provisions of Section 8.14. 11. INDEMNIFICATION. 11.1. SPC will indemnify, defend, and hold harmless Owner and Owner's agents, officers and employees, from any and all losses, damages, costs, expenses (including reasonable attorneys fees), statutory fines or penalties, actions, or claims for personal injury (including death), damage to property, or other damage in any way arising from SPC's activities undertaken pursuant to this Agreement (including, without limitation, the installation, construction, operation or maintenance of the SPC Strands and SPC Conduit), except to the extent caused by the negligence or willful misconduct on the part of Owner or Owner's agents, officers or employees. 11.2. Without limiting the foregoing, SPC specifically will indemnify, defend, and hold harmless Owner and Owner's agents, officers and employees from any and all claims asserted by SPC's customers in any way arising out of or in connection with this Agreement, the SPC Strands or the SPC Conduit, except to the extent caused by the negligence or willful misconduct on the part of Owner or Owner's agents, officers or employees. 11.3. Owner will indemnify, defend, and hold harmless SPC and SPC's agents, officers and employees, from any and all losses, damages, costs, expenses (including reasonable attorneys fees), statutory fines or penalties, actions, or claims for personal injury (including death), damage to property, or other damage in any way arising from Owner's activities undertaken pursuant to this Agreement (including, without limitation, the installation, construction, operation or maintenance of the Route), except to the extent caused by the negligence or willful misconduct on the part of SPC or SPC's agents, officers or employees. 11.4. Except for personal injury and property damage as provided above, in no event shall either party be liable to the other party for any special, consequential or indirect URRS Agreement Page 43 Dated: September 9, 2002 Appendix E (including by way of illustration, lost revenues and lost profits), punitive or exemplary damages arising out of this Agreement or any obligation arising thereunder, whether in an action for or arising out of breach of contract, tort or otherwise. 12. INSURANCE. During the term of this Agreement, each party shall obtain and maintain and shall require any of its permitted contractors to obtain and maintain not less than the following insurance:
- ----------------------------------------------------------------------------------------------------------------------- TYPE OF COVERAGE AMOUNT OF COVERAGE - ----------------------------------------------------------------------------------------------------------------------- Worker's Compensation Insurance Statutory Amount - ----------------------------------------------------------------------------------------------------------------------- Employer's Liability Occupational Disease and Bodily $1 million each accident Injury Insurance $1 million disease each employee $1 million disease-policy limit - ----------------------------------------------------------------------------------------------------------------------- Commercial General Liability Insurance, including Combined single limit personal injury and premises-operations, products/completed property damage on an occurrence policy form with policy operations, independent contractors, contractual amounts of (i) not less than $5 million per occurrence (blanket), broad form property damage, with (without a limitation on aggregate amount); or (ii) not umbrella excess liability (collectively, less than $5 million per occurrence with an aggregate annual "Comprehensive Coverage") amount of not less than $5 million - ----------------------------------------------------------------------------------------------------------------------- Automobile Liability Insurance for owned, hired and $2 million combined single limit bodily injury/property non-owned autos ("Automobile Liability Coverage") damage - -----------------------------------------------------------------------------------------------------------------------
The limits set forth above are minimum limits and will not be construed to limit either party" liability. This insurance shall cover the amounts and types of liability listed above with respect to each party's obligations under this Agreement. Each policy evidencing the insurance described in this Section 10 must contain a provision that the insurance policy, and the coverage it provides, shall be primary and noncontributing with respect to any policies carried by the party and its affiliates, and that any policies carried by the party and its affiliates shall be excess insurance. The comprehensive general liability policies and umbrella excess liability policies of the party and its subcontractors each shall contain a provision including the other party, its parent, subsidiaries and affiliates, and each of their respective officers, directors, employees and agents, as additional insureds. Prior to commencement of any work under this Agreement, each party must furnish to the other certificates of insurance stating that the insurer will use best efforts to notify the other part at least thirty (30) days prior to cancellation of, or any material change in, the coverage provided. Either party is entitled to self-insure coverages under this Agreement through programs adopted by their respective risk management departments. URRS Agreement Page 44 Dated: September 9, 2002 Appendix E 13. COMPLIANCE WITH LAWS. Notwithstanding anything to the contrary in this Agreement, each Party shall ensure that any and all activities it performs pursuant to this Agreement shall comply with all applicable laws. Without limiting the generality of the foregoing, each Party shall comply with all applicable provisions of i) workmen's compensation laws, ii) unemployment compensation laws, iii) the Federal Social Security Law, iv) the Fair Labor Standards Act, and v) Environmental, Health and Safety Laws. 14. DISCLAIMER OF WARRANTIES EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, OWNER MAKES NO WARRANTIES REGARDING THE SERVICES OR DELIVERABLES PROVIDED UNDER THIS AGREEMENT AND MAKES NO WARRANTIES EXPRESS, IMPLIED, OR STATUTORY, AS TO THE INSTALLATION, DESCRIPTION, QUALITY, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 15. OWNER SALES OR DISPOSITIONS. Nothing in this Agreement shall prevent or be construed to prevent Owner from, selling or otherwise disposing of any portion of Owner's Route or Fiber Optic Facilities or other property of Owner used for the SPC Strands or the IRU Conduit, provided, however, that in the event of a sale or other disposition, Owner shall condition such sale or other disposition subject to the rights of SPC under this Agreement. 16. LIENS. SPC shall keep Owner's Route and the Fiber Optic Facilities and other property of Owner free from all mechanic's, artisan's, material-man's, architect's, or similar services' liens which arise in any way from or as a result of its activities and cause any such liens which may arise to be discharged or released. 17. DEFAULT PROVISIONS AND REMEDIES. 17.1. Each of the following shall be deemed an Event of Default by SPC under this Agreement: 17.1.1. Failure of SPC to pay the any sum required to be paid under the terms of this Agreement or the URRS Agreement, Note, Security Agreement or any related agreement and such default continues for a period of thirty (30) days after written notice thereof to SPC; 17.1.2. Failure by SPC to perform or observe any other terms, covenant, agreement or condition of this Agreement on the part of SPC to be performed and such default continues for a period of thirty (30) days after written notice thereof from Owner (provided that if such default cannot be cured within such thirty (30) day period, this period will be extended if SPC commences to cure such default within such thirty (30) day period and proceeds diligently thereafter to effect such cure); URRS Agreement Page 45 Dated: September 9, 2002 Appendix E 17.1.3. The filing of a tax or mechanic's lien against Owner's Route or Fiber Optic Facilities or other property of Owner which is not bonded or discharged within thirty (30) days of the date SPC receives notice that such lien is filed. 17.2. Upon the occurrence of an Event of Default, Owner, without further notice to SPC in any instance (except where expressly provided for below or by applicable law) may do any one or more of the following: 17.2.1. Perform, on behalf and at the expense of SPC, any obligation of SPC under this Agreement which SPC has failed to perform and of which Owner shall have given SPC notice, the cost of which performance by Owner shall be payable by SPC to Owner upon demand; 17.2.2. Exercise any other legal or equitable right or remedy which it may have, including suspension or termination of maintenance services Owner provides to SPC hereunder, including any rights and remedies available to Owner pursuant to the URRS Agreement. 17.3. The following events or occurrences shall constitute a default by Owner under this Agreement: 17.3.1. Failure by Owner to perform or observe any other terms, covenant, agreement or condition of this Agreement on the part of Owner to be performed and such default continues for a period of thirty (30) days after written notice thereof from SPC (provided that if such default cannot be cured within such thirty (30) day period, this period will be extended if Owner commences to cure such default within such thirty (30) day period and proceeds diligently thereafter to effect such cure. 17.4. Upon the occurrence of an Event of Default, SPC, without further notice to Owner in any instance (except where expressly provided for below or by applicable law) may do any one or more of the following: 17.4.1. Perform, on behalf and at the expense of Owner, any obligation of Owner under this Agreement which Owner has failed to perform and of which SPC shall have given Owner notice, the cost of which performance by SPC shall be payable by Owner to SPC upon demand; 17.4.2. Exercise any other legal or equitable right or remedy which it may have. 17.5. All rights and remedies of either party set forth in this Agreement shall be cumulative, and none shall exclude any other right or remedy, now or hereafter allowed by or available under any statute, ordinance, rule of court, or the common law, either at law or in equity, or both. 18. FORCE MAJEURE. URRS Agreement Page 46 Dated: September 9, 2002 Appendix E Neither Owner nor SPC shall be in default under this Agreement with respect to any delay in its performance caused by any of the following conditions (each a "Force Majeure Event"): (1) act of God; (2) fire; (3) flood; (4) material shortage or unavailability not resulting from the responsible party's failure to timely place orders or take other necessary actions therefor; (5) government codes, ordinances, laws, rules, regulations or restrictions (collectively, "Regulations"); (6) war or civil disorder; (7) failure of a third party to grant or recognize an Owner Occupancy Right; or (8) any other cause beyond the reasonable control of such party; provided, however, that this Section 20 shall not apply to the payment of money. The party claiming relief under this Section 20 shall promptly notify the other in writing of the existence of the Force Majeure Event relied on, the expected duration of the Force Majeure Event, and the cessation or termination of the Force Majeure Event. The party claiming relief under this Section 20 shall exercise commercially reasonable efforts to minimize the time for any such delay. 19. TAXES AND USE OF PUBLIC RIGHTS-OF-WAY, LICENSE AND PERMIT FEES. 19.1. Subject to Section 19.4, SPC shall be responsible for any and all sales, use, income, gross receipts, excise, transfer, ad valorem or other taxes, and any and all franchise fees or similar fees ("Assessments") assessed against it due to its ownership of an IRU, its use of the SPC Strands and the SPC Conduit, including the providing of services over the SPC Strands or SPC Conduit, or its ownership or use of facilities connected to the SPC Strands or the SPC Conduit. 19.2. Subject to Section 19.1, Owner shall be responsible for any and all Assessments assessed against it due to its construction, ownership or use of the Owner Route or Fiber Optic Facilities, including providing of services over the Owner Route or its ownership or use of facilities connected to the Owner Route. 19.3. Notwithstanding Sections 19.1 and 19.2 above, if Owner is assessed annual fees for use of public rights-or-way, SPC shall pay its proportionate share of such fees, its proportionate share being determined as provide in Section 8.14. 19.4. In the event that Owner is assessed for any Assessments related to SPC's ownership of an IRU or SPC's use of the SPC Strands or SPC Conduit which may not feasibly be separately assessed, Owner within thirty (30) days of receipt of an invoice therefor, shall provide information and documentation to SPC sufficient to demonstrate the basis for the Assessments and the amount and due date for payment of the Assessments. In addition, Owner shall provide SPC with all information reasonably requested by SPC with respect to any such Assessments. After such thirty (30) day period, Owner, in it sole discretion, may pay such Assessment and invoice SPC for reimbursement. SPC shall reimburse Owner for such payment within ten (10) days of receipt of Owner's invoice. Notwithstanding such payment by Owner, SPC, at its option, shall have the right at its sole cost to contest any such Assessments and Owner will reasonably cooperate with SPC in pursuing any such contest; provided that SPC shall have reimbursed Owner for such Assessments. In the event Owner, in its sole discretion, elects to not pay such tax or fee, it shall so notify SPC. SPC, at its option, may pay the Assessments, or contest the payment; provided that SPC shall indemnify and hold harmless Owner for the payment of such Assessments and all interest and penalties related thereto; and provided further, that such contest shall be resolved or such URRS Agreement Page 47 Dated: September 9, 2002 Appendix E Assessments shall be paid so as to prevent any forfeiture of rights or property or the imposition of any lien on the Owner's Route or Owner's Fiber Optic Facilities. 20. SUCCESSION, ASSIGNABILITY. 20.1. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors or assigns. 20.2. Except as provided in this Section 22, a party ("Transferring Party") shall not assign, encumber or otherwise transfer this Agreement or all or any portion of its rights or obligations hereunder to any party without the prior written consent of the other party ("Other Party"), which consent will not be unreasonably withheld or delayed. Notwithstanding the foregoing, Transferring Party shall have the right, without Other Party's consent, to (i) subcontract any of its construction or maintenance obligations hereunder or (ii) assign or otherwise transfer this Agreement in whole or in party (a) to any parent, subsidiary or affiliate of Transferring Party, or (b) any corporation or other entity which Transferring Party may be merged or consolidated or which purchases all or substantially all of the stock or assets of Transferring Party; provided that the assignee or transferee in any such circumstance shall be subject to all of the provisions of this Agreement, including without limitation, this Section 22 and provided further that promptly following any such assignment or transfer, Transferring Party shall give Other Party written notice identifying the assignee or transferee. In the event of any permitted partial assignment of any rights hereunder, Transferring Party shall remain the sole point of contact with Other Party. When Other Party's consent to assign is required, Other Party will have the right to withhold consent if, in its judgment reasonably exercised, the proposed assignee cannot adequately assume the obligations of this Agreement. In no event will any assignment by Other Party be permitted without the delivery to Other Party of a binding agreement in writing from the proposed assignee that (i) states that the proposed assignee will assume all current, future and outstanding past obligations under this Agreement as if such assignee had originally executed this Agreement and (ii) evidence proof satisfactory to Other Party that he proposed assignee has insurance coverage comparable to the described in Section 12 or other assurances that the proposed assignee can adequately perform the obligations it will assume under this Agreement. 20.3. Notwithstanding the Provisions of Section 20, without the prior written consent of Owner, SPC shall have the right to lease, license, grant an IRU with respect to, or otherwise in any manner transfer or make available in any manner to, any of SPC's rights in the SPC Strands or the IRU Conduit and such lessee, licensee or other transferee shall have the ability to grant leases, licenses and grant an IRU with respect to, or otherwise in any manner transfer or make available in any manner to, any of such party's rights in the strands or conduit such party receives. 20.4. Neither party shall attempt to circumvent any of its obligations under this Agreement, or deprive the Other Party of any anticipated benefit under this Agreement, through the use of ownership changes, reorganizations, creation of new entities, or other artificial devices. 20.5. Neither this Agreement, nor any term or provision hereof, nor any inclusion by reference shall be construed as being for the benefit of any person or entity not a signatory URRS Agreement Page 48 Dated: September 9, 2002 Appendix E hereto. 21. NOTICES. Any demand, notice or other communication to be given to a party in connection with this Agreement shall be given in writing and shall be given by personal delivery, by registered or certified mail, return receipt requested, by Tele-copy or commercial over night delivery service addressed to the recipient as set forth as follows or to such other address, individual or Tele-copy number as may be designated by notice given by the party to the other: OWNER: Sierra Touch America, LLC. 130 North Main Butte, Montana 59701 Attention: Contracts Officer Telephone Number: 406-497-5317 Emergency Telephone Number: same FAX Number: 406-497-5203 With a copy to: Sierra Touch America, LLC. 130 North Main Butte, Montana 59701 Attention: General Counsel Telephone Number: 406-497-5427 Emergency Telephone Number: same FAX Number: 406-497-5203 SPC: Sierra Pacific Communications, Inc. 5860 S. Pecos, Bldg. G, St. 100, Las Vegas, NV 89120 Attention: Director, Facilities Telephone Number: 702-949-7910 Emergency Telephone Number: same FAX Number: 702-949-7928 with a copy to: General Counsel 6226 West Sahara Avenue Las Vegas, NV 89151 Tele: 702.367.5692 Fax: 702.227.2069 URRS Agreement Page 49 Dated: September 9, 2002 Appendix E Any demand, notice or other communication given by personal delivery shall be conclusively deemed to have been given on the day of actual delivery thereof and, if given by registered or certified mail, return receipt requested on the date of receipt thereof and, if given by telecopy, on the day of transmittal thereof if given during the normal business hours of the recipient and on the next business day if not given during normal business hours. 22. NON-WAIVER. No course of dealing, course of performance or failure of either party strictly to enforce any term, right or condition of this Agreement shall be construed as a waiver of any term, right or condition. 23. CHOICE OF LAW The construction, interpretation and performance of this Agreement shall be as governed by the law of the state of Nevada. 24. HEADINGS. All headings contained in this Agreement are inserted for convenience only and are not intended to affect the meaning or interpretation of this Agreement or any clause. 25. CONFIDENTIALITY AND PROPRIETARY INFORMATION. 25.1. In connection with this Agreement, either party may furnish to the other certain information that is marked or otherwise specifically identified as proprietary or confidential ("Confidential Information"). This Confidential Information may include, among other things, private easements, licenses, utility agreements, permits, other right-of-way granting documents, specifications, designs, plans, drawings, data, prototypes, and other technical and/or business information. For purposes of this Section 25, the party that discloses Confidential Information is referred to as the "Disclosing Party", and the party that receives Information is referred to as the "Receiving Party". 25.2. When Confidential Information is furnished in tangible form, the Disclosing Party shall mark it as proprietary or confidential. When Confidential Information is provided orally, the Disclosing Party shall, at the time of disclosure or promptly thereafter, identify the Confidential Information as being proprietary or confidential. 25.3. With respect to Confidential Information disclosed under this Agreement, the Receiving Party and its employees shall: 25.3.1. hold the Confidential Information in confidence, exercising a degree of care not less than the care used by the Receiving Party to protect its own proprietary or confidential information that it does not wish to disclose. 25.3.2. restrict disclosure of the Confidential Information solely to those of its employees who have a need to know in connection with the performance of this Agreement, and not disclose the Confidential Information to any other person or entity without the prior written consent of the Disclosing Party; URRS Agreement Page 50 Dated: September 9, 2002 Appendix E 25.3.3. advise those employees of their obligations with respect to the Confidential Information; and 25.3.4. use the Confidential Information only in connection with the performance of this Agreement, except as the Disclosing Party may otherwise agree in writing. 25.4. Confidential Information shall be deemed the property of the Disclosing Party. Upon written request of the Disclosing Party, the Receiving Party shall return all Confidential Information received in tangible form, except that each party's legal counsel may retain one copy in its files solely to provide a record of such Confidential Information for archival purposes. If the Receiving Party loses or makes an unauthorized disclosure of Confidential Information, it shall notify the Disclosing Party and use reasonable efforts to retrieve the Confidential Information. 25.5. The Receiving Party shall have no obligation to preserve the proprietary nature of Confidential Information which: 25.5.1. was previously known to the Receiving Party free of any obligation to keep it confidential; or 25.5.2. is or becomes publicly available by means other than unauthorized disclosure; or 25.5.3. is developed by or on behalf of the Receiving Party independently of any Confidential Information furnished under this Agreement; or 25.5.4. is received from a third party whose disclosure does not violate any confidentiality obligation. 25.6. The existence of this Agreement, and all information that may be disclosed to Receiving Party pertaining to the identities, locations, and requirements of the Disclosing Party's SPCs, is Confidential Information of Disclosing Party. 25.7. Under no circumstances shall either party disclose the other party's SPC Confidential Information to any third party (even if under contract to that party) or to any personnel of the party responsible for publicity or for end user sales or marketing. 25.8. If the Receiving Party is required to disclose the Disclosing Party's Confidential Information by an order or a lawful process of a court or governmental body, the Receiving Party shall promptly notify the Disclosing Party, and shall cooperate with the Disclosing Party in seeking reasonable protective arrangements before the Confidential Information is produced. 25.9. Each party agrees that a breach of this Section 25 by the Receiving Party or its representatives will result in irreparable harm for which there is no adequate remedy at law, and in the event of any such breach the Disclosing Party may, notwithstanding the default provisions in Section 17, seek a preliminary or permanent injunction and/or specific performance which shall be granted upon a finding of a breach (or substantial likelihood of a breach in the case of a preliminary injunction). Such remedies shall not be URRS Agreement Page 51 Dated: September 9, 2002 Appendix E deemed to be the exclusive remedies for a breach of this Section 25 but shall be in addition to all other remedies available at law or in equity. 26. PUBLICITY AND ADVERTISING. 26.1. Neither party shall publish or use any advertising, sales promotions, or other publicity materials that use the other party's logo, trademarks, or service marks without the prior written approval of the other party. 26.2. Each party shall have the right to review and approve any publicity material, press releases, or other public statements by the other that refer to such party or that describe any aspect of this Agreement. Each party agrees not to issue any such publicity materials, press releases, or public statements without the prior written approval of the other party. 26.3. Nothing in this Agreement establishes a license for either party to use any of the other party's brands, marks, or logos without prior written approval of the other party. 27. REPRESENTATIONS AND WARRANTIES, Each party represents and warrants that: 27.1. it has full right and authority to enter into, execute, deliver and perform its obligations under this Agreement; 27.2. this Agreement constitutes a legal, valid and binding obligation enforceable against such party in accordance with its terms, subject to bankruptcy, insolvency, creditors' rights and general equitable principles; and 27.3. its execution of and performance under this Agreement shall not violate any applicable existing regulations, rules, statutes or court orders of any local, state or federal government agency, court, or body. 28. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire and final agreement and understanding between the parties with respect to the subject matter hereof and supersedes all prior oral and written communications, understandings and agreements relating to the subject matter hereof, which are of no further force or effect. The Exhibits and/or Schedules referred to herein are integral parts hereof and are hereby made a part of this Agreement. This Agreement may only be modified or supplemented by an instrument in writing executed by a duly authorized representative of each party. 29. NO THIRD PARTY BENEFICIARIES. Except as set forth in Section 31, this Agreement does not provide and is not intended to provide third parties with any remedy, claim, liability, reimbursement, cause of action, or other privilege. 30. NO PERSONAL LIABILITY. Each action or claim against any party arising under or relating to this Agreement shall be URRS Agreement Page 52 Dated: September 9, 2002 Appendix E made only against such party as a corporation, and any liability relating thereto shall be enforceable only against the corporate assets of such party. No party shall seek to pierce the corporate veil or otherwise seek to impose any liability relating to, or arising from, this Agreement against any shareholder, employee, officer or director of the other party. Each of such persons is an intended beneficiary of the mutual promises set forth in this Section 32 and shall be entitled to enforce the obligations of this Section 30. 31. RELATIONSHIP OF THE PARTIES. The relationship between the parties shall not be that of partners, agents or joint venturers for one another, and nothing contained in this Agreement shall be deemed to constitute a partnership or agency agreement between them for any purposes, including, but not limited to federal income tax purposes. The parties, in performing any of their obligations hereunder, shall be independent contractors or independent parties and shall discharge their contractual obligations at their own risk. 32. SUCCESSORS AND ASSIGNS. This Agreement and each of the parties' respective rights and obligations under this Agreement shall be binding upon and shall inure to the benefit of the parties and each of their respective permitted successors and assigns. 33. UNENFORCEABLE PROVISIONS. No provision of this Agreement shall be interpreted to require any unlawful action by either party. If any section or clause of this Agreement is held to be invalid or unenforceable, then the meaning of that section or clause shall be construed so as to render it enforceable to the extent feasible. If no feasible interpretation would save the section or clause, it shall be severed from this Agreement with respect to the matter in question, and the remainder of the Agreement shall remain in full force and effect. However, in the event such a section or clause is an essential element of the Agreement, the parties shall promptly negotiate a replacement that will achieve the intent of such unenforceable section or clause to the extent permitted by law. 34. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument. URRS Agreement Page 53 Dated: September 9, 2002 Appendix E IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their duly authorized representatives on the date first above written. SIERRA TOUCH AMERICA, LLC. By: ______________________ Name: MICHAEL J. MELDAHL Title:Manager SIERRA PACIFIC COMMUNICATIONS, INC. By: ______________________ Name: RICHARD J. COYLE, JR. Title: President URRS Agreement Page 54 Dated: September 9, 2002 Appendix E APPENDIX E EXHIBIT B DESCRIPTION OF REAL PROPERTY TO BE CONVEYED TO SPC VERDI, NEVADA TO SACRAMENTO, CALIFORNIA This portion of the route consists of approximately 131 miles (691,680') in length. The telecommunications system along the route from the Union Pacific Railroad milepost 227, approximately 8/10 of a mile east of the California - Nevada State Line near Verdi Nevada to Hirshdale Road UPRR MP 218.3, approximately 11 miles (58,080'). From Hirshdale Road to West Truckee, approximately 16.5 miles (87,120'). West Truckee to Soda Spring, approximately 6.8 miles (35,904'). Soda Springs to Cisco Grove approximately 9.1 miles (48,048'). Cisco Grove to Blue Canyon approximately 12 miles (63,360'). Blue Canyon to Colfax UPRR MP 142, approximately 21 miles (110,880'). UPRR MP 142 to Sacramento UPRR MP 89 approximately 53.7 mile (283,536'). Sacramento UPRR MP 89 to 1005 North B Street approximately 1 mile (5280'). RENO METRO The fiber optic cable line will start .8 of a mile from the California border into Nevada and ties in with a Williams handhole between UPRR and 1-80 and ends at the Wells Fargo building at 200 South Virginia Street. Phase II begins at 200 South Virginia Street, Wells Fargo building, and ends at South Meadows Parkway. LONG HAUL The fiber optic cable line will start at the intersection of South Meadows Parkway and South Virginia Street in Reno and follow the highway right-of-way south from Reno along U.S. highway 395 to East Lake Boulevard. From East Lake Boulevard, the cable will continue southward along a corridor to Goni Road and then to Arrowhead Drive in Carson City. At Arrowhead Drive it will head eastward to US Highway 50 and continue east crossing the rest of Nevada, passing through the cities of Fallon, Austin, Eureka, and Ely and continuing into Delta Utah. At Delta the route would follow US Highway 6 northeastward to State Route 132 In Lynndyl, Utah. At State Route 132 the cable would continue northeast to just west of Nephi, Utah, where it would intersect State Route 91. On State Route 91 the fiber optic cable would continue northward through Mona to Santaquin, Utah. The cable would then head northeast, following side roads and a portion of State Route 115 on the west side of Interstate 15 (1-15). Just north of Spanish Fork the fiber optic cable would cross under 1-15 and tie in with another fiber optic cable system on 4800 South, approximately 0.2 miles east of 1-15. The route would then continue north on I-15 to Provo, UT, run along city streets into the Provo POP located at the corner of East 100 and North 100, then along city streets to I-15, then north on I-15 to the vicinity of the Bangerter Highway, north to west 700 south, along city streets to 161 Regent Street, north on Regent Street to the termination point at 100 South State Street. CALIFORNIA - - Verdi Nevada on UPRR MP 227 to MP 218.3 at Hirshdale Rd. spread 5.1. - - Hirshdale Rd. to West Truckee, spread 5.2. - - West Truckee to Soda Springs, spread 5.3 - - Soda Springs to Cisco Grove, spread 5.4 URRS Agreement Page 55 Dated: September 9, 2002 Appendix E - - Cisco Grove to Blue Canyon, spread 5.5 - - Blue Canyon to Colfax UPRR MP 142, spread 5.6 - - Colfax UPRR MP 142 to Sacramento UPRR 89, spread 6 - - Sacramento UPRR 89 to 1005 North "B" Street, Sacramento Ca, spread 7 NEVADA - - Reno Metro, Phase 1 is approximately 74,406 feet - - Phase 2 is approximately 51,069 feet. - - Spread 1, South Meadow Parkway to Lyon County line Is approximately 321,496 feet. - - Spread 2, Churchill County line to the Lander County line is approximately 567,791 feet. - - Spread 3, Lender County line to the White Pine County line is approximately 578,458 feet. - - Spread 4, White Pine County to Utah border is approximately 702,319 feet. UTAH - - Spread 5, Millard County at the Nevada/Utah border to Juab County line is approximately 616,238 feet. - - Spread 6, Juab County line to north of Spanish Fork approximately 0.2 miles east of 1-15 end is approximately 355,097 feet. - - Spanish Fork to Provo, UT approximately 7.95 miles (42,000 feet). - - Provo north to Salt Lake City, UT approximately 59.14 miles (312,265 feet). URRS Agreement Page 56 Dated: September 9, 2002 Appendix E APPENDIX E SCHEDULE B STANDARD ENGINEERING, CONSTRUCTION AND FIBER SPECIFICATIONS DIVISION 100: GENERAL REQUIREMENTS SECTION 101 - DEFINITION OF TERMS 101.01. DESCRIPTION This section covers the definition of terms used in various portions of the Specifications. 101.02. DEFINITIONS 1. Whenever the words "he" and "him", occur in these Specifications no particular gender is intended by use of such words. 2. Words beginning with capital letters are generally defined in Section 101.02 3. Wherever the following terms are used, the intent and meaning shall be interpreted as follows: 4. Abbreviations: Wherever the following abbreviations are used in these Specifications or on the Drawings, they shall be construed the same as the respective expressions represented. AASHTO American Association of State Highway and Transportation Officials ACI: American Concrete Institute AGC: Associated General Contractors ANSI: American National Standards Institute, Inc. APWA: American Public Works Association ASTM: American Society for Testing and Measurements AWPA: American Wood Preservers Association AWPB: American Wood Preservers Bureau AWS: American Welding Society ETL: Electrical Testing Laboratories FM: Factory Mutual Research Corporation HDPE: High Density Polyethylene ICEA: Insulated Cable Engineer's Association IEEE: Institute of Electrical and Electronic Engineers LIU: Lightguide Interconnect Unit NBFU: National Board of Fire Underwriters NEC: National Electrical Code NEMA: National Electric Manufacturer's Association NESC: National Electrical Safety Code NFPA: National Fire Protection Association OSHA: Occupational Safety and Health Act OSHA: The Occupational Safety and Health Administration PE: Polyethylene URRS Agreement Page 57 Dated: September 9, 2002 Appendix E PVC: Polyvinyl Chloride UBC: Uniform Building Code SDR: Size Dimension Ratio UL: Underwriter's Laboratories 5. As-Built Records: The final updated version of Drawings reflecting how the plant was actually constructed. 6. TOUCH AMERICA Furnished Materials: Materials that are furnished directly by TOUCH AMERICA for the project which is listed in the Contract. 7. Casing Pipe: A section of continuous pipe installed under a road, railroad, stream, or over or under other utilities or obstruction through which the cable, conduit, and other system components shall be placed. 8. Codes: Regulations, ordinances, or statutory requirements of, or meant for adoption by, governmental units relating to building construction and occupancy, adopted and administered for the protection of the public health, safety, and welfare. 9. Competent Person: One who is capable of identifying existing and predictable hazards in the surroundings, or working conditions which are hazardous, unsanitary, or dangerous to employees, and who has authorization to take prompt corrective measures to eliminate them. 10. Conduit: A tube especially constructed for the purpose of placing and enclosing fiber optic cable. 11. Depth/Depth of cover: Trench depth or depth of cover is defined as the cover over the cable, conduit, pipe, duct or plant placed, or the distance from the top of the plant to finish grade. 12. Drawings: The approved plans, profiles, working drawings, and supplemental drawings, or exact reproductions thereof, which show the location, character, dimensions, and details of work to be done, except for shop drawings provided by the Builder. 13. Final Inspection: An inspection of prior to Builder Completion Date at which time a Punch List may developed. 14. Innerduct: A high density polyethylene (HDPE) or polyvinyl chloride (PVC) tubing placed inside a pipe or conduit through which fiber optic cable or other system components can be pulled for installation. 15. Lightguide Cable: Fiber Optic Cable. 16. Limits of Construction: The physical area within which the Builder is to perform work according to the Documents. 17. On-Site Work Force (OSWF): Local TOUCH AMERICA OSP personnel, or authorized TOUCH AMERICA representatives, responsible for the operation, maintenance, and protection of operating TOUCH AMERICA Plant. 18. Plant Protection: A cooperative effort involving all parties to ensure the integrity of service for all utilities during construction activities near buried or aerial plant. 19. Plant: Cables, wires, manholes, vaults, poles, markers, signs, ducts, pipes, and other appurtenances owned by TOUCH AMERICA or other utility companies. 20. Point of Presence (POP): A physical point of access to the TOUCH AMERICA Network. URRS Agreement Page 58 Dated: September 9, 2002 Appendix E 21. Punch List: A list of items or deficiencies to be corrected or completed as a result of the final inspection of work. 22. Quality: Conformance to Specifications or permit requirements. 23. Reasonable Care: A degree of care, precaution, or diligence as may fairly and properly be expected or required, having regard to the nature of the action, or of the subject matter and the surrounding circumstances of the action. 24. Regenerator or Optical Amplifier Building: A building or structure along a fiber optic cable route housing transmission equipment. SECTION 102 - PLANT PROTECTION 102.01. DESCRIPTION This section covers plant protection to ensure the integrity of service for utilities during construction activities near underground, buried or aerial facilities. 102.02. GENERAL 1. Plant protection is absolutely essential to ensure the integrity of TOUCH AMERICA's networks and networks of other utilities. Strict plant protection practices shall be understood and adhered to by all persons working near buried, or aerial utilities. 2. The Builder shall be solely responsible for locating and identifying all existing utilities or structures within the construction limits of work and elsewhere where construction operations may subject the utilities or structures to damage. This shall be done prior to the performance of work. All information relative to the above shall be recorded and incorporated into the records in a manner accepted by the TOUCH AMERICA Representative. 3. The Builder shall be fully responsible for locating existing utilities and for compliance with the requirements of statewide or local area "One-Call" program or agency including, but not limited to: A. Notify owners of existing utilities as required by local regulations or at least 48 hours in advance of excavation work, whichever is most restrictive and request them to locate such facilities. Documentation which includes date, time, and verification number shall be submitted to the TOUCH AMERICA Representative showing notification to owners of buried utilities or contact with the proper "One-Call" agency. B. Exercising all reasonable precautions necessary to prevent damage to existing utilities. C. Being fully responsible for proper notifications to utility owners for repair, replacement, or restoration of damage caused by the Builder's construction operations. 4. Conduit may go over, under, or around various existing facilities encountered underground as long as there is a minimal separation of twelve (12) inches and the minimum trench depth requirements are met, unless greater separation is required by the permitting agency. In the event a twelve (12) inch separation is not possible, the TOUCH AMERICA Representative shall be notified. If approved by the TOUCH AMERICA Representative, TOUCH AMERICA Plant may be protected by utilizing mechanical protection as detailed elsewhere URRS Agreement Page 59 Dated: September 9, 2002 Appendix E in this document (i.e. split pipe, concrete encasement, etc.). Pothole excavations required to expose existing facilities are considered incidental to the work. 5. Except where the damaged party desires to conduct his own repair and restoration work, the Builder shall repair and fully restore facilities damaged during the construction period to a condition equal to that which existed just prior to the time of damage. All repair and restoration work shall be done at the Builder's expense to the reasonable satisfaction of the facility owner. The Builder shall immediately notify the TOUCH AMERICA of any facility damage. 6. The Builder shall make his own arrangements with the jurisdictional authority requiring inspection of repaired or reconditioned facilities. All applicable inspection fees shall be paid by the Builder. 7. Where the facility owner desires to conduct his own repair and restoration work, the Builder shall render all assistance to facilitate this corrective work. The Builder shall assume all reasonable expenses incurred by the facility owner. Reasonable expenses will be that required to repair or restore to the condition which existed before at a cost that the Builder could have done itself. 102.03. GUIDELINES FOR WORKING NEAR TOUCH AMERICA OWNED AND OPERATED PLANT 1. Excavation: Excavation within or around TOUCH AMERICA Core Network cable right-of-way will not be permitted unless the cables are located, the locate is confirmed, and the cable is protected during all activity. Working TOUCH AMERICA cables will be located by TOUCH AMERICA personnel per the guidelines in Exhibit C. 2. Pipe Pushing/Boring: In general, for either pipe push/bore perpendicular or parallel to in-service cables, the cables shall be uncovered near where the push/bore is started and where it is expected to end. If necessary, split steel pipe or equivalent protection shall be placed around the cables to protect them at push/bore points of entry and exit. URRS Agreement Page 60 Dated: September 9, 2002 Appendix E SECTION 103 - CONSTRUCTION CONDITIONS 103.01. DESCRIPTION 1. INSPECTION, REJECTION OF WORK AND MATERIALS: TOUCH AMERICA's Representative shall have free access to work performed and materials furnished by the Builder under this Contract for the purpose of inspection thereof. The Builder shall provide safe and proper facilities for such inspection. 2. SUPERVISION: The Builder shall keep on work Site a competent Superintendent and if required, any necessary assistants to supervise engineering and construction. 3. CONTROL OF WORK: The Builder shall have full responsibility over the mode and manner of doing work, of its personnel, and compliance with the specifications. 103.02. SAFETY 1. The Builder shall be responsible for initiating, maintaining and supervising all safety precautions and programs. The Builder shall take all standard precautions for the safety of, and shall provide reasonable protection to prevent damage, injury or loss to: A. The Public B. All persons on work site or who may be affected by work, and C. Work and materials and equipment to be incorporated therein, whether in storage on or off the site. 2. The Builder shall comply with all applicable Laws and Regulations of any public body having jurisdiction for safety of persons or property or to protect them from damage, injury or loss; and shall erect and maintain all necessary safeguards for such safety and protection. 3. OCCUPATIONAL SAFETY AND HEALTH ACT: The Builder shall be responsible for the safety of work it performs. In discharging that responsibility, it shall comply with the requirements of the Occupational Safety and Health Act and any other state or local act or other requirement of law affecting safety and health. It shall maintain all lights, guards, signs, temporary passages and other necessary protection and precautions for the safety of work. The Builder agrees that it and its subcontractors will give access to any authorized representative of Secretary of Labor or any state or local official for the purpose of inspecting or investigating or for the performance of any of the duties under the Occupational Safety and Health Act or under any state or local act affecting safety and health. The Builder shall be responsible for any Builder violation of any safety or health standards issued thereunder. The Builder also agrees to promptly remedy any condition giving rise to such violations, and shall defend and hold TOUCH AMERICA harmless from any penalty, fine or liability in connection therewith, subject to "Limitations of Liability" as stated in the Contract. 4. For work or near operating tracks of any railway company, the Builder shall attend a railroad safety meeting for each railroad involved. This meeting will be coordinated with railroad URRS Agreement Page 61 Dated: September 9, 2002 Appendix E personnel. All personnel working within the Railroad Right-of Way shall attend any railroad safety training and satisfactorily complete any required tests. The Builder and all personnel working on railroad property shall adhere to all railroad rules and regulations. 103.03. MAINTENANCE OF TRAFFIC 1. Maintenance of traffic shall be in accordance with the permits as may be required by the permitting authority. 2. The Builder shall conduct work to interfere as little as possible with public travel, whether vehicular or pedestrian. Whenever it is necessary to cross, obstruct, or close roads, driveways, or walks, whether public or private, the Builder shall, at his own expense, provide and maintain suitable and safe bridges, detours, or other temporary expedients for the accommodation of public and private travel, and shall give reasonable notice to owners of private drives before interfering with them. Such maintenance of traffic will not be required when the Builder has obtained written permission from the owner and tenant of private property or from the authority having jurisdiction over public property involved, to obstruct traffic at the designated point. 3. In making open-cut street crossings, the Builder shall not block more than 1/2 of the street at a time. When required by the local permit authority, the Builder shall widen the shoulder on the opposite side to facilitate traffic flow. Temporary surfacing shall be provided as necessary on shoulders as required by the local permit authority. 4. Materials stored upon or alongside public streets and highways shall be so placed, and work at all times shall be so conducted, as to cause the minimum obstruction and inconvenience to the traveling public. 5. At times it will be necessary to divert vehicular or pedestrian traffic around construction areas. The Builder shall furnish and place all signs, barricades, cones, drums, warning lights, flag persons, or other devices as required in the "Manual on Uniform Traffic Control Devices", or as required by state and local governments. The Builder shall research and obtain all necessary approvals. 103.04. BARRICADES AND LIGHTS 1. Barricades and lights shall be provided in accordance with the permits. 2. All streets, roads, highways, and other public thoroughfares which are closed to traffic shall be protected by effective barricades on which shall be placed acceptable warning signs. Barricades shall be located at the nearest intersecting public highway or street on each side of the blocked section. 3. All open trenches and other excavations shall be provided with suitable barriers, signs, and lights to the extent that adequate protection is provided to the public. Obstructions, such as material piles and equipment, shall be provided with similar warning signs and lights. 4. All barricades and obstructions shall be illuminated by means of warning lights from sunset to sunrise or in cases of low visibility. URRS Agreement Page 62 Dated: September 9, 2002 Appendix E 5. All barricades, signs, lights, and other protective devices shall be installed and maintained in accordance with applicable statutory requirements and, where within railroad and highway rights-of-way, as required by the authority having jurisdiction. 103.05. FIRE PROTECTION 1. Only work procedures which minimize fire hazards to the extent practicable shall be used. Combustible debris and waste materials shall be collected and removed from the right-of-way or site each day, as specified in Article 103.11 - Cleanliness. Fuels, solvents, and other volatile or flammable materials shall be stored away from the construction and storage areas in well marked, safe containers. Good housekeeping is essential to fire prevention and shall be practiced by the Builder throughout the construction period. The Builder shall follow the recommendations of the AGC "Manual of Accident Prevention in Construction" regarding fire hazards and prevention, as well as the requirements of the local department of forestry and fire protection. 2. The Builder's supervisory personnel and a sufficient number of workmen shall be instructed in proper methods for extinguishing fires and shall be assigned specific fire protection duties. When trained personnel leave the job, new personnel shall be trained in their duties. All workmen shall be instructed in the selection and operation of each type of fire extinguisher for each type of fire which might be encountered. 3. The Builder shall provide adequate fire protection equipment in each temporary structure and in each work area he is occupying. Suitable fire extinguishers shall be provided in enclosed areas. 103.06. PROTECTION OF PROPERTY AND PUBLIC LIABILITY 1. The Builder shall be accountable for damages directly resulting from his negligence. The Builder shall provide standard and reasonable protection of all persons including members of the public, employees of TOUCH AMERICA, employees of other contractors or subcontractors, and all public and private property including structures, sewers and utilities, above and below ground. 2. The Builder shall also make all reasonable efforts to protect all other structures, utilities and work of any kind against damage or interruption of service and shall preserve and protect all trees, shrubs, grass, or other vegetation on or adjacent to the right of way or work site which do not unreasonably interfere with work. Unless otherwise required, the Builder shall restore all property which may be disturbed in the execution of work to its former visible condition. 3. The Builder shall furnish and maintain all necessary safety equipment, such as barriers, signs, warning lights, and guards to provide adequate protection of persons and property. 4. Upon completion of work, the Builder shall be responsible for the complete removal from work site of all his temporary facilities, of whatever nature, to the satisfaction of TOUCH AMERICA's Representative. 5. The Builder shall give reasonable notice to the owners of public or private property and utilities when such property and utilities are liable to injury or damage throughout the performance of work, and shall make all necessary arrangements with such owners relative to the removal and URRS Agreement Page 63 Dated: September 9, 2002 Appendix E replacement or protection of such property or utilities per the reasonable judgment of the TOUCH AMERICA Representative. 6. During the progress of work, construction materials shall be so stored or stockpiled as to cause as little obstruction as possible and still be readily accessible for use. No material shall be stored within two (2) feet of trees or buildings, nor within five (5) feet of fire hydrants; fire hydrants shall remain ready for immediate use by fire departments. 7. Claims made by property owners: The Builder agrees it will maintain records of communications with all interested parties relating to unsettled damage claims or other disputes resulting from the Builder's construction activities. 8. The Builder agrees to furnish TOUCH AMERICA copies of all damage releases and receipts for damage payments made to property owners, and all records of communications as referred to above. 103.07. PROTECTION OF PUBLIC AND PRIVATE PROPERTY 1. The Builder shall protect, shore, brace, support, and maintain all underground pipes, conduits, drains, and other underground construction uncovered or otherwise affected by the construction work. All pavement, surfacing, driveways, curbs, walks, buildings, utility poles, guy wires, fences, and other surface structures affected by construction operations, together with all sod and shrubs in yards and parking areas, shall be restored to their original condition, whether within or outside the easement. All replacements shall be made with new materials. 2. The Builder shall be responsible for all damage to streets, roads, highways, shoulders, ditches, embankments, culverts, bridges, and other public or private property, regardless of location or character, which may be negligently caused by its transporting equipment, materials, or men to or from work or any part or site thereof. The Builder shall make reasonably satisfactory and acceptable arrangements with the owner of, or the agency or authority having jurisdiction over, the damaged property concerning its repair or replacement, or payment of costs incurred in connection with the damage caused by Builder or its Subcontractors. 3. All fire hydrants and water control valves shall be kept free from obstruction and available for use at all times. 4. Street signs, mailboxes, and other items which conflict with construction shall be removed, stored, and reinstalled in a condition comparable to the condition prior to removal. URRS Agreement Page 64 Dated: September 9, 2002 Appendix E 103.08. REPAIR OF DAMAGES The Builder shall promptly repair damage which results from the construction or acts of the Builder, including damage done to existing facilities. All such repair work shall be acceptable to the TOUCH AMERICA Representative. 103.09. FIREARM RESTRICTIONS The Builder shall not have firearms in its possession within the limits of the designated work areas along the route. 103.010. TEMPORARY LIGHTING All temporary lights required by law or ordinance, or necessary for the proper protection of the public and workmen, or for the proper execution and inspection of the Builder's work, shall be furnished, placed, and maintained by the Builder at its expense. 103.011. CLEANLINESS The Builder shall give special attention to keeping the site clean and free from trash and debris. 103.012. AS-BUILT DRAWINGS The Builder will provide to TOUCH AMERICA engineering and as-built drawings, per the Graphic Guidelines for TOUCH AMERICA Cable Route Engineering Drawings Handbook within ninety (90) days after Acceptance. 103.013. CABLE DAMAGE DURING INSTALLATION 1. If the cable becomes damaged during installation due to the Builder's operations, the Builder shall stop its operations and notify the TOUCH AMERICA Representative immediately. TOUCH AMERICA, at its sole discretion will within four (4) hours, decide whether to repair the sheath, replace the entire reel of cable, if necessary, or to install a splice at the damaged section. Builder shall document the event, the resolution and steps taken to prevent recurrence and provide to TOUCH AMERICA, if requested. Builder shall pay for the materials and labor to perform the additional splice. 2. If TOUCH AMERICA decides to replace the entire reel of cable, the Builder shall begin the installation at the last designated splice point and replace the new cable in the same location. The damaged cable between these points shall be removed from the ground coiled, tagged, and given to TOUCH AMERICA. Builder shall pay for the materials and labor to replace the cable. 3. If TOUCH AMERICA decides a splice is required at the damaged point, the Builder shall carefully excavate from the damaged point a distance along the cable as directed by TOUCH AMERICA and expose the cable. A splice box shall be installed at this point. A minimum of 75 feet on both ends of the cable shall be coiled in the splice vault for TOUCH AMERICA's use during splicing. Builder shall pay for the materials and labor to perform such splices. URRS Agreement Page 65 Dated: September 9, 2002 Appendix E 4. If damaged cable appears during installation, such as a manufacturing defect, the Builder shall stop the installation of the cable immediately and notify the TOUCH AMERICA Representative. The TOUCH AMERICA Representative shall facilitate the determination of the cause of the cable defect and the decision on replacement of the cable, if necessary 103.014. ENVIRONMENTAL PROTECTION 1. All requirements of Section 114 of the Clean Air Act (42 U.S.C. Section 1857) and Section 308 of the Federal Water Pollution Control Act (33 U.S.C. Section 1251), relating to inspection, monitoring, entry, reports, and information as well as all other requirements specified in said sections, and all other regulations and guidelines issued thereunder, plus applicable requirements of environmental protection regulations and governmental agencies shall be complied with by the Builder. 2. The Builder will properly dispose of all scrap, debris, etc., in accordance with applicable requirements of environmental protection regulations and governmental agencies. 103.015. ARCHAEOLOGICAL SITES 1. Known archaeological sites along the route have been indicated on the TOUCH AMERICA as-built drawings on existing routes. 2. Builder shall check the National Register of the State Historic Preservation Office for known archeological sites. 3. If historical or scientific artifacts are encountered during construction anywhere along the route, construction at that location shall stop and the TOUCH AMERICA Representative shall be notified. The Builder shall immediately notify TOUCH AMERICA of such discovery and shall not harm or disturb such artifacts until evaluated by the appropriate controlling authority. If an extended delay is anticipated, the Builder may elect to move to another location. 103.016. INDEPENDENT TESTING LABORATORY 1. Except as otherwise specified, laboratory testing required by these Specifications shall be done by an independent testing laboratory retained by the Builder and acceptable to the TOUCH AMERICA Representative. Laboratory services will be performed as required by the permitting authority. Such costs will be borne by the Builder. 2. If tests performed by the independent laboratory indicate that Builder furnished workmanship or materials are not in accordance with the Contractor permit specifications, all re-testing required will be at the Builder's expense. URRS Agreement Page 66 Dated: September 9, 2002 Appendix E DIVISION 200: MATERIALS SECTION 201 - MATERIALS - GENERAL 201.01. DESCRIPTION 1. This section covers materials required for the work as specified in these Specifications. 2. All materials not furnished by TOUCH AMERICA necessary to complete the work shall be furnished by the Builder. 3. All materials not specifically described shall meet ASTM or other construction industry standards appropriate to the type of work being performed. 4. All materials intended for use in the work shall be stored by the Builder in a manner that will prevent damage by exposure to the elements, or from other causes. 5. The Builder shall move all materials furnished by either TOUCH AMERICA or the Builder as required in the course of construction to each site. All materials removed from the TOUCH AMERICA designated storage yard immediately become the responsibility of the Builder subject to the Terms and Conditions of the Contract. 6. The Builder shall furnish and transport all the necessary tools, equipment and labor, unless otherwise provided, and all the materials necessary to perform all the work, and shall complete all work to the reasonable satisfaction of TOUCH AMERICA's Representative. 7. The Builder warrants to TOUCH AMERICA that all materials furnished shall be new, unless otherwise approved by the TOUCH AMERICA Project Representative prior to use. 201.02. CODES AND STANDARDS Materials and devices furnished shall be in accordance with applicable standards of ANSI, ASTM, NEMA, UL, all local codes, and requirements of the permits. In case of conflict between the requirements of the above referenced codes and standards and the requirements of these Specifications, the most stringent requirements shall govern. All materials, devices, and practices shall be in accordance with the applicable requirements of the Federal "Occupational Safety and Health Standards." 201.03. DOMESTIC MATERIALS 1. The Builder shall agree that preference will be given to domestic construction materials in the performance of the Contract. 2. All steel materials and products permanently incorporated in the work shall be manufactured in the United States. Manufactured products include those which are rolled, formed, shaped, drawn, extruded, forged, cast, or fabricated. The United States includes all territories subject to the URRS Agreement Page 67 Dated: September 9, 2002 Appendix E jurisdiction of the Untied States of America. Steel products produced in the United States shall not be modified in a foreign country. 201.04. CORRECTION OF MANUFACTURING ERRORS Except for materials provided by TOUCH AMERICA, materials shall be complete in all respects within the limits specified herein. All manufacturing errors or omissions required to be corrected in the field shall be performed by the Builder at its expense, or if the errors are corrected by TOUCH AMERICA after first having given written notice and reasonable opportunity to the Builder to correct the defect, the cost for making the corrections will be adjusted per the Terms and Conditions of the Contract. 201.05. TOUCH AMERICA FURNISHED MATERIALS 1. Unless provided otherwise herein, TOUCH AMERICA will provide The Cable and splice enclosures as specified in the Contract. The Builder shall furnish all other materials required and as specified in the Contract. 2. The Builder will notify TOUCH AMERICA with a ship to address for The Cable at least ten (10) weeks prior to the desired material on site date or as mutually agreed upon per the Contract. The notification process can utilize electronic mail or other means suitable to the TOUCH AMERICA Representative. 3. All material furnished by TOUCH AMERICA shall be delivered to the Builder at points to be mutually agreed upon by Builder and TOUCH AMERICA, and the Builder shall have charge of, and be responsible for, all the material upon and after its delivery to the Builder and shall return to TOUCH AMERICA all the material not required for the completion of the work. The Builder shall deliver Maintenance Restoral Reels to the designated location. 4. TOUCH AMERICA Furnished Material will be shipped to the Builder by TOUCH AMERICA. Transportation costs will be as per the Contract. The Builder shall examine all shipments of TOUCH AMERICA Furnished Material for shortages, discrepancies or readily apparent damage. The Builder shall furnish all trucks, lifting equipment, and labor required to receive and inspect the TOUCH AMERICA Furnished Material. The risk of loss for TOUCH AMERICA Furnished Material belongs to the Builder from the time of receipt until Acceptance, Beneficial Occupancy or documented return to TOUCH AMERICA. The Builder shall maintain a current, accurate inventory and record of the location of all TOUCH AMERICA Furnished Material in its custody. 5. The Builder shall replace all TOUCH AMERICA Furnished Materials which are lost or damaged while in the custody of the Builder. Replacement materials shall be of a type and quality equal to the original materials, acceptable to the TOUCH AMERICA Representative, and shall be obtained expeditiously to prevent delay of the work. 6. The Builder shall re-handle and reload, if required, all TOUCH AMERICA furnished materials and equipment which have been rejected. 7. Upon completion of construction, the Builder shall return all excess TOUCH AMERICA furnished materials to the TOUCH AMERICA storage facilities and unload the material as directed by URRS Agreement Page 68 Dated: September 9, 2002 Appendix E TOUCH AMERICA. Material shall be inventoried, boxed, crated, or otherwise organized as directed by TOUCH AMERICA. If there are excess materials which TOUCH AMERICA does not want returned, they shall be disposed of by the Builder. SECTION 202 - FIBER OPTIC CABLE, REELS AND FIBER APPARATUS 202.01. DESCRIPTION This section covers fiber optic cable, reels and associated fiber apparatus. TOUCH AMERICA will provide fiber optic cable and fiber apparatus in the quantities required per the engineered Drawings and associated Bills of Materials. OUTSIDE PLANT CABLES The standard fiber optic cable sheath is a metallic armored design. The cable will be a ribbon cable. 202.02. REEL LENGTHS Standard reel lengths for outside plant cable will be three (3) to eight (8) kilometers with the majority (70%) between six (6) to eight (8) kilometers. 202.03. DELIVERY AND HANDLING Cable shall be handled and delivered in accordance with the requirements for TOUCH AMERICA Furnished Material as specified in Section 201 - Materials - General. 202.04. EXCESS MATERIAL 1. The Builder shall tag excess cable with a non-deteriorating tag stamped with the following information:
- --------------------------------------------------------------------------------------- TAG INFORMATION REEL NUMBER "1A" NUMBER LENGTH - --------------------------------------------------------------------------------------- EXAMPLE: 272645 1A153621 859 feet - ---------------------------------------------------------------------------------------
2. If the length of excess cable exceeds 3000 feet, the cable shall be tagged as specified above and left on the reel until further directed. 3. If the length of the excess cable is less than or equal to 3000 feet, the excess cable shall be removed from the reels, and disposed of by the Builder. 4. The Builder shall record the excess cable data information and supply it to the TOUCH AMERICA Representative or as required per the Contract. 5. Costs associated with transporting, handling, and loading excess TOUCH AMERICA furnished material shall be considered incidental to other work performed and will not be paid as a separate item, unless otherwise stated in the Contract 202.05. RETURNING REELS URRS Agreement Page 69 Dated: September 9, 2002 Appendix E 1. Empty steel cable reels for cable provided by Lucent Technologies shall be transported to a designated storage yard to be returned to Lucent Technologies. Empty steel cable reels for cable provided by Siecor shall be transported to a designated storage yard to be returned to Siecor. Cable reels to be returned shall not contain cable, rope, or other material. The Builder shall be responsible for bent or damaged reels due to its negligence. 2. To return empty reels to Lucent Technologies, call 1-800-232-2747, notify them of the following: - The number of reels - The size of the reels - The address and phone number of the yard 3. To return empty reels to Siecor, call 1-800-322-3116, notify them of the following: - The number of reels - The size of the reels - The address and phone number of the yard 4. The Builder shall handle and load all returnable cable reels and shall prepare shipping papers therefor. Costs associated with transporting, handling, and loading returnable cable reels shall be considered incidental to other work performed and will not be paid as a separate item. 5. Cable reel returns shall be scheduled as soon as possible. 202.07. RESTORATION REELS 1. For Route Sections to be maintained by TOUCH AMERICA, restoration reels are to be ordered to meet the following requirements: A. Restoration reels are to placed four hours apart. B. Fiber count must be equal to or greater than the highest fiber count in the area. Note: non-zero dispersion shifted fiber can only be used to restore non-zero dispersion shifted fiber. C. Restoration reels are to be a minimum length of five thousand (5000) feet unless there is a physical obstruction that requires a longer reel. D. The cable is installed on butterfly reels so both ends are accessible. E. Both ends must be prepared for restoration. This includes installing a UCB-1 closure and separating the ribbons so the fibers can be spliced individually. 2. For Route Sections to be maintained by Builder, restoration reels are to be ordered to meet Builder requirements. SECTION 203 - FIBER OPTIC CABLE SPLICE AND GROUNDING CLOSURES 202.08. DESCRIPTION URRS Agreement Page 70 Dated: September 9, 2002 Appendix E This section covers fiber apparatus required for splice enclosures. The party performing the splicing (TOUCH AMERICA, unless otherwise agreed upon) is responsible for providing all equipment, consumables, splice closures and encapsulant, as required for performing the splicing. 203.02. SPLICE CLOSURES Unless otherwise agreed upon, splice and grounding closures will be: 1. SIECOR: A. UCA3-6-6AWG: Universal splice closure with #6 AWG ground straps. This is used to ground the OSP cable where it enters a building. B. SCF-6C22-ORS: Advanced splice closure with open ribbon system up to 288 fibers, 6" x 22" length, 6 cable entries. C. SCF-6C28-ORS: Advanced splice closure with open ribbon system up to 432 fibers, 6" x 28" length, 6 cable entries D. SCF-8C28-ORS: Advanced splice closure with open ribbon system up to 864 fibers, 8" x 28" length, 8 cable entries 2. LUCENT: A. 2400-4070 Bonding and Grounding Closure: Complete grounding closure assembly for use with 0.40 inch to 0.70 inch metallic cables. Comcode: 107 085 987. This is used to ground the OSP cable where it enters a building. B. 2400-7010 Bonding and Grounding Closure: Complete grounding closure assembly for use with 0.70 inch to 1.0 inch metallic cables. Comcode: 107 085 995. This is used to ground the OSP cable where it enters a building. C. 2600 LG/SC6 Closure Kit (Comcode 107 706 079): Contains - one 2600LG/SC Base Closure (Comcode 107 395 493); - one 0.40 to 0.85 inch UT Grommet and Grip Kit (Comcode107 111 882) - two Mass Splice Trays (107 396 095) - If the fiber count exceeds 288, additional splice trays will be required. The trays hold 12 mass fusion or 12 mass mechanical splices. The 2600 can hold up to 576 fibers. Each 2600 closure requires 1900 grams of encapsulant. D. UCB4 Closure Kit (Comcode 107 667 743) Contains: one UCB Base Closure (includes all necessary components to splice two unit tube cables from .4" to .96" (11 mm to 24.4 mm) outer diameter. It contains two ribbon organizers which each accommodate up to 12 mass ribbon fusion splices for a total of 288 fibers and two single 24 fiber splice fusion organizers for a total of 48 single fiber fusion splices.) URRS Agreement Page 71 Dated: September 9, 2002 Appendix E E. 51D3-LG2 Outer Closure; (Comcode 103 921 938) This closure is required in all buried or underground applications with the UCB Closure. Grommets and encapsulant must be ordered separately. F. Reentry Kit for 51D3-LG2 Closure (Comcode 104 228 424) Required when accessing an encapsulated 51D3 outer closure. 203.03. ENCAPSULANT: Unless agreed upon otherwise, approved encapsulants are: - 3M - 4442 High Gel - packaged in 750, 1500 & 3000 gram kits - CasChem - System 165 (low tear strength) - packaged in 5000 gram kits - CasChem - System 126 - packaged in 5000 gram kits SECTION 204 - BUILDER PROVIDED MATERIAL 204.01. Description 1. This section covers fiber optic cable, reels and associated fiber apparatus. TOUCH AMERICA will provide fiber optic cable and fiber apparatus in the quantities required per the engineered Drawings and associated Bills of Materials. 2. All steel hardware including nails, lags, and other hardware shall be hot-dip galvanized in accordance with ASTM A153, unless otherwise specified. 204.3. MARKER POLES 1. PVC: PVC marker poles shall be Schedule 40, UV stabilized PVC pipe. 2. HDPE: High density polyethylene (HDPE) marker poles shall be UV stabilized. 3. Fiberglass: Fiberglass marker poles shall be 4 inches by 4 inches, with a weight of 1.8 pounds per foot, and a minimum tensile strength of 65,000 psi as measured in accordance with ASTM D638. 204.4. Cable Route Signs 1. Marker signs are categorized by number and shall be provided as indicated on the Drawings. Signs shall be manufactured from aluminum and use a thermoset polyester powder coating applied at a thickness of 2.0 mils. The signs shall have a smooth, hard, high gloss finish free from runs or sags. 2. The aerial sign frame shall be "No. ALUM (6, 12, 18, 24) 2LMA HUMBLE" for 1, 2, 3, or 4 digit sign numbers respectively. Sign numbers shall be "No. 6F Special" 6 inch by 12 inch aluminum aerial marker plate with a thermoset polyester powder coating applied at a thickness of 2.0 mils, orange background with black numbers. 3. Specialty Markers shall be as follows: URRS Agreement Page 72 Dated: September 9, 2002 Appendix E A. Flush Mounted Markers are reverse printed polycarbonate, 6 inches round and are driven into the soil with a 12 1/2 inch flared stake. B. Curb and Sidewalk Markers are cast aluminum or bronze for marking cable paths on concrete sidewalks, curbs and streets. C. Retrofit Curb Markers are an alternative to signs with posts by adhering to the surface with an industrial adhesive. 204.5. MARKER POLE NUMBERS 1. PVC, Fiberglass Marker Poles: The marker pole numbers shall be 3-inch block style, self-adhesive black vinyl. 2. HDPE, Concrete Marker Poles: The marker pole numbers shall be as indicated on the Drawings and as specified in the Supplementary Specifications. 204.6. MARKER TAPE 1. Marker tape shall be six (6) inches wide, seven (7) mils thick, non-detectable stretch marking ribbon, orange with bold black lettering, alkali resistant, non-fading in sunlight or soil. The following lettering shall be continuously imprinted every 30 inches: CAUTION BEFORE DIGGING CALL (800) XXX-XXXX MAINTAINING PARTY; BURIED BELOW If TOUCH AMERICA maintains the cable, then imprint: (800) 252-1133 TOUCH AMERICA CABLE BURIED BELOW If Builder maintains the cable, then imprint: (800) XXX-XXXX BUILDER CABLE BURIED BELOW 2. Marker tape shall conform to the following minimum physical properties.
- -------------------------------------------------------------------------------------------- PROPERTY METHOD VALUE UNITS - -------------------------------------------------------------------------------------------- Thickness, overall ASTM D2103 7.0 mils - -------------------------------------------------------------------------------------------- 3 inch Tensile, longitudinal ASTM D882 4,000 psi - -------------------------------------------------------------------------------------------- 3 inch Tensile, transverse ASTM D882 3,500 psi - -------------------------------------------------------------------------------------------- Elongation, longitudinal ASTM D882 500 percent - -------------------------------------------------------------------------------------------- Elongation, transverse ASTM D882 400 percent - -------------------------------------------------------------------------------------------- PPT Tear ASTM D2582 18 pounds - -------------------------------------------------------------------------------------------- Tongue Tear ASTM D1938 2 pounds - -------------------------------------------------------------------------------------------- Sulfide Stain ASTM D1712 pass 48 hours - --------------------------------------------------------------------------------------------
URRS Agreement Page 73 Dated: September 9, 2002 Appendix E 3. Marker tape shall be "Extra Stretch" as manufactured by Reef Industries or "Mega Stretch" as manufactured by Thor Enterprises. 204.7. ELECTRONIC BALL MARKERS Electronic ball markers shall be "ScotchMark" 4-inch ball markers, EMS Model 1401, manufactured by 3M Test & Measurement Systems without exception. 204.8. CABLE LABELS 1. For use in manholes and buildings, the cable shall be labeled with an orange snap-on cable marker. The snap-on cable marker will identify the cable as an TOUCH AMERICA fiber optic cable, identify the cable route and direction (N-W-S-E), i.e. Billings to Fargo: East. 2. Cable labels shall be manufactured of calendered vinyl in the following thicknesses:
- --------------------------------------- CABLE DIAMETER LABEL (INCHES) THICKNESS (MILS) - --------------------------------------- 1/2 10 - --------------------------------------- 1 20 - ---------------------------------------
3. Cable labels shall be as manufactured by ACP International, Thor, or Brady USA. 204.9. PIPE AND INNERDUCT PLUGS 1. Pipe: Compression type duct plugs shall be used for sealing all pipes up to 6 inches in diameter. Vacant pipes shall be sealed with solid duct plugs equivalent to those manufactured by Jackmoon USA, (818) 854-1670. Pipes with innerducts shall be sealed with duct plug or- ganizers equivalent to those manufactured by Jackmoon USA All duct plugs shall be fabricated with metal backing plates and stainless steel nuts, bolts, and fasteners. 2. Multicell Duct: Plugs for multicell duct shall be provided by the duct manufacturer. 3. Innerduct: Plugs for vacant innerducts shall be solid compression plugs. Plugs for innerducts containing cable shall be split compression plugs. Innerduct plugs shall be simplex duct plugs equivalent to those manufactured by Jackmoon USA 4. Building Cable Vaults: Voids between the pipe and core bores in entrance vaults shall be sealed with "Model CSL Linx" mechanical seal as manufactured by Calpico. Vault seals shall use stainless steel bolts, nuts, washers, and pressure plates, and shall be capable of developing a hydrostatic seal of up to 40 feet of head. 204.10. SEALING FOAM Sealing foam shall be expanding, non-degradable urethane foam, with a density of 1.75. URRS Agreement Page 74 Dated: September 9, 2002 Appendix E 204.11. EXPANSION JOINTS 1. Steel Pipe: Expansion joints shall be pre-manufactured, hot-dip galvanized, and UL listed. All expansion joints shall be provided with external bonding jumpers. Expansion joints shall be "Type AX" or "Type AX8" as manufactured by O-Z/Gedney or "Type XJ" as manufactured by Crouse-Hinds. 2. Multicell Duct: Expansion joints shall be pre-manufactured units provided by the manufacturer of the multicell duct. 3. Expansion joints, couplings, or devices for other types of pipe or duct shall be provided by the particular pipe or duct manufacturer. 204.12. RECTANGULAR VAULTS/HANDHOLES 1. This section covers material requirements for splice and pull vaults. Splice and pull vaults shall be the type and size indicated on the Drawings and provided in accordance with the following requirements. 2. The vaults (handholes) to be utilized for cable splice and pull locations shall be a minimum of thirty (30) inches wide by forty eight (48) inches long by twenty four (24) inches high. Lids shall be one piece, nest securely and shall be bolted in place. The vault shall be constructed of polymer concrete material, fiber reinforced plastic, or a combination thereof and shall have a minimum rating of 5,000 pounds over a 10-inch square area. Vaults/handholes placed in traffic areas shall have lids rated to support anticipated traffic loads. Material compressive strength shall be a minimum of 11,000 psi. The lid shall have a 3M full range marker with telephone frequency molded into the lid with the word "LOCATOR" molded in the top. The other shall have "TOUCH AMERICA" molded in the top. 204.13. PRECAST CONCRETE MANHOLES This section covers fabrication and transportation requirements for precast concrete manholes. The manholes shall be furnished in the shapes and sizes as required complete with all embedments and accessories required for handling and installation. Manholes typically shall be precast concrete 2-piece manhole, The fabricator shall assume full structural design responsibility. Precast concrete manholes shall be adequately reinforced to resist the stresses resulting from the specified loading conditions. Special reinforcing shall be provided at openings in the manhole. Precast concrete manholes and necks shall be designed to resist all design loads. Design loads shall consist of dead loads, live loads, and impact loads. The dead load shall consist of soil surcharge and structure weight. Live and impact loads shall be equivalent to H-20 or HS-20 loads in accordance with the latest revision of AASHTO Standard Specifications for Highway Bridges. The combination of loads that produces the maximum shear and moment shall be used to design the manhole. 204.14. CABLE INSTALLATION MATERIALS 1. BREAK-AWAY SWIVEL CONNECTOR URRS Agreement Page 75 Dated: September 9, 2002 Appendix E Machine roller bearing swivel shall allow cable rotation during cable pulling operations. Swivel connector shall incorporates a fusible link or internal shear pin to limit cable tension to a maximum of 600 pounds or to match cable manufacturers recommendations. Swivels shall be "Part No. 15370A" as manufactured by General Machine Products. 2. TIE WRAPS Tie wraps for fastening cable to racking shall be 1/4-inch by 18-inch black nylon cable ties with 50 pounds minimum loop tensile strength. 3. CABLE LUBRICANT A. A high-efficiency cable lubricant compatible with the cable and innerduct, such as "Green 80" as manufactured by Greenlee Tool; "Polywater F" as manufactured by American Polywater; or "Hydro-Lube F-100" as manufactured by Rancho shall be used when pulling cable and innerduct through long pipe sections. Lubricants used shall be compatible with the conditions at the time of the pull. B. Clean mineral oil or polymer shall be used as a cable lubricant when the "cable-air system" installation procedures are used. 204.15. BONDING AND GROUNDING MATERIALS 1. All connections to ground rods and other connections indicated as exothermic type welds shall use "Cadweld" materials as manufactured by Erico Products. Connections made from this process shall be in accordance with IEEE Standards 80 and 837. The welds shall be the proper size and configuration for the application. 2. Ground rods shall be copper-clad steel rods minimum 5/8 inch diameter and minimum eight (8) feet long. All grounding wire shall be insulated No. 6 solid copper wire. 3. FILTER PROTECTOR/ARRESTOR A. The party maintaining the route is responsible to purchase the filter protector/arrestor compatable with their locating requirements and provide the filter protector/arrestor to the Builder in a timely manner to allow the connection of the ground lead to the ground rod by the Builder. B. The voltage suppressor/arrestor for routes maintained by TOUCH AMERICA shall be without exception Norscan 2716 SGU. The filter/arrestor for routes maintained by the Builder shall be provided by the Builder. 204.16. MISCELLANEOUS MATERIALS Upon request of the Builder, for his use or reference, TOUCH AMERICA can provide detail URRS Agreement Page 76 Dated: September 9, 2002 Appendix E specifications for the following items, which may be required during construction of the System. 1. Erosion Control and Restoration Materials - Seeding Mixtures, Sod and Mulch - Gabions - Filter Fabric - Erosion Control Matting and Soil Reinforcing Grid - Mulch Tackifier - Posts - Baffle Boards - Fabric Bags and Soil-Cement Fabric Bags - Packaged Materials for Concrete 2. Rocks and Aggregates - Riprap - Gabions - Coarse and Fine Aggregate - Ballast Rock and Road Rock or Gravel - Drain Rock 3. Portand Cement Concrete 4. Asphaltic Concrete 5. Fencing Materials and Hardware, Including Gates - Barbed Wire Fence - Link Fence DIVISION 300: CONDUIT PLACEMENT SECTION - 301 GENERAL REQUIREMENTS 301.01. DESCRIPTION: This section covers the work associated with excavation for and placement of conduit. 301.02. MINIMUM DEPTH OF COVER 1. Normal trench depth refers to the minimum nominal trench depth of cover indicated on the Drawings. Actual trench depth during construction can be expected to vary. Trench depth shall be sufficient to attain a minimum depth of cover of forty-two inches (42") unless otherwise required by the granting authority or except in the following instances: A. The Minimum depth of cover in ditches adjacent to roads, highways, railroads, and interstates is forty-eight inches (48") below the clean out line or existing grade, whichever is greater. B. The minimum depth of cover in streams, river washes and other waterways is six feet (6') below the flow line of the channel bottom or existing grade, whichever is greater. C. If rock is encountered, mechanical protection of the conduit shall be as follows for the given minimums of cover: (i.) Eighteen inches (18") to twenty-four inches (24") conduit shall be concrete encased URRS Agreement Page 77 Dated: September 9, 2002 Appendix E (ii.) Twenty-four inches (24") to thirty-six inches (36") conduit shall be encased in steel pipe D. The minimum allowable depth of cover beneath railroads shall be four (4) feet below the toe of the slope for the tracks. Minimum allowable depth of cover beneath highways and roadways shall be four (4) feet beneath the crown of the pavement. In all cases the most stringent between these minimum depths of cover and the depths of cover specified by the railroad or local permitting agency shall be adhered to. 2. Buried Warning Tape Placement: Cable warning tape shall be placed twelve (12) to eighteen (18) inches directly above the conduit, but never at a depth of cover shallower than eighteen inches (18") below final grade. Care must be taken during plowing of multiple conduits that the warning tape does not fall in the rip line to a vertical separation from the conduit of less than twelve inches (12"). 3. Underground Obstructions: The Builder shall protect all existing buried facilities. Conduit may go over, under, or around various existing facilities encountered underground as long as there is a minimum separation of twelve (12) inches and the minimum trench depth requirements are met, unless greater separation is required by the permitting agency. If the cable running line varies, the Builder shall place buried cable markers at direction changes. If the minimum separation requirements cannot be met, mechanical protection shall be placed surrounding the TOUCH AMERICA plant. 4. In the case of use or conversion of existing steel pipelines or existing conduit systems, the Builder shall provide a summary of the conduit depth to the TOUCH AMERICA Project Representative for review and acceptance. 301.03. CONDUIT REQUIREMENTS - GENERAL 1. DESCRIPTION A. This section covers the installation of flexible (HDPE) and rigid (PVC, and steel) conduit /duct systems for housing innerduct and/or fiber optic cable. B. Trench excavation and backfill shall be as specified below. 2. MATERIAL REQUIREMENTS A. Pipe shall be clearly marked with type, class, and thickness as applicable. Lettering shall be legible and permanent under normal conditions of handling and storage. All pipe placed shall be in good condition with no splits, cracks, or other physical irregularities. B. PVC pipe and fittings shall be polyvinyl chloride (PVC) manufactured from a PVC compound meeting the requirements of Type 1, Grade 1 PVC in accordance with ASTM D1784, D1785, and D2241. The PVC pipe shall be orange, gray, or white in color and shall be equal to Schedule 40 in wall thickness. PVC pipe exposed to sunlight shall be UV stabilized. The pipe shall have a long bell on one (1) end and be plain on the other end. Pipe shall be in accordance with ASTM D1785. Pipe fittings shall be in accordance with ASTM D2466. URRS Agreement Page 78 Dated: September 9, 2002 Appendix E C. HDPE Conduit and fittings shall be smooth wall SDR 11, high-density polyethylene (HDPE), manufactured in accordance with standards established by the Plastic Pipe Institute for fiber optic innerducts. TOUCH AMERICA and Builder Conduit shall be the color specified in Exhibit B. Fittings, such as couplers and plastic caps, shall be as recommended by the manufacturer of the conduit. Only external couplings shall be used. All couplings shall provide an airtight seal capable of withstanding 110 psi, two (2) to five (5) minutes, as measured by static pressure test. D. Black iron steel pipe to be trenched or bored shall be resistance welded or seamless, structural grade, with an average minimum wall thickness of Schedule 40 pipe, and threaded and coupled or plain end. The inside walls shall be free of burrs or splits. Threaded pipe shall have ends prepared with NPT threads in accordance with ANSI B2.1 and shall be in accordance with ASTM A252, Grade 1, Schedule 40. E. Rigid galvanized steel conduit shall be in accordance with Federal Specification WW-C-581d. Minimum wall thickness shall conform to Schedule 40. Pipe shall be threaded and coupled with NPT threads in accordance with ANSI B2.1 Pipe shall be thoroughly hot-dip galvanized both inside and outside including threads. F. Conduits and casings shall be sized as follows: (i.) The preferred TOUCH AMERICA Conduit and First Conduit is two (2) inch inner diameter (ID) HDPE (SDR-11) conduit. (ii.) Casing pipes shall be sized appropriate to the number of conduits placed. 3. CONDUIT HANDLING A. Reels shall be placed on a level area and securely blocked to prevent accidental movement. Reels left overnight shall be protected with safety flashers on all sides as required or other suitable means as approved by the local authorities having jurisdiction. B. Empty reels shall be returned to the Builder's yard or disposed of at the end of each day after Conduit placement. C. Protective coating on steel pipe that has been scratched, scraped, gouged, or damaged in any manner shall be repaired in accordance with the pipe coating manufacturer's specifications prior to placement of the pipe. D. Defective conduit, pipe or duct shall not be installed and shall be tagged as defective and removed from the site in a timely manner. 4. CONDUIT JOINING/SPLICING A. Conduit jointing shall be completed before or as the pipe is installed. All joints shall be made secure. Splices shall be capable of withstanding 110 psi air pressure, two (2) to two (5) minutes as measured by static pressure test. URRS Agreement Page 79 Dated: September 9, 2002 Appendix E Pipe joints shall be as specified below. B. Rigid Galvanized Steel Pipe: The pipe ends shall be threaded with fittings that are hot-dip galvanized both inside and outside including threads. C. Black Steel Pipe: The pipe ends shall be threaded or plain end. Plain end pipe shall have ends prepared for welding. Welding shall be performed full-circle and in accordance with ANSI/AWS D1.1-92. D. PVC Pipe: PVC joints shall be joined with PVC solvent cement as recommended by the pipe manufacturer. The joint shall be allowed to cure before handling. Care shall be taken to prevent twisting or pulling the joint. Joints to be bent, pushed, or pulled shall be allowed to set up for a minimum of 24 hours after joining. E. HDPE Splicing: HDPE conduit shall be spliced together with manufactured mechanical external couplings compatible with the type of innerduct being placed and with the method of cable placement to be used. HDPE duct ends shall be cut square to provide flush butting surfaces when spliced. The inside edge shall be free of burrs that could impede the cable pulling operations. 5. CONDUIT BENDS Where directional changes are required, the conduit shall be bent in smooth, uniform bends. Bends shall be made to the minimum radius as required to place the cable and to meet the cable manufacturer's recommendation and shall not result in a reduced cross-sectional area. A. The Builder shall provide equipment to bend pipe when the radius of bends is less than the radius of allowable material design stress. Bends shall be made with approved pipe bending tools and pipe manufacturer's approved methods of procedure. Bends shall be made to the minimum radius as required to place the cable and to meet the cable manufacturer's recommendation and shall not result in a reduced cross-sectional area. B. PVC Conduit: Cold bending of PVC pipe will not be allowed. Heat bending of PVC Conduit is allowed when the minimum radius is less than the radius of allowable material design stress. Heat bending shall be accomplished with a heating box or blanket recommended by the manufacturer. When heat bending of PVC conduit is not recommended by the manufacturer, prefabricated conduit/pipe bends shall be used. C. HDPE Conduit: HDPE conduit bends shall be gradual and not cause any kinks in the conduit. D. Field pipe bends shall have a minimum 10-foot radius for steel and PVC pipe unless otherwise accepted by the TOUCH AMERICA Representative. Where a radius less than the allowable field bend is required, factory sweeps and bends with a minimum radius of three (3) feet shall be used. E. For Steel Pipe: Applying heat to steel pipe to facilitate making pipe bends will not be allowed. Bending pipe around portions of construction equipment and vehicles will not be allowed. URRS Agreement Page 80 Dated: September 9, 2002 Appendix E Only approved mechanical pipe benders with properly sized bending shoes will be allowed. Pipe bending will not be allowed after jointing. F. For PVC Pipe: Cold bending of PVC pipe will not be allowed. Heat bending of PVC pipe is allowed when the minimum radius is less than the radius of allowable material design stress. Heat bending shall be accomplished with a heating box or blanket recommended by the manufacturer. When heat bending of PVC pipe is not recommended by the manufacturer, prefabricated pipe bends shall be used. 6. CONDUIT SEALING A. When connections are not being made to additional pipe or innerducts, the Builder shall seal ends of conduits to keep dirt and debris from entering conduits, casing pipes or innerducts. Manufactured compression plugs or other approved duct seals shall be used in sealing conduit and casing pipe ends. Plugs shall accommodate innerducts or cable if they are placed concurrently. Innerducts and/or voids between cable and surrounding ducts shall also be sealed if placed concurrently. B. Casing pipe ends larger than six (6) inches shall be sealed. All conduits or pipes terminating in buildings, vaults, or manholes shall be sealed around the outside of the pipe . 301.04. DRAIN TILE RESTORATION The Builder shall use best efforts to avoid damage to known drain tile by not ripping or plowing in the immediate area of drain tiles. The Builder shall restore all drain tile damaged during construction, to a condition as good or better than prior to damage. 301.05. CONCRETE ENCASEMENT 1. DESCRIPTION: This section covers the preparation, forming, placing, curing, and all other work incidental to the placement of concrete encasement of conduit. 2. MATERIAL REQUIREMENTS: The concrete shall be a Portland Cement Concrete, minimum of five (5) sacks of cement per cubic yard, minimum 28 day compressive strength of 3000 psi. 3. FORMING: The Builder shall form the side walls of all concrete encasement sections with removable wood or steel forming for sections to be placed in noncohesive material. The forming may be omitted in sections where stiff clay, rock, or firm silty clays permit the shaping of vertical sides for the excavation to the top surface of the concrete encasement. 4. Placing: CONCRETE ENCASEMENT SHALL BE PLACED AS FOLLOWS: A. THE SIDES OF TRENCHES ABOVE THE TOP OF THE CONCRETE SHALL BE SLOPED, SHEETED, OR OTHERWISE STABILIZED TO PREVENT DIRT, BALLAST, OR OTHER FOREIGN MATERIAL FROM FALLING INTO AND CONTAMINATING THE CONCRETE DURING PLACEMENT. URRS Agreement Page 81 Dated: September 9, 2002 Appendix E B. The concrete shall be placed as near the final placement point as practicable. The concrete shall be placed after the pipe or individual ducts are rigidly supported within the trench to avoid flotation or sag. Care shall be taken in placing the concrete to prevent the pipe or ducts from being damaged or displaced, either in grade or alignment. C. Concrete shall not be deposited in water or exposed to the action of water before setting. D. The fresh concrete shall be leveled and consolidated by rodding or spading only. Mechanical vibrators shall not be used unless accepted by the TOUCH AMERICA Representative. The top surface of the concrete shall be screeded only; no floating or troweling of the surface is required unless the concrete encasement will have exposed surfaces. Particular care shall be taken to keep concrete or other substances from the inside of the pipe or ducts during construction. 5. After the initial set of the concrete, backfill material shall be placed and compacted in a manner that will not crack or damage the concrete. Forming, when required, shall be removed as soon as the concrete can support itself for backfilling the trench to grade. 6. In locations where railroad ballast rock is the only permitted backfill, concrete encasement shall be covered with a plastic sheathing. 7. In cases where the pipe or ducts pass above or below an underground obstruction such as a utility line, a minimum clearance of six (6) inches shall be maintained between the concrete and the utility. A minimum of 12 inches of clearance shall be maintained between the concrete encasement and a paralleling utility. No utility shall be contained within the concrete encasement. 301.06. RIGHT-OF-WAY RESTORATION 1. Areas disturbed by construction activity will be repaired to a condition equal to or better than prior to construction activities per Section XXX. 2. Damage to banks, ditches, driveways and roads caused by the equipment shall be immediately repaired to the satisfaction of the Builder and public authorities having jurisdiction over highway and road ROW. 301.07. DEPTH VERIFICATION 1. TOUCH AMERICA and the Builder are constructing the System which will benefit both parties. The Builder is responsible to ensure his contractors and their subcontractors adhere to the specifications. TOUCH AMERICA has the right, but not the responsibility, verify placement. 2. At any time requested by the TOUCH AMERICA Representative, the Builder shall demonstrate that the warning tape and conduit, pipe, duct or handholes, etc. is being placed to the specified depth by excavating and observing. Shoring and dewatering shall be included in the work of excavating observation pits if required to accurately verify the conduit, pipe or duct and marker tape depths. If the excavation reveals the construction to have met the specifications, then TOUCH AMERICA shall pay the actual costs of the excavation. If the excavation reveals the URRS Agreement Page 82 Dated: September 9, 2002 Appendix E construction does not meet the specifications, the Builder shall excavate in each direction until the facility is found in compliance at Builder's cost. 3. If the marker tape, conduit, pipe or duct measures less than the specified minimum depth, sufficient additional excavations shall be made in each direction away from the original excavation to determine the length of conduit, pipe, duct and/or marker tape that requires lowering. SECTION 302 - CONDUIT PLACEMENT - TRENCH 302.01. DESCRIPTION 1. This section covers the work associated with trench excavation. Work consists of the trench excavation necessary to install underground pipe, duct, or cable. Trenching shall also include those excavations necessary to set manholes, splice and pull vaults, bore pits, and other miscellaneous excavations required throughout the performance of the work. 2. Trench depth is defined as the cover over the cable, conduit, pipe, duct or plant placed, or the distance from the top of the plant to finish grade. 302.02. EXCAVATION FOR CONDUIT PLACEMENT 1. Trench width and depth of cover shall be as specified herein. Trench excavation shall be accomplished by hand digging, mechanical trencher, or backhoe at the discretion of the Builder depending on locations of nearby existing utilities or obstructions. 2. Any grade transition shall be gradual. 3. During trench excavations, materials suitable for backfilling shall be stockpiled in an orderly manner a sufficient distance from the banks of the trench to avoid overloading and to prevent slides or cave-ins. All material not suitable for backfill shall be removed and disposed of. 4. Wherever possible, the trench shall be excavated to permit the pipe, duct, or cable to rest on undisturbed earth or rock. Where it is necessary to trench through fill areas, the earth shall be well compacted before the pipe, duct, or cable is installed. Care shall be taken not to excavate below the depths indicated. Unauthorized over- excavation shall be backfilled with suitable bedding material and thoroughly compacted. Care shall be taken not to exceed the limits imposed by permits, right-of-way limits, or easement descriptions. 5. No trench or excavation shall be allowed to remain unattended at any time or left open overnight in public or private right-of-way unless said excavation is fenced or barricaded A trench shall not remain open overnight on railroad right-of-way unless approved in writing by the railroad representative. The written approval shall be site and date specific. 302.03. SHEETING AND SHORING The Builder shall comply with all current and applicable Occupational Safety and Health URRS Agreement Page 83 Dated: September 9, 2002 Appendix E Administration (OSHA), federal, state, and local rules and regulations governing the safety of men and material during excavation, installation, and backfilling operations. 302.04. TRENCH WIDTH All trenches shall be wide enough to provide ample room for proper installation of the plant. Where it is necessary to reduce the earth load on trench banks to prevent sliding or caving, trench banks may be back back cut back on slopes which shall not extend lower than twelve (12) inches above the top of the pipe, duct, or cable. 302.05. SUBGRADE PREPARATION AND STABILIZATION 1. Subgrade soil shall be firm and compact. Should the subgrade or the bottom of trench in any area become mucky or should it work into mud under feet of the workers, the Builder shall remove the soft soil to firm ground and replace it with compacted layers of dry soil, crushed rock or gravel. The subgrade shall be brought to the proper level by means of a thin layer of sand tamped or rolled into the reinforced subsoil. Pipe, duct, or cable shall not be laid under unsuitable weather or trench conditions. 2. The finished elevation of stabilized subgrades for manholes shall not be above the subgrade elevations indicated on the Drawings. Subgrades for manholes and vaults shall be firm and free from all loose materials, shall be free from mud and muck, and shall be sufficiently stable to remain firm and intact under the feet of the workers. In addition, the subgrade shall be compacted to a minimum of ninety (90) percent of maximum dry density in accordance with ASTM D698 at plus or minus five (5) percent of optimum moisture content as determined by ASTM D698. Subgrades which are otherwise solid which become mucky on top due to construction operations shall be reinforced with one (1) or more layers of crushed rock or gravel. 302.06. GROUNDWATER, DEWATERING 1. When groundwater is encountered in the trench excavation, the Builder shall dewater as required to provide for stability and firmness of the cable trench or foundation. 2. Dewatering of trenches shall be performed as needed for placement inspections, measurement, and backfilling operations before and during installation of the work. The lowered water level shall be maintained until such time as backfill has been properly placed and compacted to an elevation equal to the surrounding groundwater level. 3. Dewatering methods shall adequately prevent trench and foundation instability. 302.07. DRAINAGE 1. The Builder shall control the grading in the vicinity of trenches so that the ground surface is properly sloped to prevent water from running into the excavated areas. URRS Agreement Page 84 Dated: September 9, 2002 Appendix E 2. Water which has accumulated in the excavation from rainfall, surface runoff, or from other causes, shall be removed by the Builder and the subsurface shall be restored to suitable condition for conduit or cable installation. 3. Damage to adjacent works or property caused by surface runoff or dewatering, and as a result of construction operations, shall be the Builder's responsibility and shall be corrected and restored as soon as conditions permit by the Builder. 4. The Builder shall prevent silt discharge from the site and shall maintain compliance with construction stormwater discharge requirements. 302.08. CONDUIT PLACEMENT (TRENCH) 1. Conduit shall be placed in the center of the bottom of the trench with the entire length of conduit, pipe or duct bearing on the trench bottom. The trench bottom shall be re-graded if the conduit does not have full bearing. 2. After final placement, non-rigid conduit shall rest on the bottom of the trench in a straight line under slight tension and rigid conduit shall rest on the bottom of the trench in a straight line. A check shall be made that proper depth is obtained and the conduit is in a straight line and under tension during backfilling. 3. Warning marker tape shall be installed per Paragraph 301.02.2. Electronic ball markers shall be placed above each end of the pipe casing pipe at major river and road crossings four (4) lanes or wider at a minimum depth of eighteen (18) inches to a maximum forty-two (42) inch depth below finish ground level. 302.09. BACKFILL AND COMPACTION 1. Backfilling and compaction shall begin as soon as the corresponding trenching work is complete. All excavations shall be backfilled at the end of each working day. Backfill shall be compacted and shaped to the original contour and drainage. 2. On finished areas including road surfaces, road shoulders, parking areas, lawns, and public right-of-way, backfill and compaction shall be in accordance with the authority having jurisdiction thereover. 3. Material for backfill shall be composed of earth only and shall not contain logs, stumps, frozen debris, wood, grass, roots, broken concrete, stones, trash, organic material, or other debris. 4. All backfill material shall consist of loose earth having a moisture content such that the required density of the compacted soil will be obtained with the compaction method used. Moisture content shall be distributed uniformly and water for correction of moisture content shall be be added sufficiently in advance so that proper moisture distribution and compaction will be obtained. Granular material shall be wet, not just damp, when compacted. URRS Agreement Page 85 Dated: September 9, 2002 Appendix E 5. Backfill material shall be similar to the material upon and adjacent to those which it is placed. The placement of alternate layers of cohesive and noncohesive backfill material shall be thoroughly mixed prior to compaction, except as required for surfacing material. 6. No backfill material shall be deposited in standing water. 7. Backfill material shall be placed and compacted in uniform layers not exceeding 8 inches in uncompacted thickness. Moisture content shall be adjusted as required to obtain the specified density with the compaction equipment used. Compaction equipment shall be appropriate to the material being compacted. (i.e. Vibratory equipment for granular materials) 8. All trenches that have not been acceptably filled and compacted, or which settle after backfilling, shall be reopened to the depth of satisfactory compaction and refilled and recompacted as specified in these Specifications. 9. Warning marker tape shall be installed per Paragraph 301.02.2. 10. Extreme caution shall be used while compacting over installed Plant, drain tile and other utilities to avoid damage or collapse. 11. When a trench is located under asphalt surfaces, cold-mix patch shall be placed as a temporary surface restoration as soon as possible after the completion of compaction. Permanent hot mix repairs shall be made as soon as possible per Section 803.03. SECTION 303 - CONDUIT PLACEMENT - PLOW 303.01. DESCRIPTION 1. This section covers the installation of HDPE, and PVC duct systems for housing innerduct and cable by the use of a utility plow or railroad plow. 2. The simultaneous placement of split HDPE duct and cable will be prohibited. 303.02. RIPPING The Builder may make pre-rip passes prior to plow operations by making ripping passes be made to condition the route to a depth which exceeds the pipe or duct burial depth. The final ripping pass shall be in the same direction as pipe or duct plowing. 303.03. CONDUIT PLACEMENT 1. Before a plowing operation is started, the route surface shall be prepared to eliminate abrupt changes such that the pipe or duct alignment and grade shall be smooth and uniform. However, every effort shall be made to minimize the damage to the environment by grading only where abrupt changes in grade would adversely affect the placement. URRS Agreement Page 86 Dated: September 9, 2002 Appendix E 2. Where large rocks, large amounts of fill, and other debris have been placed over the cable route, the Builder shall blade the areas to natural grade before plowing. After the pipe or duct has been installed, the material shall be placed back to its original position. 3. Pipe or duct shall be placed directly in the ground with plowing equipment and delivery chutes designed to accommodate the pipe or duct material being installed without damaging or overstressing the conduit. Conduit shall be installed at the minimum depth of cover per 301.02. Warning marker tape shall be installed per paragraph 3.01.02.2. 4. The plow shank shall not be raised, lowered, or have its attitude changed unless the prime mover is moving forward and any changes in attitude shall be gradual. The plow shall not be set at extreme forward rake angles. All changes in depth shall be gradual with the vertical curve having a minimum 4-foot radius. The prime mover shall never be backed up with the plow in the ground. 5. Pipe or duct jointing shall be completed as the pipe or duct is installed per Paragraph 301.03.4 6. Connections shall be made to pushed or bored pipes and bridge attachment pipes. 7. Pipe or duct placement in a free-water environment shall be accomplished to prevent the pipe or duct from floating. Dewatering, anchoring, or weighing of the pipe or duct shall be accomplished without causing damage to the pipe or duct. If requested by the TOUCH AMERICA Representative, the Builder shall submit and demonstrate his plan for placing pipe or duct in a free-water environment prior to construction. SECTION 304 - BORE 304.01. This section covers the pushing, boring, or simultaneously boring and pushing of casing pipes under roads, railroads, drives, sidewalks, trees, and other items. 304.02. This section refers to conventional horizontal boring and does not pertain to directional guided bores. 304.03. CONDUIT PLACEMENT 1. Minimum depth of cover shall be per paragraph 301.02 or as required by the permitting agency. 2. Multiple pipes or conduits placed in a single bore hole shall be cased or the voids around the pipes pressure grouted. 3. Conduit shall be placed through an augured hole or shall be advanced by jacking as the soil is removed by the auger or by jacking directly through soil. Boring without the concurrent installation of the casing pipe will not be permitted. The installation shall be performed in a manner that will not unreasonably disrupt traffic nor damage the subgrade, and will provide accurate alignment and grade of the pipe. Removal of material from an augured hole by washing will not be permitted. Small amounts of water may be used as a lubricant in the boring or jacking operation. URRS Agreement Page 87 Dated: September 9, 2002 Appendix E 4. Prior to boring, all existing underground facilities shall be located and marked or exposed as necessary for safety and for protection of the existing facility. 5. Voids outside casings which exceed 1-1/2 inches shall be pressure grouted. If a pipe casing cannot be completed but has to be abandoned, the pipe shall be either removed and the void filled or the pipe completely filled as indicated by the Engineer unless required otherwise by the permit. 6. Electronic ball markers shall be placed above each end of the casing pipe at pipe at major river and road crossings four (4) lanes or wider at a minimum depth of 18 inches to a maximum 42-inch depth below ground. 304.04. RIVER AND STREAM CROSSINGS 1. This section covers the installation of casing pipe across water courses. 2. Stream bank protection, shall be as specified Right-of-Way Restoration. 3. Horizontally directional bored pipe placement required for some river and stream crossings shall be as specified in Conduit Placement - Directional Bore. 4. Pipe Placement A. The casing pipe shall be installed at a minimum of six (6) feet of depth across the flow line of the channel bottom or to the minimum depths indicated on the Drawings. B. The method of placement shall be by open trench, boring, plowing, or pushing, or a combination of these methods at the Builder's option, provided the methods do not conflict with permit requirements. C. The Builder shall be responsible for dewatering, diverting water, and controlling downstream water turbidity as required for the site conditions and per permit requirements. D. The installation of the casing pipe shall include shaping of the banks and stream bed back to original contours and compacting as necessary to accomplish the crossing and restoration of the areas. Placement of erosion control devices is also included. E. Pipe jointing shall be completed before or as the pipe is installed, per Paragraph 301.03.4. F. Pipe placement in trenched sections shall be as specified above.. G. Pipe placed in a trench across a flowing stream or below normal water level shall be secured and stabilized to ensure required depth as indicated on the Drawings. H. During bore pit backfill operations, warning marker tape shall be installed per 302.02.2.. I. Electronic ball markers shall be placed above each end of the casing pipe at major river and road crossings four (4) lanes or wider at a minimum depth of 18 inches to a maximum 42-inch depth below ground. URRS Agreement Page 88 Dated: September 9, 2002 Appendix E J. Casing pipe across some shallow flowing streams and most dry watercourses may be installed by plowing. Such stream or watercourse shall require sloped banks that tracked construction equipment may readily negotiate either unassisted or with a powered winch. Plowed casing pipe shall be accomplished by pulling pre-assembled pipe lengths attached to the plow shank at full placing depth by using either a sled or a tracked tractor mounted plow shank. Such crossing shall be made without exceeding the minimum allowable bending radius that will exceed the maximum allowable material design stress. K. Smaller streams may be pushed or bored with guided boring equipment as an option to open-cut trenching of the stream or portions of the stream. Guided boring systems using fluid other than water shall be as specified in the Section 305 - Pipe Placement - Directional Bore. The location including depth of the pipe placed by using this equipment shall be verifiable using sensors, locating equipment, and test pits at stream banks and points along the pipe. All requirements of a minimum radius, stress limitations, and detrimental effects shall be observed. SECTION 305 - DIRECTIONAL BORE 305.01. DESCRIPTION This section covers the installation of a river or other crossing utilizing casing pipe placed by horizontal directional boring methods, as required. The crossing to be cased shall be installed by horizontal directional boring which requires a directionally drilled hole going from one side of the crossing to an exit on the other side, without disturbing the stream banks or flowline. The directional boring shall be guided by guidance equipment that gives continuous, accurate monitoring of the drill bit position. 305.02. CONDUIT PLACEMENT 1. The casing pipe shall be installed to the line and minimum depths indicated. The method of placement shall be by horizontal directional boring. 2. Minimum depth of cover shall be per Paragraph 3.02.2 3. The Builder shall determine the types of subsurface materials which will be found and shall determine their effect on the bore installation. If available, soil boring logs and geophysical investigations obtained by TOUCH AMERICA are indicated on the Drawings. Interpretation of this information and the subsurface conditions between the locations of the soil borings shall be the responsibility of the Builder. Additional subsurface investigations required at bore locations shall be the responsibility of the Builder. 4. The Builder shall be responsible for dewatering, diverting water, and controlling downstream water turbidity as required for the site conditions. The construction work shall be in accordance with all applicable safety and environmental regulations. URRS Agreement Page 89 Dated: September 9, 2002 Appendix E 5. At request of a permitting agency, the Builder shall include a plan for containing and handling drilling fluid which may upwell to the surface. An emergency procedure shall be included for containing fluids which may be discharged into a body of water, and shall include a complete list of the appropriate governmental agencies which shall be immediately notified of the discharge. Alternatives shall be proposed which could be implemented to maintain or reestablish return of fluid to the entry pit. Builder is responsible for all clean-ups required by environmental or regulatory agencies. 6. All water use permits shall be obtained by the Builder prior to beginning work. Water sources shall be in accordance with the governing water control agency. 7. An emergency contact list to be used in the event of a drilling fluid spill spill will be included with the list of permits. The Builder shall notify the TOUCH AMERICA Representative immediately of drilling fluid spills. 8. Casing pipe entry and exit points shall be allowed no more than five (5) feet of deviation from the staked cable centerline. Entry and exit points normally will not be allowed closer to the banks of a waterway being crossed. 9. The exit hole for any bore exit to the surface other than for the final casing location shall be plugged and stabilized before proceeding with the bore. 10. Bentonite or other drilling fluids discharged at an exit location shall be contained and removed, and the exit site shall be restored to its original condition. 11. Protective coating on steel pipe that has been scratched, scraped, gouged, or damaged in any manner shall be repaired in accordance with the pipe coating manufacturer's specifications prior to placement of the pipe in the bored hole. 12. When boring requires the use of drilling mud, such as bentonite, no discharge of excess material or site runoff will be allowed into waterways. Mud tank capacities shall be sized to hold excess material completely by containing mud quantities without spillage. If required by the permitting agency, the casing pipe entry point shall be appropriately enclosed and equipped with a sump pump to reclaim or discharge excess mud to a reuse or disposal tank. Earth spoiled by drilling mud shall be removed and disposed of by the Builder and the site refilled with clean material. The site shall be restored to a condition equal to or better than its original condition. 13. All personnel, equipment, and materials required to contain drilling fluid which upwells to the surface or is discharged into a body of water shall be onsite during all drilling operations. 14. Drilling fluids shall be disposed of in an acceptable manner. 15. After testing and cleaning have been completed, both ends of the steel pipe shall be terminated and sealed. Innerduct, as indicated on the Drawings, shall be installed and extend a minimum of fifteen (15) feet past the ends of the bore pipe. Both ends of the bore pipe shall then be sealed with manufactured duct plug organizers. Bore pipes larger than six (6) inches shall be sealed as indicated on the Drawings. Pipe ends shall be clearly marked with a surface marker or the pipe ends shall be fenced. URRS Agreement Page 90 Dated: September 9, 2002 Appendix E 16. Electronic ball markers shall be placed above each end of the casing pipe at pipe at major river and road crossings four (4) lanes or wider at a minimum depth of 18 inches to a maximum 42-inch depth below ground. SECTION 306 - BRIDGE ATTACHMENT 306.01. DESCRIPTION This section covers the attachment of pipe to concrete box culverts, and to road, railroad, and other types of bridges which may be constructed of steel, concrete, or arch stone. Work includes coring of abutments, diaphragms, or retaining walls as required. 306.02. CONDUIT PLACEMENT: BRIDGE ATTACHMENT 1. Pipe shall be attached to bridge. Work on any bridge shall not disrupt road or railroad traffic on or below the bridge unless approved in the permit obtained for the particular bridge. The bridge owner will be allowed to inspect the work at any time during construction. The Builder shall supply all equipment and materials to drill, punch, drive, weld, or otherwise fix the attachments and hangers. 2. If required, bridge abutments shall be cored to allow passage of the conduit onto the bridge. After placement of the conduit, the remaining space between the outside of the pipe and the cored hole shall be filled with non-shrink grout or other approved material. 3. The nuts on bolts or hanger rods shall be secured prevent the nuts from vibrating loose. 4. Pipe shall extend outside the bridge abutments into the ground with bends. 5. All conduits placed on bridges shall have expansion joints placed at each structural (bridge) expansion joint or at least every 300 feet, whichever is the shorter distance. For bridges under 100 feet, at least one conduit expansion joint will be placed, even if there is no bridge expansion joint. 6. If required, electronic ball markers shall be placed above each end of the pipe at pipe at major river and road crossings four (4) lanes or wider at a minimum depth of 18 inches to a maximum 42-inch depth below ground. SECTION 307 - INNERDUCT PLACEMENT 307.01. Description: This section covers the installation of one (1) or more new innerducts or conduits in an existing or newly placed conduit or casing. 307.02. If the Conduit does not have a pull line already installed, it shall be installed by the Builder . 307.03. All of the innerducts being placed in a conduit or casing shall be pulled in simultaneously. Innerducts shall be of one (1) continuous length between pull points. Before placement, the leading end URRS Agreement Page 91 Dated: September 9, 2002 Appendix E of each innerduct shall be sealed. In the event splicing of innerduct is allowed, and multiple innerducts are spliced, the splices shall be staggered. Innerducts may be lubricated in quantities as recommended by the lubricant manufacturer. 307.04. The pulling force on the innerduct shall not exceed the tensile yield strength of the innerduct or the rated pull strength established by the manufacturer. 307.05. On completion of the innerduct placing, the innerduct shall rest freely in the conduit and splice vaults or manholes without tension. Racking of the innerduct in manholes shall be completed after the cable is placed and as a part of cable placing. 307.06. The ends of innerducts shall be sealed to keep dirt and debris from entering the innerduct. Manufactured compression plugs or other approved duct seals shall be used in sealing innerduct ends. Plugs shall accommodate the cable if cable is placed concurrently. DIVISION 400: CABLE PLACEMENT 401.01. DESCRIPTION This section covers the installation of cable in pipe or duct through manholes or pull vaults. 401.02. GENERAL 1. The Builder shall not damage equipment items including cables, apparatus cases, and load coil cases when working in manholes. Per joint use agreement(s), a representative of an other utility (or other utilities) may need to be present before entering their manholes. 2. When working in manholes, the Builder shall follow all applicable OSHA confined space requirements as well as any environmental agency requirements for water removal. 3. Smoking and open flames are not allowed in manholes. There will be no fusion splicing done in manholes. 401.03. MATERIAL REQUIREMENTS 1. Cable and fiber apparatus (splice closures) shall be furnished by TOUCH AMERICA. The Builder shall provide TOUCH AMERICA, a minimum of 12 weeks, or as otherwise agreed upon prior to the date that the cable is required on the job, the cable required for the project. 2. Break-away swivel connectors, pull line for fiber optic cable pulling, cable labels, tie wraps, lubricant, all other materials and equipment required to place the fiber optic cable shall be furnished by the Builder. 3. All other equipment items and tools such as manhole bridging, pulling grips, and bending shoes shall be provided by the Builder. 401.04. CABLE PLACING PLAN URRS Agreement Page 92 Dated: September 9, 2002 Appendix E At least two (2) weeks prior to beginning cable placing operations, the Builder shall schedule a meeting with the TOUCH AMERICA Project Representative to discuss the cable placing plan. This proposed plan shall outline plan of action for each reel to be placed, and the sequence of cable placement. Cable shall be placed continuously in Route Sections between A&T Sites. This meeting will allow TOUCH AMERICA to schedule splicing crews. The Builder shall follow the approved cable placing plan. Deviations from the cable placing plan will not be allowed without the acceptance of the TOUCH AMERICA. Deviations from the scheduled placing plan, may extend the completion date, by delaying the splice activity. Cable shall be installed in the lowest available duct. Placing cable will only be allowed during daylight hours which will be 1/2 hour before sunrise to 1/2 hour after sunset unless otherwise required by the permitting agency 401.05. CABLE HANDLING 1. Cable reels shall be delivered to the designated address supplied by the Builder. 2. Cable reels shall be placed upright on a level area and securely blocked to prevent accidental movement. Partially placed cable reels to be left on the right-of-way overnight or for an extended period of time shall be covered with a heavy steel box accepted by the TOUCH AMERICA Project Representative. Full unused reels shall not be left overnight on the right-of-way. 3. TOUCH AMERICA assumes that cable provided by the fiber optic cable manufacturer to be as specified and as per the test results supplied by the Cable Manufacturer. The Builder shall visually inspect each reel for damage upon receipt of the cable. Damages are to be recorded on the transportation company's bill of lading and reported to TOUCH AMERICA in writing as soon as received. The Builder, may at his own expense test fiber on a end-to-end basis while such fiber cable is still on the reel. Any defective fibers discovered in the on-reel test will be brought to the attention of the Engineer in writing for further action. The Builder will not be responsible for fiber cable found to be defective due to manufacturing or transportation, provided such defects are discovered prior to cable placement and TOUCH AMERICA is notified. Failure to make the on-reel test and to notify TOUCH AMERICA of such defects prior to placing the cable will be at the Builder's own risk. TOUCH AMERICA will deem such cable to have been free of defects prior to placement, and the Builder will be required to replace or repair such defective cable at TOUCH AMERICA's option and at the Builder's expense. Such replacement will include the cost of materials, labor and incidentals. 4. If damage is observed to the interior of the cable reel during placement of the cable, placement should stop and TOUCH AMERICA shall be immediately notified. 5. The Builder shall visually inspect the cable prior to and during placement and immediately notify the TOUCH AMERICA Representative of any damage. Reels with damage observed after the Transportation company has left the site which were not noted and recorded at the time of unloading, will be placed at the Builder's own risk. Builder will be required to replace or repair URRS Agreement Page 93 Dated: September 9, 2002 Appendix E such defective cable at TOUCH AMERICA's option and at the Builder's expense. Such replacement will include the cost of materials, labor and incidentals. 6. The cable shall not be subjected to rough treatment or sharp bending that could cause crushing or kinking. 7. The minimum fiber cable bend radius for mechanical equipment and manual handling in duct and in underground installations under load shall be 20 times the fiber cable diameter or 12 inches, whichever is the greater or as specified by the manufacturer. The minimum fiber cable bend radius for mechanical equipment and manual handling in duct and in underground installations under no load shall be 10 times the fiber cable diameter or as specified by the manufacturer. 8. The maximum pulling force on the cable shall be 600 pounds or as specified by the manufacturer of the cable. 401.06. PLACEMENT LENGTH OF FIBER OPTIC CABLE Prior to beginning operations, the Builder shall examine each manhole in each underground section or each buried pipe or duct section. The Builder shall decide, if cable will be placed from splice location to splice location or if assists such as an mid-span winch will be required at intermediate locations. 401.07. MANHOLE, SPLICE AND PULL VAULT/HAND HOLE PREPARATION 1. Splice and pull vaults or hand holes utilized for cable placement shall be prepared and rigged for cable placement using pulling methods as follows: 2. All rigging in the manholes shall ensure that the cable will never be bent to less than a 12-inch bend radius or 20 times the fiber cable diameter or whichever is the greater. 3. Manholes With Innerduct: In intermediate manholes without continuous innerduct, previously placed innerduct installed with pull line shall be overlapped at the midpoint of the manhole with the ends of the innerduct securely joined together to provide a continuous duct arrangement. If the opposing ducts do not line up, approved bending shoes or pulley wheels and bracing shall be used maintaining the minimum allowable bending radius. Lubrication points shall be provided as required. When cable placement is to be performed via pneumatic/tracktive force methods, intermediate manholes shall be bridged and sealed to equipment manufacturers recommendations. using airtight couplers. 4. Manholes Without Innerduct: All intermediate manholes shall be bridged to provide a smooth cable path and transfer of lubricant. For manholes with a large offset or a change in direction, sheaves or quadrant blocks shall be used as required and shall be securely tied in position to guide the cable into the duct to prevent cable sheath abrasion at the duct entrance. 5. Feed Manholes: The feed manhole shall have a smooth cable feeder extended out of the manhole. The cable feed apparatus shall be securely fastened to ensure that specified minimum bends are not exceeded. The feed manhole shall be rigged to ensure that the cable passes directly and freely into URRS Agreement Page 94 Dated: September 9, 2002 Appendix E the manhole, over a sheave or quadrant block, and directly into the duct or innerduct entrance without rubbing against parts of the manhole rigging. 6. Pull Manhole: The pull manhole for both the placement of the pull line and cable shall be rigged to ensure that the pull line passes directly and freely from the duct or innerduct entrance into the manhole, around a snatch block, up the manhole chimney, over a manhole sheave or quadrant block, and directly to the capstan winch without rubbing against parts of the manhole rigging. 7. Cable Air System Placement: Cable entry, intermediate and exit manholes shall be prepared per the equipment manufacturers recommendations. All rigging in the manholes shall ensure that the cable will never be bent to less than a twelve (12) inch bend radius or twenty (20) times the fiber cable diameter or whichever is the greater. 401.08. CABLE PLACEMENT 1. When possible, the entire length of cable shall be placed in one uninterrupted operation without intermediate assistance. 2. Radios and cellular telephones shall not be used in telecommunications rooms or central offices. 3. In the event cable is placed utilizing air methods, the Builder shall provide personnel at all manholes where conduit/duct is not sealed through. 4. The Builder shall calibrate all cable placing equipment before cable placement begins, as required during placement operations. 5. Lubrication shall be provided as recommended by the equipment manufacturer to minimize tension on the cable. 6. For cable placed utilizing pulling methods, the cable shall be installed using a winch equipped with a running line dynamometer to measure the pulling tension. If tensions at the running line dynamometer approach or exceed the allowable tensile limit, the pull shall be stopped and the winch moved closer to the pulling end of the cable. When a mid-point assist cable winch is used in a pull length, the cable winch shall also have a running line dynamometer. Cable pulling winches shall meet the following requirements: A. Pulling force is maximum of 1,000 pounds B. Minimum capstan radius of 12 inches or to meet cable manufacturer's specifications. 7. The maximum pulling force on the cable shall be 600 pounds or per cable manufacturer's recommendations. An approved cable grip with pulling eye shall be attached to the cable end. The pulling eye on the cable grip shall be connected to the pulling line using a break-away swivel connector. The break-away swivel connector shall be calibrated to 600 pounds tension or as per the cable manufacturer's recommendations. The cable shall be pulled off the top of the cable reel by hand during cable placement to maintain cable slack and to prevent reverse bends. The cable reel shall be tended for the entire pull. The running line dynamometer shall monitor the pull line tension just ahead of the capstan. URRS Agreement Page 95 Dated: September 9, 2002 Appendix E 8. Cable can be placed using pneumatic methods provided the equipment is appropriate to the allowable tensile forces, the diameter of the cable and the conduit utilized. Care is to be exercised during the blowing operation, to feed the cable in the equipment loosely and with no tensile force. 9. The cable shall be placed with sufficient control of speed to prevent cable damage. 10. In the event that that a cable pull becomes too difficult in a buried sections, excavation of the conduit may be required. The pipe or duct shall be exposed, cut and the cable pulled through. After the cable is placed, the pipe or duct shall be repaired and the backfill replaced. 11. In the event that that cable placement utilizing air driven placement stops, buried sections may require excavation of the conduit. The pipe or duct shall be exposed, cut and repaired or the site used as an intermediate assist point. After the cable is placed, the pipe or duct shall be repaired and the backfill replaced. 12. When cable placement is completed, unless agreed to otherwise, there shall be cable coiled in manholes, handholes or vaults as follows: (i.) A minimum of fifty (50) feet of cable shall be coiled at all intermediate handholes. (ii.) A minimum of seventy-five (75) feet of cable shall be coiled at each end of the cable for splicing purposes. These measurements are minimums referenced to the point at which the cable would exit the manhole lid for the purpose of splicing. These measurements may be modified during engineering to reflect the actual distance from the splice handhole or manhole to an adjacent splicing van. 13. Empty cable reels shall be removed from the work site promptly. Returnable reels are to be handled per 202.06 - Returning Reels. 14. Excess fiber optic cable shall be handled per 202.05 - Excess Material. 401.09. CABLE CUTTING The Builder shall not cut the cable unless approved by the TOUCH AMERICA Representative. 401.10. CABLE RACKING - MANHOLES 1. After cable placement, all pulling hardware and lubricant shall be removed 2. Cable racking in manholes shall proceed as follows: A. Racking shall be started at the center manhole and proceed in each direction simultaneously towards the cable ends. URRS Agreement Page 96 Dated: September 9, 2002 Appendix E B. The necessary cable slack shall be pulled by hand. Use caution when pulling cable to prevent damage. C. The cable shall be covered with split innerduct, if bare, and laid on the racking shelves along the side walls at the same height as it enters and exits the manhole or as indicated by the Engineer. All bends shall be gently formed to the greater of a minimum 24-inch diameter or 20 times the cable diameter. D. Innerduct with cable shall be secured to the manhole hardware using lightweight plastic tie wraps. E. Intermediate manholes with cable in coils shall be gently formed to a minimum 24-inch diameter and secured to the manhole hardware in a safe location using plastic tie wraps. Cable coils shall not be covered with split innerduct. 401.11. CABLE STORAGE - HANDHOLES 1. Excess cable in the splice handholes shall be coiled by hand while maintaining a minimum 24-inch diameter coil. The cable shall be coiled from the cable end toward the conduit face of the handhole. Bundle the turns of the coil together with loosely applied plastic tie wraps or electrical tape at several locations on the circumference of the coil. 2. The ends of the innerduct occupied by the cable shall be sealed at building entrances with split rubber plugs and compression bands. The ends of the innerduct occupied by the cable shall be sealed with an industry standard duct seal at handholes, manholes or vaults to prevent animal intrusion (for example, gophers).. Spare innerducts shall be sealed with standard fitting plugs. 3. Cable labels shall be placed on the cable. 4. Construction debris shall be removed from manholes upon completion of cable installation. All manhole hardware shall be installed and secured. The manhole lid shall be replaced and bolted in place, if applicable. DIVISION 500: BONDING AND GROUNDING 1. This section covers bonding and grounding work to be performed to increase the electrical protection against stray voltages (lightning and induced 60 hertz voltage) to minimize personal injury, equipment damage, and service interruptions. 2. Periodic paths to ground for the currents producing these voltages in the cable sheaths metallic members shall be provided in such a manner that do not jeopardize the effectiveness of the cable locating equipment which uses the sheath's metallic members as the "tone" conductor. 3. Filter-protectors are to be placed at each and every splice for Routes maintained by TOUCH AMERICA, at every other splice for Routes maintained by Builder. Additional units may be required at the following locations: A. Metallic pipe or lead cable sheath road bores B. Bridge Crossings C. Proximity to other well-grounded structures D. Plant transitions (i.e. underground to buried) URRS Agreement Page 97 Dated: September 9, 2002 Appendix E 4. All sheath metallic members will be bonded together at all splices and facility entrances. Sheath metallic members include the crossply, LXE and B-oversheath, but not wire armor. Wire armor is not to be bonded to metallic sheath members, but must be independently grounded. 5. All connections wire to ground rods are to be exothermic (CAD Welds or equivalent). Area to be exothermic welded shall be cleaned with steel wool or sandpaper prior to setting and igniting charge. 6. During handhole placement at splice locations, a ground rod shall be installed. The ground rod may be installed adjacent to and outside of the handhole or inside the handhole, adjacent to a corner of the handhole. The top of the ground rod shall no extend above the conduct Insulated number six (6) AWG solid copper ground wire shall be placed through the side of the handhole and exothermic welded to the ground rod. A hand coil of ten (10) feet of wire shall be coiled inside the handhole for use by the splicers. 7. If required the additional general bonding and grounding may be required: - Racking hardware in precast concrete manholes shall be bonded to the manhole reinforcing steel. - Steel pipe conduit entering a manhole shall be bonded to the racking hardware.by attaching a No. 6 AWG insulated solid copper conductor to the steel pipe with a grounding pipe clamp. The other end of the conductor shall be bolted to the hardware with a 2-hole connector attached to the other end of the conductor by an exothermic type weld. The connector shall be bolted to the hardware using a stainless steel bolt. - Steel pipe casing locations, the Supplier shall furnish and install a ground rod and a No. 6 AWG insulated solid copper conductor. DIVISION 600 - MARKER PLACEMENT 601.01. DESCRIPTION This section covers the installation of cable route markers with warning and information signs identifying the cable route. 601.02. INSTALLATION 1. Cable markers shall be installed along the route as follows: - All sign posts shall include the phone number of the local One-Call Agency and if required, the maintaining company's "800-" phone number. - Markers should be placed at line-of-sight intervals so the direction of the route is clearly indicated by placing at points where the route changes direction, at each splice, at handholes and manholes , at both sides of street, highway or railroad crossings, and at other points where they will be helpful in identifying the plant. - An adjacent marker should be visible each way from an adjoining marker but at no time shall any markers be spaced more than five hundred feet (500) apart in metro areas or one thousand feet (1000) in non-metro areas, land use permitting. Placing of markers in cultivated areas or at locations likely to be objectionable to property owners should be avoided. URRS Agreement Page 98 Dated: September 9, 2002 Appendix E - Markers shall be positioned so that they can be seen from the location of the cable and generally set facing perpendicular to the cable running line. - Splices and pull boxes shall be marked on the cable marker post. 2. Marker posts shall be plumb, with signs level and correctly positioned. Markers shall be set concurrently with other work such as trenching, plowing, boring or attaching to bridges 3. Markers will be set prior to installation of the cable. 4. Holes for posts shall not be excavated with a backhoe. Power augers or manual post hole diggers shall be used. Posts set directly in the ground shall be backfilled in maximum lifts of six (6) inches loose measurement with suitable material. Each lift shall be thoroughly compacted by the use of mechanical tampers to the density of the surrounding soil so that posts are firmly set. 5. Driven posts shall be held in alignment while being driven. The post top shall be protected during driving by means of a cap or other approved device to prevent damage. All damaged posts shall be removed and replaced. 6. Warning signs not requiring stamping shall be installed at the time the post is set. DIVISION 700 - PULL/SPLICE VAULT AND PULL/SPLICE MANHOLE PLACEMENT 701.01. DESCRIPTION This section covers the installation of vaults and manholes for housing conduit, innerduct, or cable. 701.02. PULL AND SPLICE VAULT PLACEMENT 1. Pull and splice vaults shall be set per the attached detail. The maximum spacing between handholes shall be 4,000 plus or minus 200 feet. 2. The excavation shall be a minimum of two (2) feet larger than the vault in circumference. A layer of coarse, free draining aggregate a minimum of 12 inches thick shall be used to obtain a level subgrade and to provide full base support prior to vault placement. Each vault shall be installed during cable placement operation. Pull/splice vaults shall be buried and placed with the minimum cover of 18 inches. 3. Splice vaults for a basic straight through cable placement shall have the conduit openings made in diagonally opposite corners to facilitate cable coiling and splice case housing placement. Pull or splice vault openings shall be enlarged, if necessary, by drilling to accept the diameter of conduit being installed. A core type bit shall be used to make the opening. The finished diameter of the enlarged opening shall not exceed the outside diameter of the conduit by more than 1/2 inch. The conduit shall terminate three (3) to six (6) inches inside of the vault. The space between the conduit and the opening shall be filled with nonshrink epoxy grout or silicone sealant. Do not damage conduit to splice vault connection during the placement of backfill material. URRS Agreement Page 99 Dated: September 9, 2002 Appendix E 4. The spare TOUCH AMERICA Conduits are to express through the handhole. The Builder Conduits are to route outside of the TOUCH AMERICA handhole. In the event the Builder is to access The Cable, a Builder handhole is to be set adjacent to the TOUCH AMERICA handhole, and a conduit placed between the handholes. 5. In the event the vault is to be buried, after the vault has been set, the Builder shall install two (2) or more extension units, if required, which will bring the top of the extension units to a point near the surrounding ground surface. After the cable has been coiled and placed inside the vault, the cover shall be securely bolted in place on the upper extension unit and the excavation backfilled. A stake shall be placed at the surface to mark the vault location. Upon completion of cable placing, splicing and testing, and with the approval of the TOUCH AMERICA Splicing Representative, the extension units will be removed, the cover securely bolted in place and the excavation backfilled. 6. The Builder shall furnish and install conduit duct seals, innerduct cable seals, and spare innerduct plugs. URRS Agreement Page 100 Dated: September 9, 2002 Appendix E TYPICAL HANDHOLE PLACEMENT: PLAIN VIEW (N.T.S.) [GRAPHIC] URRS Agreement Page 101 Dated: September 9, 2002 Appendix E TYPICAL HANDHOLE PLACEMENT: ELEVATION VIEW (N.T.S.) [GRAPHIC] URRS Agreement Page 102 Dated: September 9, 2002 Appendix E 7. The Builder shall furnish and install the cable labels. Cable labels shall be attached to each cable in the vault. 701.03. PULL AND SPLICE MANHOLE PLACEMENT 1. Manhole excavation and placement shall be at the designated locations. Manhole excavation shall be large enough to accommodate compaction equipment for backfill operations. Manholes shall be installed to provide the proper manhole lid elevation and shall be set level and plumb. A 12-inch pad of coarse aggregate shall be placed to obtain a level subgrade prior to manhole placement. 2. The precast base section shall be carefully placed on the prepared bedding so as to be fully and uniformly supported in true alignment. All joints between precast elements shall be sealed with sealant material. The sealant material shall be placed in accordance with the manufacturer's specifications. 3. Castings placed on concrete or masonry surface shall be set in full bituminous mastic beds. 4. Grade adjustment of the manhole frame and lid of three (3) inches and over shall be accomplished with precast concrete grade rings. Adjustments less than three (3) inches shall be made with concrete dresser blocks, sealed with nonshrink grout. 5. Manholes with frame, TOUCH AMERICA locking lid, riser casting, and grade rings shall be placed to provide a final finish grade elevation as follows: A. Street Concrete or Asphalt Pavement: The frame and lid shall be placed flush with the existing or proposed finish pavement grade to prevent a rough or uneven driving surface. Unless specified differently by local authorities, final pavement placement shall be flush with the top of the manhole frame. B. Off-Street Concrete or Asphalt Pavement: The frame and lid shall be placed two (2) inches higher than the existing or proposed finish grade to prevent surface run-off water from entering the manhole. Final pavement placement shall be flush with the top of the manhole frame by tapering the pavement to the finish grade for ten (10) feet in all directions from the manhole frame. Manhole frame shall be set level. C. Residential Lawns: The frame and lid shall be placed two (2) inches higher than the existing finish grade to prevent surface run-off water from entering the manhole. Final sodding or topsoil for seeding shall be placed to the top of the manhole frame and graded to taper the lawn areas to the existing contour and provide drainage for ten (10) feet in all directions from the manhole frame. Manhole frames shall normally be set level, but may be set out of level to match the existing grade only with the acceptance of the TOUCH AMERICA Representative. D. Undeveloped or Rural Areas: The frame and lid shall be placed two (2) inches higher than the existing finish grade to prevent surface run-off water from entering the manhole, upon approval of landowners. Final soil grading shall be to the top of the manhole frame and tapered to existing contour and provide drainage for five (5) feet in all directions from the manhole frame. Manhole frames shall be set level. URRS Agreement Page 103 Dated: September 9, 2002 Appendix E 6. Extra care shall be taken to avoid plugging the unused duct terminators when placing encasement concrete for protecting the conduit. 7. Manhole hardware shall be installed by the Builder in accordance with the manhole fabricator's drawings. All hardware shall be installed prior to cable pulling. 8. The Builder shall install bonding ribbon and connectors in the manhole to bond the racking hardware to the manhole reinforcing steel in each manhole section as indicated on the Drawings. All bonding shall be in place prior to cable placement. 9. Backfilling shall start immediately after placing the manhole and conduits entering the structure. In paved areas, the backfill shall consist of the material and compaction specified for use in street excavation up to the base required for pavement, per the permitting agencies requirements. In unpaved areas, select backfill material shall be placed up to the roof of the structure followed by the material removed during the pit excavation. The graded surface shall be prepared for seeding or sodding. 10. The Builder shall furnish and install conduit/pipe, duct seals, innerduct cable seals, and spare innerduct plugs. 11. The Builder shall furnish and install the cable labels. Cable labels shall be attached to each cable in the manhole. DIVISION 800 - RESTORATION & EROSION CONTROL SECTION 801 - EROSION CONTROL Description This section covers the furnishing and placing of materials for erosion protection along trench lines, streams, steep ground areas, and road ditches, as well as measures for water course channel grade stabilization. 801.01. GENERAL 1. Trench plugs shall be constructed with fabric bags, filled 2/3 full with clean soil. 2. Terraces shall be constructed with native soil. If available, terrace material shall be cohesive soil. 3. Baffles shall be constructed with new boards and posts. 4. Soil-cement bags shall consist of fabric bags filled 2/3 full with soil-cement. 5. Gabions shall be as specified by the permitting authority. URRS Agreement Page 104 Dated: September 9, 2002 Appendix E 6. Hay bale checks shall consist of straw or hay bales, filter fabric, and anchoring stakes. 801.02. CONSTRUCTION METHODS 1. Trench plugs shall be installed at locations as required. The soil-filled bags shall be placed in the trench in a manner which will produce a compact mass with a minimum percentage of voids. A minimum of two (2) rows of bags shall be arranged so that the long dimension of bags is parallel to the cable in one (1) layer and perpendicular to it in the next layer. 2. Terraces shall be constructed at locations as required. Terraces shall be placed so that the terrace flow line is unobstructed and has a grade of between two (2) and five (5) percent. Terraces shall extend the full width of the area disturbed by construction and shall discharge to the down slope side of the right-of-way into an undisturbed area. Terraces shall be compacted. Terrace construction shall begin immediately following backfill operations. 3. Baffles shall be installed at locations as required. Baffles shall be placed so that the flow line is unobstructed and has a grade of between 2 and 5 percent. Baffles shall extend the full width of the area disturbed by construction and shall discharge to the down slope side of the right-of-way into an undisturbed area. The posts shall be set or driven into the soil to the depth indicated on the Drawings. Care shall be taken not to damage the posts or boards during installation. All damaged posts and boards shall be replaced by the Builder. The boards shall be securely attached to the posts with galvanized nails or bolts. A trench plug shall be constructed directly beneath each baffle. Backfill around the baffle and trench plug shall be compacted to a minimum of 85 percent of maximum dry density as determined by ASTM D698 or local right-of-way or permit requirements, whichever is more stringent. 4. Soil-cement filled fabric bags shall be installed as required. The bags shall be placed in a manner which will produce a compact mass with a minimum percentage of voids. 5. The soil-cement shall be made by mixing ten (10) percent by weight of cement with soil. Water shall be added to create a moist mixture. All mixing shall be done in a concrete mixer acceptable to the TOUCH AMERICA Representative. The mixing time shall be that which is required to produce a uniform mixture of the soil, cement, and water. Mixing will not be permitted when the soil is frozen, or when the air temperature is below 40 degrees F, unless the temperature is at least 35 degrees F and rising. 6. The soil-cement mixture shall be transported from the mixer to the placement location in clean equipment. The total elapsed time between the addition of water to the mixture and placement of the soil-cement filled bags shall not exceed two (2) hours. The mixture shall not be left undisturbed for longer than 30 minutes during this period. Water shall be sprayed on the soil-cement as required after mixing to keep it moist. 7. The fabric bags shall be filled 2/3 full of soil-cement, loosely packed to leave room for folding or tying at the top. Immediately after filling, the bags shall be placed as required and compacted to conform with the earth subgrade and with adjacent bags in place. All dirt and debris shall be removed from the top of the bags before the next course is laid thereon. The subgrade and each course of bags shall be pre-moistened by spraying with water prior to placement of later courses. URRS Agreement Page 105 Dated: September 9, 2002 Appendix E To ensure a proper bond between successive courses, the bags shall be placed as specified in a continuous manner. Voluntary delays will not be permitted during placement operations. 8. Riprap shall be placed as required. 9. Gabions shall be placed as required . Stone shall be placed in close contact in the unit so that maximum fill is obtained. The units may be filled by machine with sufficient hand work to accomplish the requirements of these Specifications. The exposed face or faces shall be hand-placed using selected stones to prevent bulging of the gabion cell and to improve appearance. Each cell shall be filled in three (3) lifts. Connecting tie wires shall be placed in accordance with the manufacturer's recommendations between each lift in each cell. Care shall be taken to protect the vertical panels and diaphragms from being bent during filling operations. 10. The last lift of stone in each cell shall be level with the top of the gabion to properly close the lid and provide an even surface for the next course. 11. All gabion units shall be tied together along all contacting edges in order to form a continuous connecting structure. Empty gabions stacked on filled gabions shall be laced to the filled gabion at the front, side, and back. 12. Hay bale checks shall be as required. The installation shall be perpendicular to the flow of the water. The filter fabric shall be placed on the bottom and along the downstream vertical side of the excavation made for placing the bales and extend downstream a minimum of 2 feet as indicated on the Drawings. The fabric shall be pinned to the bottom of the trench and at the downstream edge of the fabric. Bales shall be placed with the tied surfaces parallel to the sides of the trench. The top surface of the bale shall project above the adjacent ground not less than two (2) inches nor more than four (4) inches. The backfill around the bale shall be firmly compacted and the bale staked in position with two each 2-inch by 2-inch by 36-inch wood stakes driven vertically through the bale. as required, Builder shall reshape the surrounding disturbed areas and reseed by hand methods. SECTION 802 - RESTORATION AND REVEGETATION 802.01. DESCRIPTION This section covers the clean-up, repair, protection, and revegetation of the right-of-way after installation of pipe, duct, or cable. 802.02. RESTORATION 1. Areas disturbed by construction shall be restored within two (2) weeks of construction completion. This includes, but is not limited to: A. Removal of excess excavation spoils from the construction area. B. Removal of trash and construction debris. C. Filling, repairing, and stabilizing ground surfaces disturbed by construction. D. Regrading, hand raking, or manipulating the finished ground surface to the level of smoothness necessary for seeding or sodding. URRS Agreement Page 106 Dated: September 9, 2002 Appendix E E. Treating, repairing, or replacing, trees and shrubs specified for preservation but damaged by construction activity. 2. Natural grades shall be reestablished to the extent practical. Care shall be taken so as not to disturb natural surface drainage patterns. 802.03. PREPARATION OF SOIL 1. The area to be planted shall be thoroughly tilled to a depth of at least three (3) inches by discing, harrowing, or other acceptable methods until the soil is well pulverized. After completion of the tilling operation, the surface shall be cleared of all stones, stumps, or other objects larger than 1-1/2 inches in thickness or diameter, and of roots, wire, grade stakes, and other objects that might be a hindrance to maintenance operations. Undisturbed areas with a satisfactory cover of native grasses shall be left untilled and unplanted. 2. The spreading of topsoil, when required, shall be completed over the entire area before the beginning of soil preparation. 3. Soil preparation shall be performed only during periods when satisfactory results are likely to be obtained. When results are not satisfactory because of drought, excessive moisture, or other causes, the work shall be stopped until such conditions have been corrected. 802.04. FERTILIZING 1. Fertilizer shall be applied at rates specified by the local permit authority. The fertilizer shall be applied uniformly with a fertilizer spreader before the beginning of the seeding operation. The first application of fertilizer shall become a part of the bed preparation. 2. If seed is to be applied by hydraulic application, the fertilizer may be mixed with the seed and mulch and applied as a slurry as specified. 802.05. SEEDING AND SODDING 1. The Builder shall seed all disturbed areas, if required, except croplands and areas to receive sod. 2. Seed shall be applied uniformly over the disturbed area with the seed mix and application rates as specified by the local permit authority. 3. In general, turfed areas within commercial and residential areas shall be sodded. Areas where sodding is required will determined by the granting authority. 4. The soil to be sodded shall be loosened to a depth of not less than two (2) inches by discing, harrowing, raking, or other approved means. The resulting sodbed shall be free of debris, waste materials, and vegetation. The sodbed shall be graded to allow for the thickness of sod and to match abutting vegetation. Sod shall be placed only during seasons when satisfactory results can be expected. All soil surfaces shall be moist when the sod is placed. Sod shall be placed when the ground is in a workable condition and temperatures are less than 90 degrees F. Sod shall not be placed when the sod or ground surface is frozen. URRS Agreement Page 107 Dated: September 9, 2002 Appendix E 5. The sod shall be placed on the prepared surface with the edges in close contact and alternate courses staggered. In ditches, the sod shall be placed with the longer dimension perpendicular to the flow of water in the ditch. On slopes, starting at the bottom of the slope, the sod shall be placed with the longer dimension parallel to the contours of the ground. The exposed edges of sod shall be buried flush with the adjacent soil. Sod edges shall be filled to present a smooth surface. The sod shall be rolled, tamped, and thoroughly watered to ensure good root contact and tie to the prepared subgrade. 6. The sod shall be staked on all slopes of two to one (2:1) or steeper. Sod shall be staked with not less than four (4) stakes per square yard with at least one (1) stake for each piece of sod. Stakes shall be a minimum of six (6) inches long. Stakes shall be installed so that they hold the sod firmly in place yet present no danger to pedestrians or mowing crews. The type of stake and the method of installation shall meet the approval of the TOUCH AMERICA Representative. 7. The Builder shall keep all sodded areas, including the subgrade, thoroughly moist until the newly laid sod is firmly established as indicated by at least 1 inch of new growth developed after the sod is laid. 802.06. MULCHING 1. Mulch shall be applied to all areas that have been seeded, if required. Seeded areas shall be mulched within 24 hours of seeding. 2. Straw mulch shall be applied with a mulch blowing machine or other approved method, and shall be evenly applied to obtain a uniform cover. Straw mulch shall be applied at a rate of 2.25 tons per acre. 3. Hydromulching shall be performed with hydroseeding operations. Cellulose fiber mulch shall be spray applied uniformly to the seedbed at a rate of 1,500 pounds per acre. 802.07. VEGETATION LIMITS All earth surface disturbed by the Builder's construction activities except croplands shall be revegetated by seeding or sodding, as required. Seeding and sodding operations shall take place only during seasons when satisfactory results can be expected. The Builder may be required to return after completion of construction to meet above specified seeding limits. 802.08. MATTING AND NETTING PLACEMENT 1. Erosion control matting shall consist of excelsior blankets, mulch blankets, jute blankets, synthetic blankets, as required. 2. Matting and netting shall be placed on steep or highly erosion susceptible soil areas for erosion control at locations indicated on the Drawings and as determined by the TOUCH AMERICA Representative or Engineer. Matting shall be placed on the graded and prepared surface after the seeding operation. The ground surface shall be free of rocks, soil clumps, sticks, or other imperfections which would prevent the matting from laying flat with the ground. The material shall URRS Agreement Page 108 Dated: September 9, 2002 Appendix E be pinned or anchored to the ground as recommended by the manufacturer. In areas of watercourses, pin spacing shall not exceed two (2) feet between rows and two (2) feet on centers in a row. 802.09. CONTACT WITH LANDOWNERS All restoration and revegetation work shall be performed to the satisfaction of the landowner. The Builder shall work with the landowner during construction to ensure that landowner concerns are being addressed. Restoration and revegetation work which is not satisfactory to the landowner shall be corrected within ten (10) days from the notice of deficiency. In the event that the Builder has obtained right-of-way access from any "off right-of-way" landowners, the Builder shall obtain written releases from said landowners. 802.10. PLOW LINE RESTORATION Restoration for plowing operations not involving railroad right-of-way shall be as follows: A. The plow furrow shall be compacted by a minimum 15-ton tracked tractor that shall be driven with 1 track parallel and on 1 side of the furrow, then on the other side, and then over the plow furrow. A minimum 5-ton vibratory roller, 4 to 6 feet in width, or other heavy construction equipment accepted by the TOUCH AMERICA Representative may be used instead of the tracked tractor. B. The track-mounted plow furrow shall be graded to original contour with track-mounted equipment. 802.11. RAILROAD ROW A. The Builder shall repair or restore railroad right-of-way disturbed by his operations to a condition equal to or better than its pre-existing condition and to the satisfaction of the railroad company representative. work shall include, but not be limited to, retrieving and compacting displaced material on steep slopes or high embankments, grading and compacting backfill in the plow furrow to prevent settlement, and grading and shaping of the railroad ballast disturbed during work operations. B. The work of providing and placing railroad ballast shall be as specified in the applicable railroad agreement. SECTION 803 - PAVEMENT, GRAVEL SURFACES, AND SIDEWALKS 803.01. DESCRIPTION 1. This section covers the removal and replacement of pavement, gravel surfaces, and sidewalks along the route at locations as required. 2. Temporary patching material shall be in accordance with the appropriate city, county, or state specifications for asphaltic mixed materials for roadway patching. URRS Agreement Page 109 Dated: September 9, 2002 Appendix E 803.02. REMOVAL 1. Pavement removal shall be in accordance with the local permit authority. 2. Cuts in concrete or asphalt pavement shall be no larger than necessary to provide adequate working space. Cutting shall be started with a concrete saw in a manner which will provide a clean vertical groove at least four (4) inches deep along each side of the trench. 803.03. REPLACEMENT 1. Asphalt and concrete paving shall be in accordance with the applicable state highway department or local permit authority standards and as specified in these Specifications. 2. Pavement replacement shall match existing pavement in type, appearance, wearing surface, and durability to the maximum extent practical. Pavement thickness shall be as required by applicable permits; or shall match existing thickness, whichever is greater. 3. Base and subbase material shall be compacted, graded, and prepared as required by applicable permits, or shall match existing thickness, whichever is greater. 4. Cut edges of asphalt pavement shall be thoroughly cleaned and a tack coat shall be uniformly applied to cut edges before pavement repair. 5. Gravel surface replacement shall be in accordance with all applicable permits. The replacement surface material shall match existing surface material in type, thickness, and appearances to the maximum extent practical. 6. Sidewalk and curb and gutter replacement shall be in accordance with all applicable permits. Sidewalks and curb and gutter shall be placed to the lines and grades indicated on the Drawings or shall match adjacent existing sections. Reinforcement for sidewalks and curb and gutter shall be in accordance with all applicable permits. As a minimum, one (1) layer of 6X6X6 welded wire fabric shall be used for sidewalk reinforcement and two (2) longitudinal No. 4 reinforcing bars shall be used for curb and gutter reinforcement. DIVISION 900 - SITE PREPARATION The Builder shall perform the following for site preparation: 1. Ground surfaces within the site easement limits shall be cleared of all trees, brush, and debris. Surface irregularities such as mounds or low spots shall be graded to provide uniformly sloping surfaces which drain from the site. 2. All combustible and other waste materials, including trash and junk, shall be removed from the construction areas and disposed of. 3. The Builder shall at the installation of the electrical service connection in accordance with the local electric utility, governing inspection agencies, and as specified herein. The Builder shall ensure that URRS Agreement Page 110 Dated: September 9, 2002 Appendix E a licensed electrician performs all electrical work on the site and that all local electrical permits and inspections are obtained. Detailed requirements will be available upon request. 4. Power requirements for OA and regen sites is 200 Amp, three (3) phase, where available. SECTION 1000 - OUTSIDE PLANT DIVERSITY 1000.1. DESCRIPTION The following guidelines address physical diversity from the cable vault/headwall of the Primary or Intermediate City terminal A office to the cable vault/headwall of the terminal Z office as defined in Exhibit B. The new Route must be reviewed at with respect to: (i) In-place parallel cable or Routes built on existing TOUCH AMERICA ROW (For example, the new Denver to Salt Lake Route does not need to be diverse from the existing Denver to Salt Lake Route.); (ii) In-place cable on Routes which are "non-parallel" Routes; (For example in Denver, the new Denver to Salt Lake Route must be diverse from both the new and existing Chicago to Denver Routes.); and (iii) Route intersections 1000.2. DIVERSITY GUIDELINES: NEW BUILD AND EXISTING PARALLEL ROUTES 1. New Routes constructed between Primary and/or Intermediate Cities as listed in Exhibit B do not have to be diverse from the existing parallel Routes connecting the same two Primary and/or Intermediate Cities. 2. At regenerator, optical amplifier and terminal locations, a minimum horizontal separation of twenty (20) feet is required between entrance points. It is preferred that the separate building entrances be on different (preferably opposite) walls for each Route installed. The twenty (20) foot separation must be maintained for one-half mile from the building. Beyond one-half mile, a minimum separation of one hundred (100) feet must be maintained. 1000.3. DIVERSITY GUIDELINES: NEW BUILD AND EXISTING NON-PARALLEL ROUTES New Routes constructed between Primary and/or Intermediate Cities as listed in Exhibit B must be diverse from existing Routes and new non-parallel Routes built under this contract. Cables connecting such city pairs must meet the following guidelines: 1. At regenerator, optical amplifier and terminal locations, a minimum horizontal separation of twenty (20) feet is required between entrance points. It is preferred that the separate building entrances be on different (preferably opposite) walls for each cable installed. The twenty (20) foot separation must be maintained for one-half mile from the building. Beyond one-half mile, a minimum separation of one hundred (100) feet must be maintained. 2. Two Route should not share the same right-of-way. Routes must be at least one hundred (100) feet apart horizontally, unless the regenerator/terminal guidelines above apply. URRS Agreement Page 111 Dated: September 9, 2002 Appendix E 3. Two Route cannot share the same conduit system. 4. River crossings for two Routes must maintain a separation of one hundred (100) feet. 5. No two Route can be placed on the same bridge crossing. 1000.4. DIVERSITY GUIDELINES: CABLE INTERSECTIONS In the event, cables from different routes intersect; both cables shall be protected with pipe, either split or solid. The material used for the pipe shall meet the requirements of Division 200. The length of the protection should be ten (10) feet on either side of the intersection point on both cables. There shall be a minimum of two (2) feet of vertical separation between the cables. 1000.5. DIVERSITY GUIDELINES: OPTICAL GROUND WIRE (OPGW) Two routes can share the same power ROW, but they cannot be on the same structure. The structures must be far enough apart so they cannot damage the adjacent OPGW, if the structure fails. Buried and OPGW cables sharing the same ROW are considered diverse from on another. 1000.6. DIVERSITY GUIDELINES: WAIVERS In circumstances where the new construction cannot meet the guidelines above, the Builder shall notify the TOUCH AMERICA Representative and provide the following information: 1. Describe the diversity violation 2. Describe diverse solutions, if available TOUCH AMERICA will review the information and respond within seven (7) days either by providing a waiver, or requesting an alternate route be developed. URRS Agreement Page 112 Dated: September 9, 2002 Appendix E APPENDIX E SCHEDULE C FIBER CABLE SPLICING, TESTING AND ACCEPTANCE PROCEDURES (Note: Service Provider = SP shall be Touch America, Inc. and Service Recipient = SR shall be Sierra Pacific Communications, LLC.) 1.0 The cable sheath will be an armored sheath, ribbon cable manufactured with the fibers shown by: - Lucent Technologies (LXE-ME) comprised of standard single mode and non-zero dispersion shifted (TrueWave-Reduced Slope) fibers. - Siecor (Armored) comprised of standard single mode and non-zero dispersion shifted fibers (Enhanced Leaf). 2.0 The fiber optic cable shall be installed per the specifications in Schedule B. 3.0 All splices shall be contained in a hand-hole or manhole when in the underground or buried environment. Splices will be in enclosures or splice cabinets when inside an office. 4.0 Each cable shall be distinguishable from other telecommunications cables (this will consist of a unique tag at each manhole, hand-hole, and street marker). 5.0 Splice closures which facilitate taut sheath entry and which are designed to seal, bond, anchor and protect various types of cable and splices shall be used. Metal aerial closures shall be encapsulated in outer closures if the plant is in a corrosive atmosphere or saltwater environment. 6.0 The entire fiber optic cable system shall be properly protected from foreign voltage and grounded with an industry-accepted system. Foreign voltage on the cable system shall not exceed 50 VAC. 7.0 All splices will be made with a fusion-splicing machine on new fiber route installations. Temporary maintenance splices shall be low reflectance mechanical splices such as Fiberlock as manufactured by 3M. 8.0 The Service Provider ("SP") will perform directional span testing once end-to-end continuity, from fiber distribution panel (FDP) to fiber distribution panel (FDP), is established. End-to-end loss measurements at the required wavelength will be measured and recorded using an industry accepted laser source and power meter at the required wavelength(s). (Note: An OTDR is not considered an acceptable measuring device for end-to-end loss measurements.) Standard single mode conventional fiber and non-zero dispersion shifted fibers will be tested at 1550 nm only. The end-to-end loss measurements, as well as, bi-directional OTDR readings shall be made between SR's Outside Plant Fiber Distribution Panels (FDP), commonly referred to as "High-Speed LGXs" (HSLGX). These measurements must be made after the splice manholes or hand-holes are closed to check for macro-bending problems. URRS Agreement Page 113 Dated: September 9, 2002 Appendix E 9.0 Route Splicing Criteria Although no single maximum splice loss limit is placed on individual splices, the System shall be designed utilizing the following design criteria: (i)0.05 dB engineering loss for each single fusion splice (ii) 0.08 dB engineering loss for mass fusion splices. (iii) 0.25 dB engineered loss per transition splice (Standard Single Mode fiber spliced to Non-zero Dispersion Shifted fiber) (iv) 1.0 dB engineered loss per "through" office (fibers connected through an office with jumpers, includes connector loss). The end-to-end loss value as measured with an industry-accepted laser source and power meter includes the fiber loss, splice loss, and connections in "through" offices. The end-to-end loss must meet the design loss value of 0.25 dB/km at 1550nm (plus engineered splice loss and "through" office loss) for conventional single mode fiber and 0.25 dB/km at 1550 nm (plus engineered splice loss, transition splice loss and "through" office loss) for non-zero dispersion shifted fiber. Example 1: - Route is 50 km conventional single mode fiber - Ten mass fusion splices - One "through" office The engineered loss will be calculated as follows: Step 1. Conventional Single Mode Fiber @ 1550 nm = 50 km x 0.25 = 12.5 dB Step 2. Mass fusion splice loss for 10 splices x 0.08 dB = 0.8 dB Step 3. "Through" office loss =1 @ 1.0 dB each Step 4. Engineered Loss from FDP to FDP is: @ 1550 nm = 12.5 dB+0.8 dB +1.0 dB = 14.3 dB Example 2: - Route is 50 km non zero dispersion shifted fiber - Ten mass fusion splices - Two transition splices - One "through" office The engineered loss will be calculated as follows: Step 1. Non-zero Dispersion Shifted Fiber @ 1550 nm = 50 km x 0.25 = 12.5 dB Step 2. Engineered mass fusion splice loss for 10 splices x 0.08 dB = 0.8 dB Step 3. Transition splice loss = 2 @ 0.25 dB = 0.5 dB Step 4. "Through" offices = 1 @ 1.0 dB each Step 5. Engineered Loss from FDP to FDP is: @ 1550 nm = 12.5 dB+0.8 dB + 0.5 dB +1.0 dB = 14.3 dB 10.0 SP will record end to end loss on testing documentation or in an electronic format acceptable to the SR and supply a copy to the SR. 11.0 If the SR's fibers terminate in the SP's office, the fibers shall be terminated in a FDP equipped with "positive contact" type connectors. URRS Agreement Page 114 Dated: September 9, 2002 Appendix E 12.0 The SP will record bi-directional OTDR test data, including traces, on diskette or CD and supply a copy to the SR. 13.0 SR fiber assignments will be as provided in an electronic format acceptable to the SR. URRS Agreement Page 115 Dated: September 9, 2002 Appendix E APPENDIX E SCHEDULE D MAINTENANCE SPECIFICATIONS AND PROCEDURES TABLE OF CONTENTS: 1. DEFINITIONS:.................................................................................... 117 2. MAINTENANCE ACTIVITIES.......................................................................... 118 2.1. Preventative Maintenance................................................................. 118 2.1.1. Cable and Conduit Damage Prevention............................................ 119 2.1.2. Route Patrol................................................................... 119 2.1.3. Signs.......................................................................... 119 2.1.4. Right Of Way Maintenance....................................................... 119 2.1.5. Voltage Suppressor/Arrestor.................................................... 120 2.2. Planned Cable Activity................................................................... 120 2.2.1. Intrusive PCAs................................................................. 120 2.2.2. Non-Intrusive PCAs............................................................. 120 2.2.3. Responsibilities of SP and SR.................................................. 120 2.3. Cable and Conduit Restoration............................................................ 121 2.3.1. Types of Restorations.......................................................... 121 2.3.1.1. Total Restoration.................................................. 121 2.3.1.2. Partial Restoration................................................ 123 2.3.1.3. Conduit Damage and Restoration..................................... 123 2.4. Hazardous Conditions/Service Precautions................................................. 124 2.5. Disaster Recovery........................................................................ 124 3. OPERATIONS/NETWORK CONTROL CENTER(S)............................................................ 124 3.1.1. Operations/Network Control Centers....................................................... 124 4. ESCALATION LIST................................................................................. 125 5. FACILITIES...................................................................................... 125 6. COVERAGE PERIOD................................................................................. 125 7. SUBCONTRACTING.................................................................................. 125 8. FEES AND COSTS.................................................................................. 126 ATTACHMENT 1......................................................................................... 127
URRS Agreement Page 116 Dated: September 9, 2002 Appendix E 1. DEFINITIONS: Terms used in this exhibit are defined in the Agreement and as follows: Agreement: The Conduit and Dark Fiber IRU and Sale Agreement between Touch America and Customer. Cable Relocation: The physical relocation of the System which may be required by public (e.g., city or state government) or private entities. Facilities: All physical building spaces, including but not limited to regenerator huts, terminal offices, terminal huts, and manholes, where the System is present along the Route. Fiber, Dark (Dark Fiber): A fiber within The Cable that has no electronics at the Terminating ends, or has electronics at the Terminating Ends but carries no service. The opposite of this is Lit Fiber. Fiber, Lit (Lit Fiber): A fiber within The Cable that has electronics at the Terminating ends and carries service. The opposite of this is Dark Fiber. Maintenance Activity: All work activities as defined in Section 2 of this Schedule D. Method of Procedure (MOP): The plan developed by the SP, which details the activities, required to be followed during work activities near or on the System. One-Call Agency: Each state has a state run agency established by the state for anyone (including but not limited to contractors) to call a pre-designated phone number to report potential intrusions to the System. Every state has its own One-Call Agency. Operations Center (OC): The facility or facilities, along with the personnel and other assets required to monitor, communicate, coordinate, restore, repair, and perform all Maintenance Activity. Planned Cable Activity (PCA): Any planned cable activity, including activities that do not impair the Cable as well as activities that do impair the Cable, that could potentially affect SR's service of the System. Planned System Work Period (PSWP): A pre-arranged period of time reserved for performing certain work on the System that may potentially impact traffic. Generally, this will be restricted to weekends, avoiding the first and last weekend of each month and high-traffic weekends. The PSWP shall be agreed upon per this Exhibit C of this Agreement. Restoration, Partial. (Partial Restoration): A condition whereby one or more fibers, but not all fibers in a cable, cannot carry service along one or more Route Segment(s) or Route Section(s) on a Link(s). An example of this condition could be a lightning strike or ice damage that impacts a cable but does not affect all the fibers in the cable. URRS Agreement Page 117 Dated: September 9, 2002 Appendix E Restoration, Total (Total Restoration): A condition whereby all fibers in a cable cannot carry service along one or more Route Segment(s) or Route Section(s) on a Link(s). An example of this condition is a backhoe severing the cable. Service Acceptance Date: The date that the SR accepts the System and requires service on the System. Service Provider ("SP"): The party responsible for providing maintenance for the System. Service Recipient ("SR"): The party receiving maintenance for the System. 2. MAINTENANCE ACTIVITIES The following subsections describe the types of Maintenance Activities that must be performed. All Maintenance Activity types described below shall be performed by or under the direction of the SP. For all Maintenance Activities, SR may contact SP at any time to discuss fiber status or to notify SP of changes in fiber status, (example, Lit Fibers vs. Dark Fibers), fiber problems, or any other fiber issues or anomalies for SR's fibers which require action by the SP. However, no other party, including but not limited to a lessee of the SR's fibers (i.e. SR subleases its fibers to a third party), shall call the SP for anything related to SR's fibers without the written agreement of both the SR's and SP's escalation lists (Attachment 2) Tier 3 representative. It is the intention of this Agreement that any lessee of fibers in The Cable coordinate all problems and issues solely with the originating party of the Disposition. Parties have the right to review each other's maintenance standards, which include preventative maintenance procedures, Planned Cable Activity procedures, and cable restoration procedures. SP shall notify SR at least ten (10) business days prior to the date in connection with any Planned System Work Period (PSWP) of any Maintenance Activity and as soon as possible after becoming aware of the need for unscheduled maintenance. SR shall have the right to be present during the performance of any Maintenance Activity or unscheduled maintenance so long as this requirement does not interfere with SP's ability to perform its obligations under this Agreement. In the event that Maintenance Activity is canceled or delayed for whatever reason as previously notified, SP shall notify SR at SP's earliest opportunity, and will comply with the provisions of the first sentence of this paragraph to reschedule any delayed activity. 2.1. Preventative Maintenance Preventative maintenance will be performed according to the SP's standards. Each SP's maintenance standards must include the following: URRS Agreement Page 118 Dated: September 9, 2002 Appendix E 2.1.1. Cable and Conduit Damage Prevention 2.1.1.A. Consistent with Transportation Equity Act 21 (TEA21) Best practices, the SP will: - Subscribe to each and all One-Call Agencies that govern Route Segment(s), Route Section(s) or Link(s) they maintain. - Abide by all state One-Call Agency laws - Respond to all locate requests. - Analyze, assign, and dispatch locate request to SP's qualified technicians 2.1.1.B. The SP will positively respond to excavation activity notifications as follows: - ----------------------------------------------------------------------------------------------- Locate and Mark Cable Within fifty (50) feet of System - ----------------------------------------------------------------------------------------------- Locate, Mark, and Standby to protect Cable Within ten (10) feet of System - ----------------------------------------------------------------------------------------------- Positive confirmation of the location of the Within eighteen (18) inches either side SP's cable will be done through various means of System e.g. of System Potholing) to ensure that SP's cable is not damaged - -----------------------------------------------------------------------------------------------
2.1.1.C. Positively respond to boring operations as follows: - ---------------------------------------------------------------------------------------- Standby and monitor the boring operation to ensure Within one hundred (100) feet of the cable is not damaged. (Potholing, etc. as System required) - ----------------------------------------------------------------------------------------
2.1.2. Route Patrol Patrol the route by a qualified technician in accordance with the current SP's procedures for maintenance a minimum of four (4) times a year. This "patrol" will consist of riding the route to identify potential maintenance issues (e.g. erosion, encroachments, damaged or missing signs, etc.). 2.1.3. Signs The SP will routinely replace signs that are damaged. 2.1.4. Right Of Way Maintenance Brush, trees and/or other vegetation should be trimmed to the edge of the ROW as required to support ROW accessibility and worker safety. Under no circumstances should prevailing growth exceed 30 inches in height or lower if it obstructs signage visibility. Ongoing trimming of the ROW communicates a message to others that the underground plant exists in the right of way and that the SP cares about it. As such, ROW-clearing and trimming serves as a crucial part of the overall right-of-way maintenance effort to enhance plant protection. At a minimum ROW maintenance must comply with local, state, and federal requirements. URRS Agreement Page 119 Dated: September 9, 2002 Appendix E 2.1.5. Voltage Suppressor / Arrestor Wherever the cable sheath voltage exceeds 50v AC, voltage suppressers or arrestors shall be installed at the splice points and regenerator locations. 2.2. Planned Cable Activity A Planned Cable Activity (PCA) is any activity, which can be planned in advance (i.e., not an emergency) that will cause maintenance personnel to physically move the cable, or will affect the sheath and/or the fiber. There are two types of PCAs: intrusive and non-intrusive. 2.2.1. Intrusive PCAs An intrusive PCA is an activity where the SP will expose the buffer tube and/or the fibers. Examples: - installation of insulating joints / isolation closures, - reroutes / cutovers / hot cuts, - repairing damaged fibers at splice locations, - repairing sheath faults. Intrusive PCAs must be performed from 6pm to 6am local time Monday through Friday or any time during the weekends, excluding holidays. If exceptions are required to these times, including holidays, utilize the escalation list. 2.2.2. Non-Intrusive PCAs Examples of non-intrusive PCAs are as follows: - cable lowering, cable rearrangements - conduit or manhole rearrangements Non-intrusive PCAs can be performed anytime. 2.2.3. Responsibilities of SP and SR For ALL PCAs, the SP must notify the SR at least fourteen (14) calendar days prior to the activity. For PCA activity that will result in signal discontinuity, the following process will be performed: - AT LEAST FOURTEEN (14) CALENDAR DAYS IN ADVANCE: SP shall provide a copy of its Method of Procedure (MOP) in writing to SR and will notify SR of this PCA per escalation list. - AT LEAST TEN (10) CALENDAR DAYS IN ADVANCE: After receipt of SP's MOP, SR then will provide a copy of its MOP to the SP that incorporates the switching, verification, identification, and testing of SR's fibers. - AT THE TIME OF THE PCA: The SP and SR shall maintain communication via phone for the entire execution of the event. SR shall coordinate the execution of SR's MOP with SP. SP shall comply with the splicing specifications as set forth in the Fiber Cable Splicing, Testing, and Acceptance Procedures (Schedule C). URRS Agreement Page 120 Dated: September 9, 2002 Appendix E - SP shall provide written approval to SR for any modifications to these specifications as may be necessary or appropriate in any particular instance for SR's approval, which approval shall not be unreasonably withheld. - For all Intrusive PCAs, SP shall ensure all fibers meet overall span loss per fiber specifications outlined in the Fiber Cable Splicing, Testing, and Acceptance Procedures (Schedule C). - If for any reason any PCA is canceled or delayed, then SP shall notify SR as soon as SP is aware of the change, and SP will reschedule the activity. 2.3. Cable and Conduit Restoration A cable restoration occurs whenever service has affected one or more fibers and restoration of the fiber(s) is needed. The fiber(s) may or may not have service on them. The SP will respond to all SR's notifications indicating any failure, any interruption, or any impairment to the SR's Cable System. 2.3.1. Types of Restorations 2.3.1.1. Total Restoration A Total Restoration (total cable cut) occurs when ALL fibers in the cable sheath are affected. The SP shall notify SR of the cable cut, per the escalation list, including the time of the cable cut, and the Route Section as soon as possible, but no later than 15 minutes from the time the cut occurs. Once this information is provided to the SR, the SP shall establish a communications bridge with the SR and stay in constant communication throughout the cable cut. In the event the SP's fibers are Dark Fibers (no service on the fibers), the SR shall notify the SP. The SP shall notify the SR of the physical location of the cable cut as soon as possible but no later than 90 minutes from the time the cable cut occurs. Restoration Priorities 1. SP's out of service Lit Fibers will be restored first then rotating to the SR restoration sequence. 2. SR's will be restored in a general SR sequence (priority), which will rotate after each incident. 3. Within the general SR sequence, out of service Lit Fibers will always be restored first. 4. In the event a SR has re-established its traffic through other means, its fibers will be skipped in the SR sequence rotation for the splicing of Lit Fibers. 5. Each SR's Dark (spare) Fiber will be addressed in the SR sequence priority during the repair of the remainder of the fibers in the cable. URRS Agreement Page 121 Dated: September 9, 2002 Appendix E Example: Four SR's have traffic on a Route Section. They are initially listed in the SR sequence as A, B, C, and D. After SP's Lit Fibers are restored, SR "A" is first priority and "D" is last. The first time the cable in that Route Section is damaged, SP will contact SR "A" first, followed by each SR in sequence. Each SR will declare which of its Lit Fibers are not in service as result of the damage. SR "A" out of service Lit Fibers will be restored first followed by each SR's out of service Lit Fibers, in the SR sequence order. After all out of service Lit Fibers are restored, this same sequence will be followed in the repair of the Dark (spare) Fibers. All fibers will be restored before securing the site. The SP will notify the SR when each fiber has been repaired, and then the SR will verify that continuity exists from end-to-end on the affected Cable(s) and/or fiber(s). Verification of continuity of Dark Fibers shall be the responsibility of the SP or SR depending on whoever has the capability to verify service. In the event of a second cable cut in this particular Route Section of fiber optic cable, the SR sequence will rotate such that SR "B" will be first priority, "C" second, "D" third, and "A" fourth. For every total cable cut, SP shall respond immediately after receiving notification with a goal of restoring SR's service-carrying Lit Fiber in six (6) hours from the time of the cable cut. The only exception to this response time is when an uncontrolled incident, such as a flood, a chemical spill, a fire, a bridge collapse, a riot, or other circumstance prevents access to the damage area. To accomplish this cable restoration, it is acknowledged that the repairs so effected may be temporary in nature. In such event, within twenty-four (24) hours after completion of all temporary Restoration activity, SP shall commence its planning for permanent repair, and thereafter promptly shall notify SR of such plans. If the SP informs the SR that the temporary fiber repair cannot be made permanent immediately, then the permanent repair shall be mutually agreed upon by both parties. The parties agree to mutually support each other during restoration activities. Examples of support may include providing fault locating, splicing, or running cable. All support is at the discretion of the SP - meaning that the SP shall have its restoration crew working on the restoration and may accept and direct the support from the SR if the SR offers such support. In the event the restoration cable is exposed above ground, the SP must provide on-site personnel for cable protection. Refer to Section 2.2 to accomplish permanent repairs. URRS Agreement Page 122 Dated: September 9, 2002 Appendix E 2.3.1.2. Partial Restoration A Partial Restoration (partial cable cut) occurs when less than ALL fibers in the cable sheath are affected. For partial cable cuts, if and where possible, SP will loan to SR spare fibers to implement temporary repair. The SP shall notify SR of the partial cable cut, per the escalation list, including the time of the cable cut, and the Route Section as soon as possible, but no later than 15 minutes from the time the cut occurs. Once this information is provided to the SR, the SP shall establish a communications bridge with the SR to stay in constant communication throughout the partial cable cut. The SP shall notify the SR of the physical location of the cable cut as soon as possible but no later than 90 minutes from the time the cable cut occurs. In the event the SP's fibers are not affected, the SR shall notify the SP of such event. If the SR cannot restore service via its own Dark Fiber, SR shall have the right to utilize SP's unaffected Dark Fiber. The SR will offer the SP the same unaffected Dark Fiber in the event the SP cannot restore its service. Restoration prioritization will be the same as that outlined in Section 2.3.1.1 Total Cable Cut. The SP will notify the SR when each fiber has been repaired, and then the SR will verify that continuity exists from end-to-end on the affected Cable(s) and/or fiber(s). 2.3.1.3. Conduit Damage and Restoration The SP will respond to all notifications indicating any damage to the Conduits in the System. The SR will effect repairs to the conduit immediately in occupied conduit or as soon as commercially reasonable and practical in the case of damaged empty conduit. The trench will be back filled using approved materials appropriate to the field conditions. Restoration standards will be at least as found prior to the excavation or better. Verification of continuity of Dark Fibers shall be the responsibility of the SP or SR depending on whoever has the capability to verify service. For every partial cable cut, SP shall respond immediately after receiving notification with a goal of restoring SR's service-carrying Lit Fiber in six (6) hours from the time of the partial cable cut. The only exception to this response time is when an uncontrolled incident, such as a flood, a chemical spill, a fire, a bridge collapse, a riot, or other circumstance prevents access to the damage area. To accomplish this partial restoration, it is acknowledged that the repairs so affected may be URRS Agreement Page 123 Dated: September 9, 2002 Appendix E temporary in nature. In such event, within twenty-four (24) hours after completion of all temporary restoration activity, SP shall commence its planning for permanent repair, and thereafter promptly shall notify SR of such plans. If the SP informs the SR that the temporary fiber repair cannot be made permanent immediately, then the permanent repair shall be mutually agreed upon by both parties. For all temporary repairs, the SP will maintain an on-site personnel for all exposed cables. Refer to Section 2.2 to accomplish permanent repairs. 2.4. Hazardous Conditions / Service Precautions A hazardous condition or service precaution is when an event, such as flooding, fire, street collapse, cable wash-out or a man-made event such as a train derailment occurs, and there is an increased probability that the System may be damaged, and maintenance activity is needed to prevent any potential damage. For these events SP shall notify SR, per escalation list, as soon as the SP knows of such event. The SP shall establish a communications bridge for these events and stay in constant communication. 2.5. Disaster Recovery Disaster recovery is any event that affects service on the System and involves significantly more maintenance activity than just a cable restoration. Examples of disaster recovery are as follows: - train derailment occurs, which by itself would be a hazardous condition, but for this example it destroys a regeneration site, or - the cable at a bridge is washed out and restoration involves deploying several miles of cable to restore service. For these events SP shall notify SR, per escalation list, as soon as the SP knows of such event. The SP shall establish a communications bridge for these events and stay in constant communication. The parties agree to mutually support each other during disaster recovery activities. Examples of support may include providing fault locating, splicing, or running cable. All support is at the discretion of the SP -- meaning that the SP shall have its crew performing disaster recovery and may accept and direct the support from the SR if the SR offers such support. 3. OPERATIONS / NETWORK CONTROL CENTER(S) 3.1.1. Operations / Network Control Centers The terms Operations Center and Network Control Center are synonymous, and will be called Operations Centers for the remainder of this Schedule. SP shall operate and maintain an Operations Center (OC) staffed twenty-four (24) hours a day, seven (7) days a week including all holidays. The OC shall be staffed by trained and qualified URRS Agreement Page 124 Dated: September 9, 2002 Appendix E personnel. SP's maintenance personnel shall be available for dispatch twenty-four (24) hours a day, seven (7) days a week. 4. ESCALATION LIST An escalation list (Attachment 1) will be shared between the parties. This list shall provide for coordination between SP and SR for day-to-day issues, coordination of all Maintenance Activity communication and coordination, as well as escalation personnel in the event agreement cannot be reached at the lowest level of the escalation list. This escalation list may be modified by either party at any time if the party making the change notifies the other party in writing twenty-four (24) hours in advance of the change. The escalation's Tier 1 contact shall be the day-to-day working level, which shall address daily maintenance operations activities. 5. FACILITIES Except to the extent otherwise expressly provided in the Agreement, SR will be solely responsible for providing and paying for any and all maintenance of all electronic, optical, and any other equipment, materials and facilities used by SR in connection with the operation of the Dark Fibers, none of which is included in the maintenance services to be provided hereunder. Each party agrees that the Facilities shall be placed and maintained in accordance with the requirements and specifications of current editions of the National Electrical Code and the National Electrical Safety Code, the applicable rules and regulations of the Occupational Safety and Health Act (including those of 29 C.F.R. Section 1910.268(a) et seq.) and the requirements of any other authority having jurisdiction. Each party shall promptly furnish to each other, but in no case later than twenty-four (24) hours, copies of all notices, reports, correspondence, submissions, made by either party to federal, state, or municipal environmental, safety, or health authorities. Each party agrees that Facilities shall not physically, electronically or inductively interfere with those of facilities in place. 6. COVERAGE PERIOD Maintenance will be performed for agreed upon Route Segment(s) or Route Section(s) on a Link(s) commencing upon the Service Acceptance Date, and conclude upon expiration or termination of the Agreement. 7. SUBCONTRACTING Upon mutual agreement between Touch America and the Customer, the SP may subcontract any Maintenance Activities herein, provided the SP shall require the subcontractor(s) to perform in accordance with the Agreement. The use of any such subcontractor shall not relieve SP of any of its obligations herein. URRS Agreement Page 125 Dated: September 9, 2002 Appendix E 8. FEES AND COSTS During any time after the Acceptance Date for any Route Segment(s) or Route Section(s) on a Link(s), but subject to the Term section of the Agreement, the SP shall provide for all Maintenance Activity for all Cable Systems that are the responsibility of the SP. Customer shall pay Touch America an annual fee as defined in Article 4.2 of the Dark Fiber IRU Agreement. URRS Agreement Page 126 Dated: September 9, 2002 Appendix E ATTACHMENT 1 SCHEDULE D ESCALATION LISTS [TOUCHAMERICA LOGO] .14.1.1.1 Escalation List 1. Touch America 24 by 7 NOC 877-638-6621 2. Transport Manager - Tom Good 3. NOC Director - Jonathan Strong 4. Director, Field Operations - Jerry Piazzola 5. Vice President, Networks - Kevin Dennehy URRS Agreement Page 127 Dated: September 9, 2002 Appendix E APPENDIX F INTENTIONALLY OMITTED URRS Agreement Page 128 Dated: September 9, 2002 Appendix F APPENDIX G FORM OF COLLOCATION AGREEMENT THIS COLLOCATION AGREEMENT is made and entered into as of December 18, 2001 between Touch America, Inc. ("TA") and XXX, LLC ("Customer"). TA and Customer are hereinafter individually referred to as a "Party" and collectively as the "Parties". RECITALS WHEREAS, TA is constructing or has constructed a fiber optic cable system along a route from A, to B. (the "TA System"). WHEREAS, TA has certain facilities in which it provides collocation space to third parties, and WHEREAS, the Parties have entered into a Dark Fiber IRU Agreement whereby Customer has acquired from TA and TA granted to Customer an Indefeasible Right of Use ("IRU") in twelve (12) IRU fibers within the TA System, and WHEREAS, Customer desires to collocate certain Customer equipment within such TA facilities at the rates and in accordance with the specifications set forth herein; and WHEREAS, TA desires to provide to Customer collocation space within certain TA facilities at the rates and in accordance with the specifications set forth herein; NOW, THEREFORE, for valuable consideration, TA and Customer agree as follows: 1. Collocation. a. Collocation Space. During the term of this Agreement Customer shall have a non-exclusive license to locate, install, maintain and operate Customer equipment ("Customer Equipment") in the TA collocation facilities ("Facilities") at the sites ("Selected Sites") set out on service orders ("Service Order") executed from time to time by the Parties. The term ("Site Term"), and the amount of floor space and number and description of racks and cabinets, as applicable, ("Customer Space") at each Selected Site are set out on the Service Order for each Selected Site. No use of the Selected Sites, Facilities or Customer Space shall create or vest in Customer any easements or other ownership rights in TA's real or personal property. TA shall construct, install and operate the Selected Sites, Facilities and Customer Space, as provided in this Agreement. b. Rent. The monthly rent ("Rent") for the Customer Space at each Selected Site shall be $750 per 19 inch rack space. Customer shall pay the Rent on or before the first day of each calendar month during the Site Term. Payments shall be prorated, as necessary, for the first and last months of the Site Term. The Rent URRS Agreement Page 129 Dated: September 9, 2002 Appendix G shall begin on the Commencement Date for the Site Term. The Rent shall be adjusted once annually on the anniversary date of the commencement of this Agreement and in an amount not to exceed the cumulative changes in the U.S. Producer Price Index (Bureau of Labor Statistics "Finished Goods" Series - ID WPUSOP3000) since the Commencement Date. c. Except as otherwise specifically provided, Customer shall pay all applicable fees and charges provided for in this Agreement, within thirty (30) days after receipt of invoice. d. All payments not made when due shall bear a late payment charge of one and one-half (1 1/2%) percent per month of the unpaid balance or the highest lawful rate, whichever is less. e. Basic Services. TA shall provide HVAC, AC power, lighting and escorted entry to the Site, Facilities and, if applicable, the Customer Space ("Basic Services") for each Selected Site. f. Additional Services. Customer may request in writing installation services, additional AC power or DC power, additional back-up power, technical assistance, additional space, racks or cabinets, assistance in establishing an Interconnect Facility (collectively referred to as the "Additional Services") at any Selected Site. Within forty-five (45) business days after receiving such written request, TA shall notify Customer in writing whether the Additional Services are available, and, if they are, specify TA's standard rates for the Additional Services and the costs of any upgrades or expansions needed in order to accommodate Customer's request. Customer shall provide written notice to TA confirming its acceptance of such Additional Services at the quoted rates and costs within fifteen (15) days after receipt of TA's notice with respect to the availability of the Additional Services. g. Payment for Additional Services. If Customer chooses to receive the Additional Services, Customer shall pay TA the amounts due within thirty (30) days of receipt of an invoice from TA. Once each calendar year, upon at least thirty (30) days' prior notice to Customer, TA may adjust its standard rates for the Additional Services to reflect its then-current standard charges. If the adjustment by TA exceeds five percent (5%) in any given calendar year, Customer shall have the right to reduce or discontinue the Additional Services at the Selected Site without liability or penalty. h. Installation of Customer Equipment. Customer shall, at its expense, cause the Customer Equipment to be delivered, installed, operated and maintained in a safe condition, meeting or exceeding telecommunications industry standards and the provisions set forth in this Agreement. i. Interface. Customer may connect Customer Equipment with the equipment of TA customers who are collocated, have service termination at or have interconnection facilities at a Selected Site. Customer will pay TA's then current charges for any cross-connections. The TA Fiber Patch Panel ("FPP") or fiber termination point is the TA demarcation for such connection. Interface URRS Agreement Page 130 Dated: September 9, 2002 Appendix G points for the Customer's Equipment shall be at the fiber patch panel located in the TA area of each Selected Site. Such panels shall be the demarcation to establish each Party's operational and maintenance responsibilities. All cables for interface shall be provided by Customer at its cost and expense and shall conform to all applicable TA standards. TA shall install all such interface cables at the expense of Customer. After successful and complete installation by TA, TA will not monitor or take responsibility for such cabling, which shall be the sole responsibility of Customer. j. Alarms. TA shall continuously monitor security, environmental and power alarms for the Selected Sites at one or more manned monitoring centers. At Customer's request, TA shall establish procedures to allow Customer at Customer's expense to share or receive alarm information. 2. Interconnection Off-Site. a. Interconnect. Customer shall have the right to connect its fiber to the Facility at any Selected Site. The fiber and related conduit, and the connection or entrance facilities shall extend from the property parcel adjacent to the Selected Site to the Facility, and are referred to herein as the "Interconnect Facility." TA will, at its option, either provide to Customer, at the rates and charges set out in the Service Order, the Interconnect Facility to allow Customer to connect its fiber to the Facility , or provide to Customer, at Customer's expense and subject to any requirements or restrictions applicable to TA, access, including existing building entrance facilities from any third party, necessary to allow Customer to install Interconnect Facilities; provided, however, that in the case of Selected Sites or Facilities not owned by TA, TA's duty to provide such access shall be limited to providing all reasonable assistance to Customer in obtaining such access from said third parties. b. Construction and Installation. If Customer installs an Interconnect Facility, Customer shall provide at its expense all necessary equipment and TA-approved materials including, but not limited to, cables and conduit, building and similar permits, and any FTP's and labor to construct and install such Interconnect Facility; provided however that TA shall provide reasonable assistance to Customer in obtaining any such permits. Customer shall provide the FPP for Interconnect Facilities. TA will, at its option, either install the Customer-provided FPP or allow Customer to install FPP at the Selected Site. b. Demarcation. The demarcation point for Interconnect Facilities shall be at the FPP in each Selected Site. c. Ownership. During the Site Term, TA shall retain ownership of any portion of each Interconnect Facility that is installed on Selected Sites; provided, however, that title to any part of the Interconnect Facility within Selected Sites shall be transferred to TA upon expiration or termination of the Site Term or this Agreement. e. Limitation on Interconnection with TA Customers. Except as provided in Section 1.h., Customer shall not use any Interconnect Facility to allow TA URRS Agreement Page 131 Dated: September 9, 2002 Appendix G customers, other carriers or any other parties to interconnect directly with Customer or each other at a Selected Site. e. Maintenance and Changes. TA shall provide all maintenance and repair of any Interconnect Facility installed by Customer, or fiber installed by Customer in any Interconnect Facility provided by TA, on Customer's side of the point of demarcation. Customer shall not make any improvement, modification, or addition to, or relocate or remove any Interconnect Facility provided by TA. Any improvement, modification, addition to, relocation, or removal of any Interconnect Facility installed by Customer shall be subject to TA's prior review and written approval, which will not be unreasonably withheld or delayed. If Customer requests and TA undertakes or approves any improvement, modification, addition to, relocation, or removal of any Interconnect Facility installed by Customer, Customer shall pay the cost thereof. 3. Selected Site Delivery and Termination. a. Delivery of Selected Site. TA shall provide Customer with a tentative schedule of availability of each Selected Site and any changes to the tentative schedule. TA shall notify Customer in writing when a Selected Site is available for delivery and installation of Customer Equipment ("Commencement Date") and will provide reasonable access to Customer for installation of the Customer Equipment. b. Selected Site Termination and Termination Charges. Customer may terminate a Selected Site at any time before the Commencement Date without any liability by giving written notice thereof to TA. Customer may terminate a Selected Site following the Commencement Date but before Customer installs any Customer Equipment or Interconnect Facility or equipment or material related to any Interconnect Facility upon not less than ten (10) days advance written notice to TA and payment of liquidated damages of three (3) months Rent and any non-recurring charges for such Selected Site. Customer may terminate a Selected Site after Customer installs any Customer Equipment or Interconnect Facility or equipment or material related to any Interconnect Facility upon not less than twenty (20) days advance written notice to TA and payment of liquidated damages in the amount of the Rent for the remainder of the Site Term and any other recurring and non-recurring charges for the remainder of the Site Term unless TA, upon use of reasonable efforts, finds another party to occupy said space including reclaiming said space for its own purposes. Termination of a Selected Site will not affect any other Selected Site. 4. Notice to Collocate or Interconnect. a. Collocate. Not less than ten (10) days prior to Customer's planned installation of its Customer Equipment at a Selected Site, Customer shall provide a notice to TA (the "Collocation Notice"). The Collocation Notice shall include notice of Customer's desire to collocate in the particular Selected Site, a copy of Customer's design drawings meeting CAD requirements and an installation schedule. The Collocation Notice shall also include: (a) Customer's requested installation date(s); (b) any excess cable storage requirements; (c) identification URRS Agreement Page 132 Dated: September 9, 2002 Appendix G of all Customer Equipment to be installed; (d) a diagram of the desired location of the Customer Equipment; (e) the space, power, environmental and other requirements for the Customer Equipment; and (f) the estimated date to commence and complete the installation. Customer shall provide to TA all other information reasonably required by TA. Within ten (10) days of receiving the Collocation Notice, TA shall respond to Customer's Collocation Notice with its acceptance or objections to Customer's proposal. b. Interconnect. Not less than forty-five (45) days prior to Customer's planned installation of its Interconnect Facilities at any Selected Site Customer shall provide a notice to TA (the "Interconnect Notice"). The Interconnect Notice shall include notice of Customer's desire to install the Interconnect Facilities at the particular Selected Site, a copy of Customer's construction design drawings meeting CAD requirements and an installation schedule. The Interconnect Notice shall also include: (a) Customer's requested installation date(s); (b) any excess cable storage requirements; (c) identification of all Interconnect Facilities to be installed; (d) a diagram of the desired location of the Interconnect Facilities; (e) the space, power, environmental and other requirements for the Interconnect Facilities; and (f) the estimated date to commence and complete the installation. Customer shall provide to TA all other information reasonably required by TA. Within thirty (30) days of receiving the Interconnect Notice, TA shall respond to Customer's Interconnect Notice with its acceptance or objections to Customer's proposal. 5. Access to Selected Site. a. Access. Unless otherwise provided in this Agreement access to Customer's Space shall consist of the following: TA shall provide Customer with secure, separate, unescorted twenty-four (24) hour access to Customer's assigned Customer Space ("Unescorted Access"). Upon providing a sixty (60) day written notice to Customer, TA at its sole discretion may terminate Unescorted Access. Upon termination of Unescorted Access, TA shall provide Customer with escorted twenty-four (24) hour access to Customer's assigned Customer Space (Escorted Access). Under the Escorted Access plan, for routine maintenance issues, Customer must notify TA's Change Management group at 866-491-5540 between 8 am and 9 pm., or at changeman@tamerica.com. For emergency maintenance issues, Customer must notify TA's Change Management group at 866-491-5540 between 8 am and 8 pm, or TA's 24/7 Network Operations Center at 877-638-6621. Customer agrees to pay TA's charges for emergency escort services, which charges shall be based on a rate of Ninety Dollars per hour ($90.00/hr). If Customer requires access to TA's common space, it shall provide TA with reasonable advance notice and TA shall provide escorted access. Customer shall pay TA's charges for such escorted access. In no case shall Customer enter TA's common space without a TA escort, unless authorized by TA in writing in advance. b. Security. Customer shall abide by TA's reasonable security requirements. When deemed appropriate by TA, Customer employees or representatives shall be issued passes or visitor identification cards which must be presented upon request before entry to Selected Sites and surrendered upon demand or upon URRS Agreement Page 133 Dated: September 9, 2002 Appendix G termination of this Agreement. Such passes or other identification shall be issued only to persons meeting any reasonable security criteria applicable at the relevant Selected Site for such purpose. Any individual entering a Selected Site will be required to notify (by telephone) the TA Network Operations Center. TA shall provide Customer with a toll free number to reach the Network Operations Center. Upon leaving the Selected Site, the individual shall notify the Network Operations Center to confirm exiting the space and lock the entrance gate. c. Right to Terminate Individual's Access. Notwithstanding any other provision of this Agreement, TA shall, without threat of liability, have the right to immediately terminate the right of access of any Customer personnel, agent or representative should it determine in the reasonable exercise of the discretion that such access is or poses an immediate and serious threat to persons or property located at the Selected Site or the integrity of the TA network. TA shall promptly notify Customer of any such termination, and Customer shall have a reasonable opportunity to demonstrate that the individual access rights should be reinstated. Any termination of an individual's access shall remain in effect pending such demonstration and TA's determination as to the advisability of such reinstatement. This determination shall not be unreasonably withheld or delayed. Any determination by TA shall be final. 6. Use of Customer Equipment and Interconnect Facilities. a. Power Use. Customer shall not install any Customer Equipment or other equipment that overloads any electrical circuits or associated hardware that uses greater than 20 AMPs of power. b. Standards. Customer shall ensure that the Customer Equipment and any Interconnect Facilities are installed, operated, and maintained to meet or exceed any reasonable requirements of TA, any reasonable requirements of TA's building management or insurance underwriters, and any applicable local, state and federal codes and public health and safety laws and regulations (including fire regulations and the National Electric Code). c. Intervention. If any part of Customer's fiber, Interconnect Facilities or Customer Equipment is not placed and maintained in accordance with the terms and conditions of this Agreement and Customer fails to correct the violation within fifteen (15) business days from receipt of written notice thereof from TA, then TA may, at its option, without further notice to Customer, correct the deficiency at Customer's expense without liability for damages, except to the extent caused by TA's gross negligence or willful misconduct, to any fiber, Interconnect Facilities or Customer Equipment or for any interruption of Customer's services. As soon as practicable thereafter, TA shall advise Customer in writing of the work performed or the action taken. Customer shall reimburse TA for all expenses reasonably incurred by TA associated with any work or action performed by TA pursuant hereto. Customer shall remit payment to TA within thirty (30) days from its receipt of TA's invoice therefor. d. Threat to Persons or Property. If TA determines that Customer's actions or failure to fulfill an obligation of this Agreement, or its Interconnect Facilities URRS Agreement Page 134 Dated: September 9, 2002 Appendix G or Customer Equipment poses an immediate threat (i) to the safety of TA's employees or the public, (ii) to the use by other parties of their fiber or equipment, (iii) to the physical integrity of any Selected Site, Facility or other TA's facilities, or the facilities of the other parties, or (iv) materially interferes with the performance of TA's service obligations for the Selected Site, TA shall give notice to Customer, and in the event that Customer does not take immediate action to cure such threat, TA may perform such work and/or take such action that it deems necessary without notice to Customer and without subjecting itself to any liability for damage to Customer fiber, Interconnect Facilities or the Customer Equipment or for any interruption of Customer's services, except to the extent caused by TA's gross negligence or willful misconduct. As soon as practicable thereafter, TA shall advise Customer in writing of the work performed or the action taken. Customer shall reimburse TA for all expenses reasonably incurred by TA associated with any work or action performed by TA pursuant hereto. Customer shall remit payment to TA within thirty (30) days from its receipt of TA's invoice therefor. 7. Liens and Encumbrances. Customer shall not create and, if created by Customer, shall not permit any lien or encumbrance, including, without limitation, tax liens, mechanics' liens, or other liens or encumbrances, on the TA network, any Facilities, the Selected Sites, any equipment or property of TA or any third party in the Facilities or Selected Sites or any Interconnect Facility. 8. Taxes and Franchises, Licenses and Permit Fees. Customer shall be responsible for payment of all sales, use, gross receipts, excise, access, bypass, franchise or other local, state and Federal taxes, fees, charges or surcharges however designated, imposed on or based upon the provision, sale or use of the Cabinet or Interconnect Facility or any equipment or materials related to the Cabinet or Interconnect Facility (the "Taxes"), except Taxes on the income or property of TA. 9. Relocation of Customer Equipment and Interconnect Facilities. Customer shall, at TA's sole expense, relocate its fiber, Interconnect Facilities and Customer Equipment within a Selected Site upon TA's written request and in the reasonable (under the circumstances) time frame requested by TA; provided, that such relocated Facilities are substantially the same as the previously used Facilities and such relocation can be performed without unreasonable interruption of services by Customer. 10. Inspections. TA reserves the right to have an inspector present during any delivery or installation of Customer Equipment or Interconnect Facility, and to make periodic inspections of any part of a Selected Site, Facility, Interconnect Facility, Cabinet or Customer Equipment. Customer shall have the right to have one or more of its employees or representatives present during the time of any such inspection involving Customer Equipment or Interconnect Facilities. TA shall give Customer reasonable advance notice of such inspections, except in those instances where TA determines that safety considerations justify the need for such an inspection without the delay of providing notice. The making of periodic inspections or the failure to do so shall not operate to impose upon TA any liability of any kind whatsoever nor relieve Customer of any responsibility, obligation, or liability in accordance with this Agreement. 11. No Restrictions on TA. Except as otherwise specifically limited in this URRS Agreement Page 135 Dated: September 9, 2002 Appendix G Agreement, TA shall have the right to maintain and operate its facilities in a manner meeting or exceeding standard telecommunications industry practice as will best enable it to fulfill its own service requirements. 12. Term and Termination. a. Term. The Term of this Agreement ("Term") shall commence on execution by the Parties and shall continue in effect until the earlier of (a) the expiration of all Site Terms or (b) the expiration or termination of this Agreement in accordance with its terms. Termination of this Agreement shall result in the immediate termination of all Site Terms. b. Termination by TA. TA may terminate this Agreement in the following circumstances: (i) at any time following Customer's termination of all Site Terms in accordance with Section 3.b; (ii) immediately upon the Customer becoming insolvent or bankrupt or unable to pay its debts as they fall due or any bankruptcy, reorganization, debt arrangement or other proceeding under any bankruptcy or insolvency law or any dissolution or liquidation proceedings being instituted by or against the Customer and, if instituted against the Customer and defended by the Customer, remaining undismissed for thirty (30) days; or (iii) immediately upon the appointment of a receiver or receiver and manager or officer with similar powers over any part of the Customer's property. (v) upon thirty (30) days prior written notice, (or immediately in the event of imminent danger to persons or property) if TA, in its reasonable opinion, determines that continued operation of the Customer Equipment at the Selected Site represents a danger to the public or to TA personnel or the personnel of TA customers, or will interfere with TA's network, equipment or facilities or the equipment or facilities of TA's customers or will otherwise adversely affect the provision of service by TA and Customer has not cured the condition giving rise to the notice; provided that TA need for space in a Selected Site shall not constitute interference with or be deemed to adversely affect the provision of service by TA. TA may, at its option and in lieu of termination, suspend any and all services and/or facilities, including the furnishing of electrical power, to be provided hereunder until such time as the perceived danger or interference has been eliminated. Written notice of suspension shall be given to Customer as far prior to suspension as practical, and otherwise as soon as reasonably practical thereafter. c. Termination by Customer. Customer may terminate this Agreement in the following circumstances: (i) at any time following Customer's termination of all Site Terms in accordance with Section 3.b; URRS Agreement Page 136 Dated: September 9, 2002 Appendix G (iii) immediately upon TA becoming insolvent or bankrupt or unable to pay its debts as they fall due or any bankruptcy, reorganization, debt arrangement or other proceeding under any bankruptcy or insolvency law or any dissolution or liquidation proceedings being instituted by or against the Customer and, if instituted against TA and defended by TA, remaining undismissed for thirty (30) days; (iv) immediately upon the appointment of a receiver or receiver and manager or officer with similar powers over any part of the Customer's property. d. Termination Charges. In the event of termination of this Agreement by TA for any of the reasons enumerated in paragraph b (ii) and (iii) above, Customer shall pay, as liquidated damages and not as a penalty, termination charges equal to the net present value of the remaining Rent payments. 13. Default. a. Default. Either Party may terminate this Agreement upon the other Party's default and continuance after fifteen (15) days written notice thereof in the observation or performance of any material term, covenant or condition of this Agreement; provided, however, that where such default cannot reasonably be cured within such fifteen (15) day period, if the defaulting Party shall proceed promptly to cure the same and prosecute such curing with due diligence, the time for curing such default shall be extended for a period no longer than forty-five (45) days from the date of the receipt of the default notice. b. Remedies. In the event that TA terminates of this Agreement pursuant to this Section 13, Customer shall pay to TA, as liquidated damages and not as a penalty, an amount equal to the net present value of the remaining Rent payments. In the event that Customer terminates this Agreement pursuant to this Section 13 Customer, as its sole remedy, may terminate this Agreement and seek such actual damages as are available under law or equity; provided, however that the amount of such damages shall be limited to the amount of Rent paid by Customer during the twelve (12) months prior to such termination. 414 Removal of Customer Equipment. Customer shall,(and TA shall provide access as necessary) within thirty (30) days after the termination or expiration of a Site Term, remove all Customer Equipment and Customer Interconnect Facilities from the Selected Site. Customer shall, (and TA shall provide access as necessary) within sixty (60) days after termination or expiration of this Agreement, remove all Customer Equipment and Customer Interconnect Facilities from all Selected Sites. Removal shall be at Customer's sole cost under TA's supervision. If Customer fails to remove the same within said periods it shall deemed abandoned, and TA shall notify Customer in writing that TA will either: (i) remove Customer's Equipment and Customer Interconnect Facilities and issue an invoice to Customer for the cost of removal and storage; or (ii) thirty (30) days from the date of the notice take ownership of such URRS Agreement Page 137 Dated: September 9, 2002 Appendix G abandoned Customer Equipment and Customer Interconnect Facilities. If TA provides the notice with respect to clause (i), Customer shall pay the invoice within thirty (30) days of receipt thereof. If TA provides the notice with respect to clause (ii), Customer shall remove the Customer Equipment and Customer Interconnect Facilities within such thirty (30) day period or thereafter upon TA's request execute a bill of sale or other document evidencing TA's title to such Customer Equipment and Customer Interconnect Facilities. 15 Insurance. a. Type. During the term of this Agreement, the Parties shall each obtain and maintain, the following insurance: (i) Commercial General Liability Insurance with a combined single limit of $5,000,000 for bodily injury and property damage. (ii) Worker's Compensation Insurance in amounts required by applicable law and Employers Liability Insurance with limits of $1,000,000 each accident. (iii) Automobile Liability Insurance with a combined single limit of $1,000,000 for bodily injury and property damage, to include coverage for all owned, non-owned and hired vehicles. (iv) Excess or Umbrella Liability Insurance with a combined single limit in excess of the amounts required in (I,II,III) above of $5,000,000 for bodily injury and property damage each occurrence and annual aggregate. b. The Customer shall also obtain and maintain All-Risk Property insurance with standard extended coverage, replacement value, without co insurance factor, for the full replacement value of Customer's Equipment, any Improvements and Betterments to the building(s), and until all Equipment has been removed from the Touch America Building. b. Limits. The limits set forth above are minimum limits and shall not be construed to limit the liability of either Party. c. TA Insurers. TA insurance policies required above shall be obtained and maintained with companies rated A or better by Best's Key Rating Guide. All such insurance or shall, to the extent of TA's indemnity obligation contained in this Agreement, be primary to any other available coverage. TA shall provide Customer with an insurance certificate confirming compliance with the insurance requirements in this Section 14. The insurance certificate shall indicate that Touch America shall endeavor to notify Customer not less than thirty (30) days prior to any cancellation or material change in coverage. d. Customer Insurers. Customer's insurance policies required above shall be obtained and maintained with companies rated A or better by Best's Key Rating Guide. All such insurance shall, to the extent of Customer's indemnity obligation contained in this Agreement, be primary to any other available coverage. URRS Agreement Page 138 Dated: September 9, 2002 Appendix G Customer shall provide TA with an insurance certificate confirming compliance with the insurance requirements in this Section 15. The insurance certificate shall indicate that TA shall be notified not less than thirty (30) days prior to any cancellation or material change in coverage. e. Denied Coverage. In the event coverage is denied or reimbursement of a properly presented claim is disputed by the carrier for insurance provided above, the Party carrying such coverage shall make commercially reasonable efforts to pursue such claim with its carrier. f. Subrogation. Except for Worker's Compensation coverage, each party shall obtain from the insurance companies providing the coverage required by this Agreement a waiver of all rights of subrogation or recovery against the other party and its parent corporation, shareholders, affiliates, subsidiaries, assignees, officers, directors, and employees or any other party entitled to indemnity under this Agreement. 16 Indemnification and Limitation of Liability. a. Customer. Customer hereby releases and agrees to indemnify, defend, protect and hold harmless TA, its employees, officers, directors, agents, contractors, shareholders and Affiliates ("Indemnified Persons"), from and against any third party claims, suits, proceedings and actions ("Claims") for: (i) Any injury, death, loss or damage to any person, tangible property or facilities of any person or entity (including reasonable attorney fees and costs at trial and appeal) to the extent arising out of or resulting from the acts or omissions, negligent or otherwise, of Customer, its officers, employees, servants, agents or contractors in connection with its performance under this Agreement; and (ii) Any liabilities or damages (including reasonable attorney fees and costs at trial and appeal) arising out of any violation by Customer of regulations, rules, statutes or court orders of any local, state or federal governmental agency, court or body in connection with its performance under this Agreement. b. TA. TA hereby releases and agrees to indemnify, defend, protect and hold harmless Customer, and its Indemnified Persons from and against any third party Claims for: (i) Any injury, death, loss or damage to any person, tangible property or facilities of any person or entity (including reasonable attorney fees and costs at trial and appeal), to the extent arising out of or resulting from the acts or omissions, negligent or otherwise, of TA, its officers, employees, servants, agents or contractors in connection with its performance under this Agreement; and (ii) Any liabilities or damages (including reasonable attorney fees and costs at trial and appeal) arising out of any violation by TA of regulations, rules, statutes or court orders of any local, state or federal governmental agency, court or body in connection with its performance under this Agreement. URRS Agreement Page 139 Dated: September 9, 2002 Appendix G c. Survival. TA and Customer hereby expressly recognize and agree that each Party's obligation to indemnify, defend, protect and save harmless Indemnified Persons is a material obligation to the continuing performance of the Parties' other obligations, if any, hereunder. The obligations of this Section 16 shall survive the expiration or earlier termination of this Agreement. TA and Customer each affirmatively state and warrant to the other that its indemnity obligation will be supported by liability insurance to be furnished by it, as set forth in Section 14 above; provided that recovery under or in respect of this indemnity shall not be limited to the proceeds of any such insurance. d. Limitation. Notwithstanding any other provision of this Agreement, TA AND CUSTOMER HEREBY EXPRESSLY AGREE THAT IN NO EVENT SHALL EITHER OF THEM BE LIABLE TO THE OTHER FOR ANY LOST OR PROSPECTIVE PROFITS OR ANY OTHER SPECIAL PUNITIVE, EXEMPLARY, CONSEQUENTIAL, INCIDENTAL OR INDIRECT LOSSES OR DAMAGES (IN TORT, CONTRACT OR OTHERWISE) UNDER OR IN RESPECT OF THIS AGREEMENT OR FOR ANY FAILURE OF PERFORMANCE RELATED HERETO HOWSOEVER CAUSED, WHETHER OR NOT ARISING FROM SOLE, JOINT OR CONCURRENT NEGLIGENCE. 17. Subordination. Customer's rights under this Agreement shall be totally subordinate to any bona fide mortgages, loans, deeds of trust, or any other encumbrance upon the Selected Site, Facility or other real or personal property of TA which may be incurred by TA; provided, however, that TA shall use reasonable efforts to assure Customer's rights under this Agreement are not disturbed. Customer shall sign any such reasonable documents as are necessary to satisfy any lender, private or institutional, to reflect said subordination. 18 Assignment. a. By Customer. Customer may not assign or otherwise transfer this Agreement or any rights or obligations hereunder to any other party without the prior written consent of TA, which consent shall not be unreasonably withheld; provided, however, any such assignee or transferee shall agree in writing to be bound and abide by this Agreement. Customer shall have the right, without TA's consent, to assign or otherwise transfer this Agreement, or to any entities controlling, controlled by or under common control with Customer, ("Affiliates") or to any corporation that purchases all of the stock or all or substantially all of the assets of Customer, or as collateral to any lender; provided, however, that: (a) any such assignment or transfer shall be subject to TA's rights under this Agreement and any assignee or transferee shall continue to perform Customer's obligations to TA under the terms and conditions of this Agreement; and (b) such assignee or transferee shall agree in writing to be bound and abide by this Agreement. In the event of any permitted partial assignment of any rights hereunder Customer shall remain the sole point of contact with TA. b. By TA. TA may not assign or otherwise transfer this Agreement or any rights or obligations hereunder to any other party without the prior written consent of Customer, which consent shall not be unreasonably withheld; URRS Agreement Page 140 Dated: September 9, 2002 Appendix G provided, however, any such assignee or transferee shall agree in writing to be bound and abide by this Agreement. TA shall have the right, without Customer's consent, to assign or otherwise transfer this Agreement to any Affiliate of Customer, or to any corporation that purchases all of the stock or all or substantially all of the assets of Customer, or as collateral to any lender; provided, however, that: (a) any such assignment or transfer shall be subject to Customer's rights under this Agreement and any assignee or transferee shall continue to perform TA's obligations to Customer under the terms and conditions of this Agreement; and (b) such assignee or transferee shall agree in writing to be bound and abide by this Agreement. In the event of any permitted partial assignment of any rights hereunder TA shall remain the sole point of contact with Customer. 19 Confidentiality. a. Separate Agreement. If the Parties have entered into (or later enter into) a confidentiality agreement, the terms of such an agreement shall control and Section 19 (b) below shall not apply; provided, however, that if any such confidentiality agreement expires or is no longer effective at any time when this Agreement is effective, Section 19 (b) below shall be in effect for such periods. b. Agreement. In the absence of a separate confidentiality agreement between the Parties, if either Party provides confidential information to the other in writing and identified as such or if in the course of performing under this Agreement a Party learns confidential information regarding the facilities or plans of the other, the receiving Party shall protect the confidential information from disclosure to third parties with the same degree of care accorded its own confidential and proprietary information; provided, however, that the Parties shall each be entitled to provide such confidential information to their respective directors, officers, members, managers, employees, agents, and contractors ("Representatives"), Affiliates, or the Representatives of such Affiliates, in each case whose access is reasonably necessary; provided, however, that neither the Party nor its Affiliates nor their respective Representative shall use such confidential information for any marketing, competitive or sales purpose. Each such recipient of confidential information shall be informed by the Party disclosing confidential information of its confidential nature, and shall be directed to treat such information confidentially and shall agree to abide by these provisions. In any event, each Party shall be responsible for any breach of this provision by any person to whom that Party discloses confidential information. Neither TA nor Customer shall be required to hold confidential any information that: (a) becomes publicly available other than through the recipient; (b) is independently developed by the disclosing Party; or (c) becomes available to the disclosing Party without restriction from a third party. These obligations shall survive expiration or termination of this Agreement for a period of two (2) years. c. Limitation. Notwithstanding clauses (a) and (b) above, confidential information shall not include information disclosed by the receiving Party as required by applicable law or regulation; provided, however, that the disclosing Party uses reasonable efforts to provide the other Party with written notice of such potential disclosure, prevent such disclosure, and provide the other Party with a reasonable opportunity to secure the confidential protections thereof. URRS Agreement Page 141 Dated: September 9, 2002 Appendix G Notwithstanding the foregoing, this Agreement may be provided to any governmental agency or court of competent jurisdiction to the extent required by applicable law. d. Trademarks. Neither Party shall use the name, tradename, servicemark or trademark of the other, nor issue any press releases regarding this Agreement or the terms and conditions of this Agreement or use the other Party's name in any promotional or advertising material without the prior written consent of such Party. 20 REPRESENTATIONS AND WARRANTIES. Each Party represents and warrants that it has full power and authority to execute, deliver and perform its obligations under this Agreement, that it has duly executed and delivered this Agreement and that this Agreement constitutes the legal valid and binding obligation of such Party enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, reorganization and other laws affecting creditors' rights generally. EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, TA MAKES NO WARRANTY TO CUSTOMER OR ANY OTHER PERSON OR ENTITY, WHETHER EXPRESS, IMPLIED OR STATUTORY, AS TO THE INSTALLATION, DESCRIPTION, QUALITY, MERCHANTABILITY, COMPLETENESS OR FITNESS FOR ANY PURPOSE OF ANY SELECTED SITE CABINET OR INTO INTERCONNECT FACILITY OR ANY OTHER EQUIPMENT FACILITY OR SERVICE PROVIDED HEREUNDER OR DESCRIBED HEREIN, OR AS TO ANY OTHER MATTER, ALL OF WHICH WARRANTIES ARE HEREBY EXCLUDED AND DISCLAIMED. 21 Independent Parties. The Parties are independent contractors and nothing herein, including the presence of a TA or Customer employee or representative (as an inspector or otherwise) while an employee or representative of the other Party at any Facilities or any Selected Site or performing work pursuant to this Agreement, shall make a Party an agent, partner or joint venturer of the other Party; make a Party liable for the actions of the other Party or relieve a Party of the responsibility to perform its obligations hereunder in a safe and workmanlike manner. 22 Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York without reference to its choice of law principles. 23 Notice. Any notices required or permitted to be given under this Agreement will be deemed sufficiently given if in writing, and if delivered by hand, by courier, by confirmed facsimile or sent by registered or certified mail, postage and fees prepaid, addressed to the party to be notified at its address shown below, or at such other address as may be furnished in writing to the notifying party. TOUCH AMERICA, INC. CUSTOMER 130 North Main Street XXX, LLC Butte, MT 59701 XXXX Attention: Liza Dennehy XXXX Attention: Copies to: URRS Agreement Page 142 Dated: September 9, 2002 Appendix G TOUCH AMERICA, INC. Legal Department 130 North Main Street Butte, MT 59701 Attention: Susan Callaghan 24. Miscellaneous. a. Amendment. This Agreement may not be amended or modified except in writing signed by both Parties. b. Severability. In the event that any one or more of the clauses, covenants or provisions contained in this Agreement should be held unenforceable under any federal, state or local government law, statute, code, or regulatory rule, such invalidity or unenforceability shall not affect the remainder of this Agreement, which remains in full force and effect. c. Waiver. Any failure of a Party to insist upon the strict observance or performance by the other Party of the provisions of this Agreement shall not be deemed a waiver by such Party of any such provision, a modification of such provision or a release by such Party of its right to claim a breach by reason of such failure. d. Entire Agreement. This Agreement and any referenced attachments constitute the complete agreement between the Parties related to the subject matter hereof, and supersedes any prior or contemporaneous agreements, whether written or oral. e. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which when so executed and delivered shall be taken to be an original, but such counterparts shall together constitute but one and the same document. f. Facsimile Delivery. This Agreement may be delivered by facsimile transmission of an executed counterpart signature page hereof, and after attachment of such transmitted signature page to a copy of this Agreement, such copy shall have the same effect and evidentiary value as copies delivered with original signatures. Any Party delivering this Agreement by facsimile transmission shall deliver to the other Party, as soon as practicable after such delivery, an original executed counterpart signature page of this Agreement. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of URRS Agreement Page 143 Dated: September 9, 2002 Appendix G the date first written above. Touch America, Inc. ("TA") XXX, LLC ("Customer") _______________________________________________________________________________ Name: Name _______________________________________________________________________________ Title: Title: URRS Agreement Page 144 Dated: September 9, 2002 Appendix G APPENDIX H INTENTIONALLY OMITTED URRS Agreement page 145 Dated: September 9, 2002 Appendix H APPENDIX I QUITCLAIM DEED METRO CONDUIT SIERRA TOUCH AMERICA, LLC., a Nevada limited liability company (the "Grantor"), for good and valuable consideration paid to it by SIERRA PACIFIC COMMUNICATIONS, a Nevada corporation (the "Grantee"), pursuant to a Unit Redemption, Release, and Sale Agreement dated as of September 9, 2002 between Grantor and Grantee (the "Agreement"), and for other good and valuable consideration, receipt and sufficiency of which are hereby mutually acknowledged, does hereby remise, release and quitclaim unto Grantee forever, all the right, title, interest and claim which Grantor has in and to the following: The land, improvements and appurtenances upon, over, across, above, and along which is placed, and occupied thereby, the personal property and assets described or identified as the "Metro Conduit" in Section V of the Agreement or on schedules relating thereto, in the Counties of Washoe, Storey, Churchill, Carson and Douglas, in the State of Nevada. This instrument shall be binding upon, inure to the benefit of, and be enforceable by, Grantee and its successors and assigns. IN WITNESS WHEREOF, the undersigned Grantor has executed this Quitclaim Deed as of the 9th day of September, 2002. GRANTOR: SIERRA TOUCH AMERICA LLC, a Nevada limited liability company By _________________________________ MICHAEL J. MELDAHL, Manager STATE OF MONTANA ) COUNTY OF SILVER BOW ) The foregoing instrument was acknowledged before me this ___ day of _______, 2002, by _________________________, known to be the individual described in and who executed this instrument. ________________________________ NOTARY PUBLIC My Commission Expires: _________________________ URRS Agreement Page 146 Dated: September 9, 2002 Appendix I APPENDIX J METRO CONDUIT ASSIGNMENT AND BILL OF SALE SIERRA TOUCH AMERICA, LLC., a Nevada limited liability company (the "Seller"), for good and valuable consideration paid to it by SIERRA PACIFIC COMMUNICATIONS, a Nevada corporation (the "Purchaser"), pursuant to a Unit Redemption, Release, and Sale Agreement dated as of September 9, 2002 between Seller and Purchaser (the "Agreement"), and for other good and valuable consideration, receipt and sufficiency of which are hereby mutually acknowledged, does hereby sell, assign, transfer, convey, and deliver to Purchaser, its successors and assigns, the following: The personal property and assets described or identified as the "Metro Conduit" in Section V of the Agreement or on schedules relating thereto, free and clear of any and all material claims, liens, and encumbrances except as specifically identified or assumed by Purchaser as set forth in Schedule II of the Agreement. Seller hereby covenants and agrees that it will warrant and defend the sale of these assets against each and every person or persons whomsoever claiming against any or all of the same. This instrument shall be binding upon, inure to the benefit of, and be enforceable by, Seller and Purchaser and their respective successors and permitted assigns. IN WITNESS WHEREOF, the undersigned have executed this Assignment and Bill of Sale as of this 9th day of September 2002. SELLER: SIERRA TOUCH AMERICA LLC, a Nevada limited liability company By ___________________________________ MICHAEL J. MELDAHL, Manager PURCHASER: SIERRA PACIFIC COMMUNICATIONS, a Nevada corporation By ___________________________________ RICHARD J. COYLE, JR., President URRS Agreement Page 147 Dated: September 9, 2002 Appendix J APPENDIX K METRO IRU AGREEMENT This METRO IRU AGREEMENT (the "Agreement") is made as of September 9, 2002, between SIERRA TOUCH AMERICA LLC, a Nevada limited liability company, with offices at 130 North Main, Butte, Montana 59701 ("SPC"), and SIERRA PACIFIC COMMUNICATIONS, a Nevada corporation, with offices at 5860 S. Pecos, Bldg. G, Ste. 100, Las Vegas, NV 89120 ("SPC") (each individually a "Party", and collectively the "Parties"). WHEREAS, SPC has commenced construction of a fiber optic communication system consisting of dark fiber strands and other fiber optic facilities within the Reno and Las Vegas metropolitan areas (collectively, the "Metro Network") described in Attachment 1 hereto, and WHEREAS, upon the terms and conditions set forth below and set forth in the Unit Redemption, Release, and Sale Agreement between Touch America, Inc., STA, and SPC of even date herewith (the "URRS Agreement"), and the April 25, 2000 Operating Agreement of Sierra Touch America LLC between SPC and Touch America, Inc., STA desires to acquire from SPC and SPC desires to convey to STA an indefeasible right of use in twelve strands of dark fiber from the Reno metropolitan network and four (4) strands of dark fiber from the Las Vegas metropolitan network. NOW, THEREFORE, in consideration of the mutual promises set forth below, the Parties hereby agree as follows: 1. DEFINITIONS As used in this Agreement: 1.1 "Authorized Use" means a business purpose of STA's optical fiber telecommunications network for telecommunication traffic of STA or STA's Customers. 1.2 "Strands" individual fiber optic strands within the Network. 1.3 "Dark Fiber" means one or more Strands subject to this Agreement through which an associated light, signal or light communication transmission must be provided to furnish service. 1.4 "Indefeasible Right Of Use" or "IRU" means an irrevocable and exclusive right to use SPC's Dark Fiber as described in this Agreement. 1.5 "Environmental, Health, or Safety Complaint" means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, proceeding, judgment, letter or communication from any federal, state, or municipal authority or any other private party involving a Hazardous Discharge from, in or at or along SPC's Network or SPC's facilities installed in the Network or any violation related to SPC's Route or its facilities installed in the Route of any order, permit, or Environmental, Health and Safety Law. 1.6 "Environmental, Health and Safety Laws" means any federal, state, or local statute, regulation, rule, ordinance or applicable governmental order, decree, or settlement agreement, or principle or requirement of common law, regulating or protecting the environment or human health or safety, including without limitation the Comprehensive Environmental URRS Agreement Page 148 Dated: September 9, 2002 Appendix K Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.), as amended, the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), as amended, and the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.), as amended, and regulations promulgated thereunder. 1.7 "Hazardous Discharge" means any release, spill, leak, pumping, emission, discharge, injection, leaching, pouring, disposing or dumping of a Hazardous Substance. 1.8 "Hazardous Substance" means any pollutant or contaminant or any hazardous or toxic chemical, waste, material, or substance, including without limitation any defined as such under Environmental, Health and Safety Laws, and including without limitation asbestos, petroleum products and wastes, polychlorinated biphenyl's, and radon gas. 1.9 "Metro Network" or "Network" means SPC's fiber optic facilities within the Reno and Las Vegas metropolitan areas. 1.10 "STA Strands" means twelve (12) strands of dark fiber from the Reno metropolitan network and four (4) strands of dark fiber from the Las Vegas metropolitan network, as designated by SPC. 1.11 "Useful Life" means the period from the Acceptance Date of STA's Strands until the date they are no longer capable of producing commercial revenues. 2. GRANT OF IRU 2.1 Upon the terms, covenants and conditions contained in this Agreement and subject to the terms and conditions contained in URRS Agreement, SPC grants to STA and STA accepts from SPC an Indefeasible Right of Use of the STA Strands solely for Authorized Use (the "IRU") during the Term of the IRU as provided in this Agreement. STA shall have no further right, title or other interest in SPC's Network, its fiber optic facilities or SPC's Strands. SPC shall have the right to grant and renew rights to any entity to use SPC's Network, its fiber optic facilities or any other property of SPC (exclusive of the STA Strands during the term of the IRU). 2.2 It is understood and agreed as between the Parties that the grant of the IRU shall be treated for federal and all applicable state and local tax purposes as the sale and purchase of the STA Strands, and that on or after the exercise of its IRU, STA shall be treated as the owner of the STA Strands for such purposes. The Parties agree to file their respective income tax returns, property tax returns and other returns and reports for their respective Assessments on such basis and, except as otherwise required by law, not to take any positions inconsistent therewith. 3. TESTING AND ACCEPTANCE 3.1 SPC shall test all STA's Strands in accordance with the procedures specified in Schedule C ("Fiber Cable Splicing, Testing, and Acceptance Standards and Procedures") to verify that STA's Strands are installed and operational in accordance with the specifications described in Schedule C. SPC shall provide STA reasonable advance notice of the date and time of each Fiber Acceptance Testing such that STA shall have the opportunity to have a person or persons present to observe SPC's Fiber Acceptance Testing. When SPC has determined that the results of the Fiber Acceptance URRS Agreement Page 149 Dated: September 9, 2002 Appendix K Testing with respect to a particular segment show that the STA's Strands so tested are installed and operating in conformity with the applicable specifications as set forth in Schedule C, SPC shall promptly provide STA with a copy of such test result. 3.2 If and when SPC gives written notice to STA that the test results of the Fiber Acceptance Testing are within parameters of the specifications in Schedule C with respect to an entire segment, STA shall provide SPC with written notice accepting (or rejecting by specifying the defect or failure in the Fiber Acceptance Testing that is the basis for such rejection) STA's Strands. If STA fails to notify SPC of its acceptance or rejection of the final test results with respect to STA's Strands comprising a segment within twenty (20) days after STA's receipt of notice of such test results, STA shall be deemed to have accepted such segment. If, during the course of such testing, any material deviation from the specifications set forth in Schedule C is discovered, the construction or installation of the affected portion of the segment shall be repaired to such specification by SPC at SPC's sole cost and expense. The date of such notice of acceptance (or deemed acceptance) of STA's Strands for all segments along the Route shall be the "Acceptance Date" for the Route. 4. CONSIDERATION 4.1 Consideration for the STA Strands shall be as set forth in the URRS Agreement, the STA Operating Agreement, and related documents. 4.2 Beginning on August 1, 2003, STA shall pay to SPC an annual maintenance fee of Two Hundred Forty dollars ($240.00) per Network mile each year during the term of this Agreement for maintenance of the STA Strands. Thereafter, STA shall pay the annual maintenance fee on or before the anniversary date of this Agreement each year. This amount shall be adjusted annually to reflect changes in the U.S. Producer Price Index (Bureau of Labor Standards "All Finished Goods" Series ID WPUSOP3000), but in no event shall such amount be less than $20 per actual route mile per month. 4.3 Except as otherwise specifically provided, STA shall pay all applicable fees and charges provided for in this Agreement, within thirty (30) days after receipt of invoice. 4.4 All payments not made within thirty (30) days of the due date shall bear a late payment charge of one (1%) percent per month of the unpaid balance or the highest lawful rate, whichever is less. 5. TERM. 5.1 The Term of this Agreement shall begin on the date first above written and shall end upon the expiration of the Useful Life of the STA Strands. 6. TERMINATION 6.1 Upon the expiration of the Term of this Agreement, STA's IRU in the STA Strands shall immediately terminate and all rights of STA to use the STA Strands, or any part thereof, shall cease and SPC shall owe STA no additional duties or consideration. 7. AUTHORIZATIONS URRS Agreement Page 150 Dated: September 9, 2002 Appendix K 7.1 SPC has obtained certain easements, leases, licenses, fee interests, rights of- way, permits, authorizations and other rights necessary to allow SPC to install and operate the Network. If a governmental entity requires STA or its permitted assigns to obtain a separate license or permit for the STA Strands, then SPC shall be responsible to obtain such license or permit at its sole cost and expense. SPC agrees to use commercially reasonable efforts in cooperating with STA with respect to STA's efforts to secure such licenses or permits. 8. MAINTENANCE AND OPERATION 8.1 SPC shall maintain the STA Strands in accordance with the requirements and procedures set forth in Schedule D ("Maintenance and Operations Specifications and Procedures"). STA shall cooperate with and assist, as may be reasonably required, SPC in performing said maintenance. 8.2 In the event of service outages, SPC agrees to use commercially diligent efforts to respond promptly and restore STA's Strands within the parameters of the specifications in Schedule C; provided however, that STA shall solely be responsible, at its own expense, for restoring an outage caused by a failure of light, signal or light communication transmission. STA shall also be solely responsible, at its own expense, for the routine surveillance of the STA Strands, and the operation, maintenance and repair of all terminal equipment and facilities required in connection with the use of the STA Strands. 8.3 SPC shall provide STA access to STA's Strands by cable stub taken by SPC from the Network Facilities and delivered to STA at a splice point or, as mutually agreed to by the parties, in selected SPC OA Sites at the fiber distribution panel. If a splice point is not located at an SPC manhole/handhole/overhead splice enclosure, SPC shall, if mutually agreed, obtain all necessary permissions (if possible) and construct, at STA's expense, a manhole/handhole/overhead splice enclosure for STA. STA shall, if necessary, obtain the permissions outlined in the preceding sentence. All other splice points shall be located at an SPC manhole/handhole/overhead splice enclosure. STA is permitted to request access to splice points in the future, provided STA reimburses SPC for any costs it incurs in providing access to such splice points. 8.3.1 SPC shall accomplish sheath opening and stub out of STA's Strands at the splice points in STA's and SPC's manholes/handholes/ overhead splice enclosures. STA may splice its own fiber optic cable to STA's Strands only in STA's manholes/handholes/overhead splice enclosures. SPC shall splice STA's fiber optic cable to STA's Strands in SPC's manhole/handhole/overhead splice enclosures. 8.3.2 The parties shall enter into a Collocation Agreement pursuant to which SPC shall provide collocation space to STA at SPC's Sites along the Route, such space and related services to be specifically defined in the Collocation Agreement. Should STA subsequently request additional space in SPC facilities along the Route not identified in the Collocation Agreement, SPC agrees to provide such space if it is available at the time STA requests such additional space. All billings for collocation space shall be made under the Collocation Agreement, and not this Agreement. 8.4 Within thirty (30) days after the Acceptance Date, SPC shall provide to STA as-built drawings for the Route. The drawings shall contain ROW detail, splice locations, manhole/handhole/overhead splice enclosure locations and STA fiber count detail. URRS Agreement Page 151 Dated: September 9, 2002 Appendix K 8.5 In exercising its rights under this Agreement, both parties shall at their own expense comply with all applicable Environmental, Health and Safety Laws; the requirements and specifications of the National Electrical Code and the National Electrical Safety Code (all of the foregoing collectively referred to as "EHS Requirements"); other applicable governmental laws, regulations, ordinances, rules, codes, orders, guidance, permits, and approvals; and applicable easement or license conditions. Any notice, report, correspondence, or submissions made by STA to federal, state, or municipal environmental, safety, or health authorities related to the SPC's Route or Network shall be provided by STA to SPC promptly, and in no case later than twenty-four (24) hours. STA also shall promptly provide to SPC a copy of any Environmental, Health or Safety Complaint received by STA, and in no case late than three (3) business days after STA's receipt of same. STA shall ensure that its employees are trained in the proper procedures for entering and operating in the SPC's Route and in its Network, optical amplifier sites and regenerator sites. 8.6 STA agrees to reimburse SPC the reasonable cost of SPC (i) constructing manholes/handholes/overhead splice enclosures for STA; (ii) accomplishing all sheath openings and stub out of STA's Strands; and (iii) splicing STA's fiber optic cable to STA's Strands. Such charges shall be at SPC's fully loaded labor rates then in effect and SPC's cost of material plus fifteen (15%) per cent. 8.7 Should STA's splices or other work not be placed and maintained in accordance with the provisions of this Agreement, SPC may at its option correct said condition. SPC shall notify STA in writing prior to performing such work whenever practicable. However, when such conditions pose an immediate safety threat, interfere with the performance of SPC's service obligations, or pose an immediate threat to the physical integrity of SPC's facilities, SPC, may perform such work and take such action that it deems necessary without first giving notice to STA. As soon as practicable thereafter, SPC shall advise STA of the work performed and the action taken and shall endeavor to arrange for re-accommodation of STA's Strands so affected. STA shall promptly reimburse SPC for all reasonable costs incurred by SPC for all such work, action, and re-accommodation performed by SPC. 8.8 In the event a Hazardous Discharge or other conditions are discovered or created at or near work being performed by STA in on or around SPC's Route that may require (i) investigation or remediation or (ii) unforeseen measures to protect the environment, health or safety (collectively "Adverse EH&S Conditions"), the party discovering the condition shall immediately notify the other party. The party in the best position to do so (or, if the parties are equally situated, STA) shall then immediately take reasonable measures to temporarily contain or otherwise avoid exacerbation of or exposure to the Adverse EH&S Conditions. Unless SPC affirmatively notifies STA otherwise, STA shall also take such other actions as applicable EH&S Requirements prescribe. 8.9 STA shall be responsible for obtaining and maintaining, at its sole expense, from the appropriate public or quasi-public authority, any franchises, licenses, permits or other similar authorizations required to enter upon the property where SPC's Route is located and to operate and maintain the STA Strands and the STA Conduit in the SPC's Route. 8.10 STA, at its sole cost and expense, shall (i) use STA's Strands and (ii) conduct all work in or around SPC's Route in a safe condition and in a manner reasonably acceptable to SPC, so as not to physically, electronically or inductively conflict or interfere or otherwise adversely affect SPC's Route or the facilities placed therein by SPC, joint users, or other authorized STA's. SPC URRS Agreement Page 152 Dated: September 9, 2002 Appendix K agrees to operate its facilities in the SPC's Route in a similar manner. 8.11 STA must obtain prior written authorization from SPC approving any future work and the party performing such work before STA shall perform any work in or around SPC's Route. 8.12 In the event STA receives information that SPC's Network or the fiber optic facilities are damaged, it shall notify STA of said damage by phone at: ____________. This is a 24 hour, 7 day per week notification number. In the event SPC receives information that STA's Strands are damaged, SPC will notify STA of said damage by phone at SPC's emergency telephone number. The call shall be directed to the Supervisor on Duty, and the caller shall provide the following information. 1. Name of Company making report. 2. Location reporting problem 3. Name of contact person reporting problem. 4. Telephone number to call back with progress report. 5. Description of the problem in as much detail as possible. 6. Time and date the problem occurred or began. 7. State whether or not the problem presents a jeopardy situation to SPC's Network, the fiber optic facilities or STA's Strands. 8.13 SPC shall designate and notify STA of the particular Strands of Dark Fiber that will constitute the STA Strands with thirty (30) days of the signing of this Agreement. 8.14 If SPC moves, replaces or changes the location, alignment or grade of SPC's Network ("Relocation"), SPC shall provide STA sixty (60) calendar days' prior notice of any such relocation, if possible, and shall proceed concurrently to relocate the STA Strands. If the Relocation is because of an event of Force Majeure, pursuant to Section 26.2, or of any governmental or third party authority, including a Taking by right of eminent domain, STA shall reimburse SPC for SPC's proportionate share of the costs of the Relocation of SPC's Route. To the extent SPC receives reimbursement from such governmental or third party, which is allocable to a Relocation of SPC's Network, SPC will credit or reimburse STA for its proportionate share of the reimbursement. STA's proportionate share shall be based on the number of SPC Strands relative to the total fiber count in the affected conduit. 9. OWNERSHIP Legal title to the STA Strands shall at all times be vested in SPC. Neither the provision of the use of the STA Strands by SPC to STA hereunder, nor any payments by STA in connection therewith, shall create or vest in STA any easement, interest, or any other ownership or property right of any nature in the STA Strands, except as granted in specifically herein. 9.2 SPC may use or permit the use of SPC's Network, the fiber optic facilities therein and the telecommunications capacity thereof for any lawful purpose. Nothing in this Agreement shall be construed or interpreted to prohibit SPC from leasing or licensing the Network or otherwise providing capacity to others or from installing additional fibers or capacity, including without limitation, fiber optic capacity, within SPC's Network (other than the STA Strands during the term of the IRU) or to prohibit SPC from operating such Network (alone or in combination with others) in competition with STA. URRS Agreement Page 153 Dated: September 9, 2002 Appendix K 10. EMINENT DOMAIN If there is a taking of the STA Strands by right of eminent domain (a "Taking") which results in the remainder of the STA Strands being unable to be restored to a condition suitable for STA's business needs within ninety (90) days from the date of the Taking ("Substantial Taking"), STA will be permitted to participate, to the extent of its interest and at its expense, in such eminent domain proceeding, and this Agreement may be terminated as a result of such proceedings. In such event the IRU fee and maintenance fee shall abate from the date of Taking and any previously paid IRU fee and/or maintenance fee attributable for any period beyond such date shall be returned to STA. If there shall be a Taking which does not constitute a Substantial Taking, this Agreement shall not terminate but SPC shall, with due diligence, restore STA's Strands as speedily as practical to its condition before the Taking in accordance with the provisions herein. 11. INDEMNIFICATION 11.1 STA will indemnify, defend, and hold harmless SPC and SPC's agents, officers and employees, from any and all losses, damages, costs, expenses (including reasonable attorneys fees), statutory fines or penalties, actions, or claims for personal injury (including death), damage to property, or other damage in any way arising from STA's activities undertaken pursuant to this Agreement (including, without limitation, the installation, construction, operation or maintenance of the STA Strands), except to the extent caused by the negligence or willful misconduct on the part of SPC or SPC's agents, officers or employees. 11.2 Without limiting the foregoing, STA specifically will indemnify, defend, and hold harmless SPC and SPC's agents, officers and employees from any and all claims asserted by STA's customers in any way arising out of or in connection with this Agreement or the STA Strands, except to the extent caused by the negligence or willful misconduct on the part of SPC or SPC's agents, officers or employees. 11.3 SPC will indemnify, defend, and hold harmless STA and STA's agents, officers and employees, from any and all losses, damages, costs, expenses (including reasonable attorneys fees), statutory fines or penalties, actions, or claims for personal injury (including death), damage to property, or other damage in any way arising from SPC's activities undertaken pursuant to this Agreement (including, without limitation, the installation, construction, operation or maintenance of the Route), except to the extent caused by the negligence or willful misconduct on the part of STA or STA's agents, officers or employees. 11.4 EXCEPT FOR PERSONAL INJURY AND PROPERTY DAMAGE AS PROVIDED ABOVE, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL OR INDIRECT (INCLUDING BY WAY OF ILLUSTRATION, LOST REVENUES AND LOST PROFITS), PUNITIVE OR EXEMPLARY DAMAGES ARISING OUT OF THIS AGREEMENT OR ANY OBLIGATION ARISING THEREUNDER, WHETHER IN AN ACTION FOR OR ARISING OUT OF BREACH OF CONTRACT, TORT OR OTHERWISE. 12. INSURANCE During the term of this Agreement, each party shall obtain and maintain and shall require any of its permitted contractors to obtain and maintain not less than the following insurance: URRS Agreement Page 154 Dated: September 9, 2002 Appendix K
- -------------------------------------------------------------------------------------------------- TYPE OF COVERAGE AMOUNT OF COVERAGE - -------------------------------------------------------------------------------------------------- Worker's Compensation Insurance Statutory Amount - -------------------------------------------------------------------------------------------------- Employer's Liability Occupational Disease $1 million each accident and Bodily Injury Insurance $1 million disease each employee $1 million disease-policy limit - -------------------------------------------------------------------------------------------------- Commercial General Liability Insurance, Combined single limit personal injury and including premises-operations, property damage on an occurrence policy form products/completed operations, independent with policy amounts of (i) not less than $5 contractors, contractual (blanket), broad form million per occurrence (without a limitation on property damage, with umbrella excess liability aggregate amount); or (ii) not less than $5 (collectively, "Comprehensive Coverage") million per occurrence with an aggregate annual amount of not less than $5 million - -------------------------------------------------------------------------------------------------- Automobile Liability Insurance for owned, $2 million hired and non-owned autos ("Automobile combined single limit bodily injury/property Liability Coverage") damage - --------------------------------------------------------------------------------------------------
The limits set forth above are minimum limits and will not be construed to limit either party's liability. This insurance shall cover the amounts and types of liability listed above with respect to each party's obligations under this Agreement. Each policy evidencing the insurance described in this Section 10 must contain a provision that the insurance policy, and the coverage it provides, shall be primary and noncontributing with respect to any policies carried by the party and its affiliates, and that any policies carried by the party and its affiliates shall be excess insurance. The comprehensive general liability policies and umbrella excess liability policies of the party and its subcontractors each shall contain a provision including the other party, its parent, subsidiaries and affiliates, and each of their respective officers, directors, employees and agents, as additional insureds. Prior to commencement of any work under this Agreement, each party must furnish to the other certificates of insurance stating that the insurer will use best efforts to notify the other part at least thirty (30) days prior to cancellation of, or any material change in, the coverage provided. Either party is entitled to self-insure coverages under this Agreement through programs adopted by their respective risk management departments. 13. COMPLIANCE WITH LAWS Notwithstanding anything to the contrary in this Agreement, each Party shall ensure that any and all activities it performs pursuant to this Agreement shall comply with all applicable laws. Without limiting the generality of the foregoing, each Party shall comply with all applicable provisions of i) workmen's compensation laws, ii) unemployment compensation laws, iii) the Federal Social Security Law, iv) the Fair Labor Standards Act, and v) Environmental, Health and Safety Laws. 14. DISCLAIMER OF WARRANTIES URRS Agreement Page 155 Dated: September 9, 2002 Appendix K EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, SPC MAKES NO WARRANTIES REGARDING THE SERVICES OR DELIVERABLES PROVIDED UNDER THIS AGREEMENT AND MAKES NO WARRANTIES EXPRESS, IMPLIED, OR SPCTUTORY, AS TO THE INSTALLATION, DESCRIPTION, QUALITY, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 15. SPC SALES OR DISPOSITIONS Nothing in this Agreement shall prevent or be construed to prevent SPC from, selling or otherwise disposing of any portion of SPC's Network or fiber optic facilities or other property of SPC used for the STA Strands, provided, however, that in the event of a sale or other disposition, SPC shall condition such sale or other disposition subject to the rights of STA under this Agreement. 16. LIENS STA shall not cause or permit SPC's Network and the fiber optic facilities and other property of SPC to become subject to any mechanic's, artisan's, material-man's, architect's, or similar services' liens, which arise in any way from or as a result of STA's activities, and shall cause any such liens which may arise to be discharged or released. 17. DEFAULT PROVISIONS AND REMEDIES 17.1 Each of the following shall be deemed an Event of Default by STA under this Agreement: 17.1.1 Failure by STA to perform or observe any other material terms, covenant, agreement or condition of this Agreement on the part of STA to be performed and such default continues for a period of thirty (30) days after written notice thereof from SPC (provided that if such default cannot be cured within such thirty (30) day period, this period will be extended if STA commences to cure such default within such thirty (30) day period and proceeds diligently thereafter to effect such cure); 17.1.2 The filing of a tax or mechanic's lien caused by STA against SPC's Network or fiber optic facilities or other property of SPC which is not bonded or discharged within thirty (30) days of the date SPC receives notice that such lien is filed. 17.2 Upon the occurrence of an Event of Default, SPC, without further notice to STA in any instance (except where expressly provided for below or by applicable law) may do any one or more of the following: 17.2.1 Perform, on behalf and at the expense of STA, any obligation of STA under this Agreement which STA has failed to perform and of which SPC shall have given STA notice, the cost of which performance by SPC shall be payable by STA to SPC upon demand; 17.2.2 Exercise any other legal or equitable right or remedy which it may have, including suspension or termination of maintenance services SPC provides to STA hereunder. 17.3 The following events or occurrences shall constitute a default by SPC under this Agreement: URRS Agreement Page 156 Dated: September 9, 2002 Appendix K 17.3.1 Failure by SPC to perform or observe any other terms, covenant, agreement or condition of this Agreement on the part of SPC to be performed and such default continues for a period of thirty (30) days after written notice thereof from STA (provided that if such default cannot be cured within such thirty (30) day period, this period will be extended if SPC commences to cure such default within such thirty (30) day period and proceeds diligently thereafter to effect such cure). 17.4 Upon the occurrence of an Event of Default, STA, without further notice to SPC in any instance (except where expressly provided for below or by applicable law) may do any one or more of the following: 17.4.1 Perform, on behalf and at the expense of SPC, any obligation of SPC under this Agreement which SPC has failed to perform and of which STA shall have given SPC notice, the cost of which performance by STA shall be payable by SPC to STA upon demand; 17.4.2 Exercise any other legal or equitable right or remedy which it may have. 17.5 All rights and remedies of either party set forth in this Agreement shall be cumulative, and none shall exclude any other right or remedy, now or hereafter allowed by or available under any statute, ordinance, rule of court, or the common law, either at law or in equity, or both. 18 FORCE MAJEURE Neither SPC nor STA shall be in default under this Agreement with respect to any delay in its performance caused by any of the following conditions (each a "Force Majeure Event"): (1) act of God; (2) fire; (3) flood; (4) material shortage or unavailability not resulting from the responsible party's failure to timely place orders or take other necessary actions therefor; (5) government codes, ordinances, laws, rules, regulations or restrictions (collectively, "Regulations"); (6) war or civil disorder; (7) failure of a third party to grant or recognize an SPC Occupancy Right; or (8) any other cause beyond the reasonable control of such party; provided, however, that this Section 20 shall not apply to the payment of money. The party claiming relief under this Section 20 shall promptly notify the other in writing of the existence of the Force Majeure Event relied on, the expected duration of the Force Majeure Event, and the cessation or termination of the Force Majeure Event. The party claiming relief under this Section 20 shall exercise commercially reasonable efforts to minimize the time for any such delay. 19 TAXES AND USE OF PUBLIC RIGHTS-OF-WAY, LICENSE AND PERMIT FEES 19.1 Subject to Section 19.4, STA shall be responsible for any and all sales, use, income, gross receipts, excise, transfer, ad valorem or other taxes, and any and all franchise fees or similar fees ("Assessments") assessed against it due to its ownership of an IRU, and its use of the STA Strands, including the providing of services over the STA Strands, or its ownership or use of facilities connected to the STA Strands. 19.2 Subject to Section 19.1, SPC shall be responsible for any and all Assessments assessed against it due to its construction, ownership or use of the SPC Network or fiber optic facilities, including providing of services over the SPC Network or its ownership or use of facilities connected to the SPC Network. 19.3 Notwithstanding Sections 19.1 and 19.2 above, if STA is assessed annual fees for use of public rights-or-way, STA shall pay its proportionate share of such fees, its proportionate share URRS Agreement Page 157 Dated: September 9, 2002 Appendix K being determined as provide in Section 8.14. 19.4 In the event that STA is assessed for any Assessments related to STA's ownership of an IRU or use of the STA Strands which may not feasibly be separately assessed, SPC within thirty (30) days of receipt of an invoice therefor, shall provide information and documentation to STA sufficient to demonstrate the basis for the Assessments and the amount and due date for payment of the Assessments. In addition, STA shall provide SPC with all information reasonably requested by SPC with respect to any such Assessments. After such thirty (30) day period, SPC, in it sole discretion, may pay such Assessment and invoice STA for reimbursement. STA shall reimburse SPC for such payment within ten (10) days of receipt of SPC's invoice. Notwithstanding such payment by SPC, STA, at its option, shall have the right at its sole cost to contest any such Assessments and SPC will reasonably cooperate with STA in pursuing any such contest; provided that STA shall have reimbursed SPC for such Assessments. In the event STA, in its sole discretion, elects to not pay such tax or fee, it shall so notify SPC. SPC, at its option, may pay the Assessments, or contest the payment; provided that STA shall indemnify and hold harmless SPC for the payment of such Assessments and all interest and penalties related thereto; and provided further, that such contest shall be resolved or such Assessments shall be paid so as to prevent any forfeiture of rights or property or the imposition of any lien on the SPC's Network or SPC's fiber optic facilities. 20. SUCCESSION, ASSIGNABILITY 20.1 This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors or assigns. 20.2 Except as provided in this Section 20, a party ("Transferring Party") shall not assign, encumber or otherwise transfer this Agreement or all or any portion of its rights or obligations hereunder to any party without the prior written consent of the other party ("Other Party"), which consent will not be unreasonably withheld or delayed. Notwithstanding the foregoing, Transferring Party shall have the right, without Other Party's consent, to (i) subcontract any of its construction or maintenance obligations hereunder or (ii) assign or otherwise transfer this Agreement in whole or in party (a) to any parent, subsidiary or affiliate of Transferring Party, or (b) any corporation or other entity which Transferring Party may be merged or consolidated or which purchases all or substantially all of the stock or assets of Transferring Party; provided that the assignee or transferee in any such circumstance shall be subject to all of the provisions of this Agreement, including without limitation, this Section 20 and provided further that promptly following any such assignment or transfer, Transferring Party shall give Other Party written notice identifying the assignee or transferee. In the event of any permitted partial assignment of any rights hereunder, Transferring Party shall remain the sole point of contact with Other Party. When Other Party's consent to assign is required, Other Party will have the right to withhold consent if, in its judgment reasonably exercised, the proposed assignee cannot adequately assume the obligations of this Agreement. In no event will any assignment by Other Party be permitted without the delivery to Other Party of a binding agreement in writing from the proposed assignee that (i) states that the proposed assignee will assume all current, future and outstanding past obligations under this Agreement as if such assignee had originally executed this Agreement and (ii) evidence proof satisfactory to Other Party that the proposed assignee has insurance coverage comparable to the described in Section 10 or other assurances that the proposed assignee can adequately perform the obligations it will assume under this Agreement. 20.3 Notwithstanding the Provisions of this Section 20, without the prior written consent of SPC, STA shall have the right to lease, license, grant an IRU with respect to, or otherwise in any URRS Agreement Page 158 Dated: September 9, 2002 Appendix K manner transfer or make available in any manner to, any of STA's rights in the STA Strands and such lessee, licensee or other transferee shall have the ability to grant leases, licenses and grant an IRU with respect to, or otherwise in any manner transfer or make available in any manner to, any of such party's rights in the strands or conduit such party receives. 20.4 Neither party shall attempt to circumvent any of its obligations under this Agreement, or deprive the Other Party of any anticipated benefit under this Agreement, through the use of ownership changes, reorganizations, creation of new entities, or other artificial devices. 20.5 Neither this Agreement, nor any term or provision hereof, nor any inclusion by reference shall be construed as being for the benefit of any person or entity not a signatory hereto. 21. NOTICES Any demand, notice or other communication to be given to a party in connection with this Agreement shall be given in writing and shall be given by personal delivery, by registered or certified mail, return receipt requested, by Tele-copy or commercial over night delivery service addressed to the recipient as set forth as follows or to such other address, individual or Tele-copy number as may be designated by notice given by the party to the other: STA: Sierra Touch America, LLC. 130 North Main Butte, Montana 59701 Attention: Contracts Officer Telephone Number: 406-497-5317 Emergency Telephone Number: same FAX Number: 406-497-5203 With a copy to: Sierra Touch America, LLC. 130 No. Main Butte, Montana 59701 Attention: General Counsel Telephone Number: 406-497-5427 Emergency Telephone Number: same FAX Number: 406-497-5203 SPC: Sierra Pacific Communications 5860 S. Pecos Road, Bldg. G, Ste. 100, Las Vegas, NV 89120 Attention: Director, Facilities Telephone Number: 702-949-7932 Emergency Telephone Number: Same URRS Agreement Page 159 Dated: September 9, 2002 Appendix K FAX Number: 702-949-7928 with a copy to: Sierra Pacific Resources 6100 Neil Road Reno, NV 89520 Attention: General Counsel Telephone Number: 775-834-5698 Emergency Telephone Number: 775-834-5691 FAX Number: 775-834-4811 Any demand, notice or other communication given by personal delivery shall be conclusively deemed to have been given on the day of actual delivery thereof and, if given by registered or certified mail, return receipt requested on the date of receipt thereof and, if given by telecopy, on the day of transmittal thereof if given during the normal business hours of the recipient and on the next business day if not given during normal business hours. 22. NON-WAIVER No course of dealing, course of performance or failure of either party strictly to enforce any term, right or condition of this Agreement shall be construed as a waiver of any term, right or condition. 23. CHOICE OF LAW The construction, interpretation and performance of this Agreement shall be as governed by the law of the state ofNevada. 24. HEADINGS All headings contained in this Agreement are inserted for convenience only and are not intended to affect the meaning or interpretation of this Agreement or any clause. 26. PUBLICITY AND ADVERTISING 26.1 Neither party shall publish or use any advertising, sales promotions, or other publicity materials that use the other party's logo, trademarks, or service marks without the prior written approval of the other party. 26.2 Each party shall have the right to review and approve any publicity material, press releases, or other public statements by the other that refer to such party or that describe any aspect of this Agreement. Each party agrees not to issue any such publicity materials, press releases, or public statements without the prior written approval of the other party. 26.3 Nothing in this Agreement establishes a license for either party to use any of the other party's brands, marks, or logos without prior written approval of the other party. URRS Agreement Page 160 Dated: September 9, 2002 Appendix K 27. REPRESENTATIONS AND WARRANTIES Each party represents and warrants that: (i) it has full right and authority to enter into, execute, deliver and perform its obligations under this Agreement; (ii) this Agreement constitutes a legal, valid and binding obligation enforceable against such party in accordance with its terms, subject to bankruptcy, insolvency, creditors' rights and general equitable principles; and (iii) its execution of and performance under this Agreement shall not violate any applicable existing regulations, rules, statutes or court orders of any local, state or federal government agency, court, or body. 28. ENTIRE AGREEMENT; AMENDMENT This Agreement constitutes the entire and final agreement and understanding between the parties with respect to the subject matter hereof and supersedes all prior oral and written communications, understandings and agreements relating to the subject matter hereof, which are of no further force or effect. The Exhibits and/or Schedules referred to herein are integral parts hereof and are hereby made a part of this Agreement. This Agreement may only be modified or supplemented by an instrument in writing executed by a duly authorized representative of each party. 29. NO THIRD PARTY BENEFICIARIES Except as set forth in Section 31, this Agreement does not provide and is not intended to provide third parties with any remedy, claim, liability, reimbursement, cause of action, or other privilege. 30. NO PERSONAL LIABILITY Each action or claim against any party arising under or relating to this Agreement shall be made only against such party as a corporation, and any liability relating thereto shall be enforceable only against the corporate assets of such party. No party shall seek to pierce the corporate veil or otherwise seek to impose any liability relating to, or arising from, this Agreement against any shareholder, employee, officer or director of the other party. Each of such persons is an intended beneficiary of the mutual promises set forth in this Section 30 and shall be entitled to enforce the obligations of this Section 30. 31. RELATIONSHIP OF THE PARTIES The relationship between the parties shall not be that of partners, agents or joint venturers for one another, and nothing contained in this Agreement shall be deemed to constitute a partnership or agency agreement between them for any purposes, including, but not limited to federal income tax purposes. The parties, in performing any of their obligations hereunder, shall be independent contractors or independent parties and shall discharge their contractual obligations at their own risk. URRS Agreement Page 161 Dated: September 9, 2002 Appendix K 32. SUCCESSORS AND ASSIGNS. This Agreement and each of the parties' respective rights and obligations under this Agreement shall be binding upon and shall inure to the benefit of the parties and each of their respective permitted successors and assigns. 33. UNENFORCEABLE PROVISIONS No provision of this Agreement shall be interpreted to require any unlawful action by either party. If any section or clause of this Agreement is held to be invalid or unenforceable, then the meaning of that section or clause shall be construed so as to render it enforceable to the extent feasible. If no feasible interpretation would save the section or clause, it shall be severed from this Agreement with respect to the matter in question, and the remainder of the Agreement shall remain in full force and effect. However, in the event such a section or clause is an essential element of the Agreement, the parties shall promptly negotiate a replacement that will achieve the intent of such unenforceable section or clause to the extent permitted by law. 34. COUNTERPARTS This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument. URRS Agreement Page 162 Dated: September 9, 2002 Appendix K IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their duly authorized representatives on the date first above written. Sierra Touch America, LLC. By: ____________________________ Name: Michael J. Meldahl Title: Manager Sierra Pacific Communications By: ____________________________ Name: Richard J. Coyle, Jr. Title: President URRS Agreement Page 163 Dated: September 9, 2002 Appendix K APPENDIX K ATTACHMENT 1 DESCRIPTION OF METRO NETWORK [LAS VEGAS METRO] [GRAPHIC] URRS Agreement Page 164 Dated: September 9, 2002 Appendix K [RENO METRO] [GRAPHIC] URRS Agreement Page 165 Dated: September 9, 2002 Appendix K APPENDIX K SCHEDULE C FIBER CABLE SPLICING, TESTING, AND ACCEPTANCE STANDARDS AND PROCEDURES 1. SPC will perform all tests, provide documentation, and meet the standards identified in this Schedule C. Analysis of final bi-directional Optical Time Domain Reflectometer ("OTDR") data will be the tool used to support final acceptance of the fibers. 2. ACCEPTANCE STANDARDS 2.1 PIGTAIL TRACES When pigtails are attached to the end of the cable, the pigtail test will be performed for that site. A 1-km launch reel that matches the backbone cable will be attached between the OTDR and the pigtail. The loss of the pigtail splice and connector will be measured and recorded at 1550 nm. SPC will provide STA with a copy of the OTDR traces of all pigtail splices stored on diskette. The loss value of the pigtail connector and its associated splice with matching mode field diameters will not exceed .5dB at 1550 nm. The loss value of the pigtail connector and its associated splice with mismatched mode field diameters should not exceed .8 dB. 2.2 BI-DIRECTIONAL TRACES Bi-directional OTDR traces will be taken without a launch reel. OTDR traces should be taken in both directions at 1550 nm. Loss measurements for each splice point should be measured and recorded in both directions. These loss values should then be averaged. The traces for all fibers should be recorded on diskette and provided to the STA. NOTE: THESE MEASUREMENTS WILL BE MADE AFTER THE SPLICE HANDHOLE OR MANHOLE IS CLOSED IN ORDER TO CHECK FOR MACRO-BENDING PROBLEMS. 2.2.1 FIELD SPLICES The objective for each splice is an averaged loss value of 0.1 dB or less when measured bi-directionally with an OTDR at 1550 nm. If after 3 attempts, SPC is not able to produce a loss value of 0.1 dB or less bi-directionally at URRS Agreement Page 166 Dated: September 9, 2002 Appendix K 1550 nm, then 0.3 dB or less bi-directionally at 1550 nm will be acceptable. Fibers not meeting the 0.1 dB or less specification will be identified as Out Of Specification (OOS). Documentation of the three attempts (reburns) to bring the OOS fiber within specification will be provided. 2.3 LIGHT SOURCE AND POWER METER TEST A bi-directional End to End test will be performed on each fiber in a span at 1550 nm with a Light Source and Power Meter. The purpose of this test is to determine actual span loss and to prove there is a one-to-one correspondence of all fibers. It is the SPC's responsibility to insure proper continuity of all fibers at the fiber level, not just the pigtail level. Any "frogs" or fibers that cross in the route will be remedied by SPC. The following span loss calculation will be used: (A * L) + (0.1 * N) + C = Acceptable Span Loss A = Attenuation per KM at 1550 nm L = Optical length of cable measured in kilometers (from OTDR Trace) N = Number of splices in a span C = Connector loss. The connector loss will not exceed .5dB. The section test will have (2) pigtail connectors/splices under test, so 1.0dB will be allowed for this loss. NOTE: STA MAY PROVIDE AN EXCEL SPREADSHEET FORMATED ON DISK FOR ENTRY OF TEST DATA. SPC WILL COMPLETE THE SPREADSHEET AND FORWARD TO STA. 3. NAMING OF TRACES OTDR traces taken for bi-directional testing and the OTDR traces of the pigtail splice must be recorded on floppy diskette and provided to STA. To name the traces, each party will provide alpha abbreviations for the sites. The 8-character file name plus 3-character file extension name should follow this example: First four letters = source point Letters 5, 6, 7 = Destination point 8th letter = wavelength Extension = fiber number Examples: Springfield to Lebanon at 1550 nm, fiber 96 = sgfdlbn5.096 URRS Agreement Page 167 Dated: September 9, 2002 Appendix K Springfield to Monett pigtail trace on fiber 1 = sgfdmntp.001 NOTE: ALL HEADER INFORMATION ON OTDR TRACE WILL BE COMPLETED. 4. OTDR SETUP The OTDR that is acceptable for testing is the Hewlett Packard HPE6000B or equivalent. This system must have a floppy disk drive for storing the trace files. Again, it should be noted that it is vital that during all tests (OTDR, power meter, etc.), that all connectors are clean. This can dramatically affect test results. The following settings should be used. NOTE: BEFORE THE START OF ANY TESTING, ALL CONNECTORS WILL BE CLEANED PURSUANT TO MANUFACTURER'S SPECIFICATIONS 5. TEST PACKAGES SPC shall provide a package containing the following test data for each fiber. All data provided should be saved on diskette. A. OTDR span traces taken at 1550 nm. B. Pigtail traces taken for each fiber. C. An Excel spreadsheet containing the power meter and light source data for both directions at 1550 nm. D. A document identifying splice points with OOS test results. 6. TESTING AND ACCEPTANCE OF THE LEASED FIBERS SPC shall test the Leased Fibers in accordance with the procedures specified in this schedule C to verify that the Leased Fibers are installed and operating in accordance with the specifications. SPC shall provide such test data to STA in accordance with Section 3.1 of the Metro IRU Agreement. URRS Agreement Page 168 Dated: September 9, 2002 Appendix K APPENDIX K Schedule D MAINTENANCE AND OPERATIONS SPECIFICATIONS AND PROCEDURES "ROUTINE MAINTENANCE" is all preventive maintenance activities including upgrades and repairs, including but not limited to those activities outlined in this Metro IRU Agreement. "NON-ROUTINE MAINTENANCE" is all efforts and services provided in response to an emergency circumstance which requires restoration. 1. GENERAL a. SPC shall maintain a Network Operations Center (NOC) with twenty-four (24) hour access , (7) seven days a week, staffed by trained and qualified personnel. SPC shall maintain a toll-free number to contact personnel at NOC. SPC's NOC personnel shall dispatch maintenance and repair personnel along the system to handle and repair problems detected through the NOC's remote surveillance equipment, by the STA, or otherwise. b. SPC's maintenance employees shall be available for dispatch twenty-four (24) hours a day, seven (7) days a week. SPC shall use best commercially reasonable efforts to have its first maintenance employee at the site requiring an emergency maintenance activity within four (4) hours from the time alarm identified by SPC's NOC or notification by STA, whichever occurs first. Emergency maintenance is defined as any service affecting situations requiring an immediate response. c. STA shall utilize an Operations Escalation List, to report and seek immediate initial redress of exceptions noted in the performance of SPC in meeting maintenance service objectives. d. In performing its services hereunder, SPC shall take workmanlike care to prevent impairment to the signal continuity and performance of the system. The precautions to be taken by SPC shall include notification to STA. In addition, SPC shall reasonably cooperate with STA in sharing information and analyzing the disturbances regarding the cable and/or Fiber Facility. e. SPC shall use its best effort to notify STA seven (7) days prior to the date of any planned non-emergency maintenance activity. In the event that a SPC planned activity is canceled or delayed for whatever reason as previously notified, SPC shall notify STA at SPC's earliest opportunity and will comply with the provisions of the previous sentence to reschedule any delayed activity. f. Non-emergency work that is reasonably expected to produce any signal discontinuity must be coordinated between parties. Generally, this work should be scheduled, pursuant to the Scheduled Maintenance Procedures, on a Saturday or Sunday after midnight and before 6:00 a.m. local time. Major system work such as fiber rolls and hot cuts will be scheduled for SMP. g. SPC shall have qualified representatives on site at any time another company is URRS Agreement Page 169 Dated: September 9, 2002 Appendix K crossing the System or digging within four (4) feet of buried facilities. SPC shall maintain all signposts along the Route with the number of the "call before you dig" organization. h. SPC shall maintain the system in a manner that permits normal operation of the equipment associated with the system. Such maintenance includes, but is not limited to, landscaping, weed control, fence repair, smoke detectors, air conditioning, power and trash removal. 2. FACILITIES a. SPC shall maintain the System in a manner that permits normal operation of the Leased Fibers and STA Equipment used in connection therewith. b. SPC shall perform appropriate Routine Maintenance on the Cable and Equipment in accordance with SPC's then current preventive maintenance procedures that shall not substantially deviate from industry practice and shall be responsible for correcting dysfunction. SPC shall notify STA in advance of Routine Maintenance procedure. Typical routine procedures and the frequency of the procedure include but are not limited to: Semi-Annually Optical equipment levels verified and reported Power levels verified and reported All records remain on master files and at each site for reference. c. SPC's NOC shall monitor the housekeeping alarms throughout the system. STA may monitor SPC's housekeeping alarms. Upon receipt of an alarm, SPC shall take appropriate action and notify STA of a major service jeopardy situation. d. At a minimum, SPC's NOC shall monitor the alarms and in a similar fashion as it does for the rest of its network, including, but not limited to, degradation and dysfunction of transmission systems, intrusion. Upon receipt of an alarm, SPC shall take appropriate action. 3. FIBERS a. Subject to the provisions of paragraph 3.b., hereof, SPC shall maintain the Cable in good and operable condition and shall repair the cable in workmanlike manner pursuant to Section 5 hereof. b. SPC shall patrol the route of cable on a reasonable, routine basis and shall perform all required locates. SPC shall have qualified representatives on site at any time another company is crossing the cable or digging within four (4) feet of the cable or, if aerial, use attached escalation list to notify utility provider. SPC shall perform appropriate routine maintenance on the Cable in accordance with SPC's then current preventative maintenance. SPC's maintenance procedures shall not substantially deviate from industry practice. 4. RESTORATION URRS Agreement Page 170 Dated: September 9, 2002 Appendix K a. When restoring a cut cable, the parties agree to work together to restore all traffic as quickly as possible. SPC, immediately upon arriving on the site of the cut, shall determine the best course of action to be taken to restore the cable and shall begin restoration efforts. Upon SPC's NOC learning of an emergency restoration event, SPC will notify STA at (1) hour intervals until the emergency event or restoration is resolved. b. It will be the responsibility of SPC and STA to report to one another respectively of any known environmental hazards which would restrict or jeopardize any maintenance work activities in shelters or right of ways areas of operations. c. When restoring a cut Cable, the parties agree to work together to restore all traffic as quickly as possible. SPC, immediately upon arriving on the site of the cut, shall determine the course of action to be taken to restore the Cable and shall begin restoration efforts. SPC shall initially splice a buffer tube 12 fibers of its choice containing SPC's fibers. Once continuity is established allowing transmission systems to come back on line, SPC shall begin splicing STA's lit fibers. This process will continue until all fibers in all lit STA buffer fibers are spliced and all STA traffic restored. SPC repair and restoration efforts shall be conducted in a manner whereby STA's lit Leased Fibers receive preferential repair and restoration service. d. SPC will maintain an updated list of local area qualified maintenance support contractors equipped with the necessary equipment and personnel. e. Upon notification of interruption of fiber service, disrepair, impairment or other need for repair or restoration of the Cable and the location of the damaged Cable, SPC shall pursue commercially reasonable efforts to mobilize SPC crews to achieve necessary repair or restoration, including, but without limitation, to have Maintenance personnel at the affected site within four (4) hours after receipt of such notice with the required restoration material and equipment. In the event SPC fails to respond in such timeframe, STA may dispatch personnel and restore the Cable at SPC's expense. f. In the event that STA's use of the Cable is interrupted due to the occurrence of a Force Majeure event repairs and restoration will be made as expeditiously as possible. g. The requirement for detection of the fault location is "as exact as possible" utilizing test records, cable documentation, GPS coordinates and OTDR test results of the affected cable segment. Subject to the priorities described above in the event that STA's use of the Cable is interrupted due to an occurrence of a Force Majeure Event, repairs and restoration shall be made as expeditiously as possible. STA recognizes that the four (4) hour response time represents optimal conditions, and may be impossible to achieve when emergency restoration of SPC's System Integrity is required or when responding to certain remote locations. Actual response times will be influenced by such factors as terrain, weather conditions present at the time the request is made, and the actual mileage from SPC's dispatch station to the fault site. h. For purposes of this section, "commercially reasonable efforts" means activities and performances consistent with prudent utility practice, existing contract provisions URRS Agreement Page 171 Dated: September 9, 2002 Appendix K for SPC hourly employees, preserving SPC System Integrity, and response times that do not jeopardize the health and safety of the employees and agents of SPC and STA. i. SPC maintenance employees shall be responsible for correcting or repairing Cable discontinuity or damage, including, but not limited to, the emergency repair of the Cable or STA fibers within. SPC shall use reasonable efforts to repair Cable traffic affecting discontinuity within eight (8) hours after learning of the discontinuity or the service affecting situation. j. SPC shall maintain sufficient capability to teleconference with STA during an emergency repair in order to provide continuous communication. Within twenty-four (24) hours after completion of an emergency repair, SPC shall commence its planning for permanent repair, shall notify STA of such plans, and shall implement such permanent repair within an appropriate time thereafter. Restoration of open fibers on fiber strands not immediately required for service, the repair shall be scheduled for the next available SMP (as described in section 4 above). k. SPC shall comply with the Fiber Cable Splicing Specifications as provided in Schedule C. SPC shall provide to STA any modifications to these specifications for STA's approval, which shall not be unreasonably withheld. STA shall have the right but not the obligation at its sole expense to either conduct its own fiber acceptance testing to verify that they are operating in accordance with the test specifications or observe SPC or its contractor during testing. URRS Agreement Page 172 Dated: September 9, 2002 Appendix K APPENDIX L COMPLETION NOTICE TO THE URRS To: Sierra Pacific Communications (SPC) Date: __________________ Notice is hereby given that Sierra Touch America LLC (STA) has completed construction and testing of the following facilities pursuant to the Unit Redemption. Release and Sale Agreement dated September 9, 2002 among SPC, STA, and Touch America, Inc., a Montana corporation: [ ] First Conduit [ ] IRU Conduits [ ] IRU Fiber ----------------------------------------- (STA) Sierra Touch America, LLC a Nevada limited liability company By: ______________________________ MICHAEL J. MELDAHL, MANAGER URRS Agreement Page 173 Dated: September 9, 2002 Appendix L APPENDIX M FORM OF QWEST AGREEMENT AMENDED AND RESTATED AGREEMENT FOR CONSTRUCTION AND SALE OF A CONDUIT THIS AMENDED AND RESTATED CONDUIT SALE AGREEMENT ("Agreement") dated this 4 day of September, 2002, is made by and between Sierra Pacific Communications ("SPC"), a Nevada corporation with offices located at 5860 South Pecos Road, Building G, Suite 100, Las Vegas, Nevada 89120, and Qwest Communications Corporation ("Qwest"), a Delaware corporation, with offices located at 1801 California Street, Denver, Colorado 80202. SPC and Qwest may be referred to individually as a "Party," and collectively may be referred to as the "Parties". RECITALS WHEREAS, Qwest and SPC previously entered into an agreement regarding the subject matter of this Agreement on or about June 29, 2001; and further agree that each Party hereby waives any default of the other Party under such June 29, 2001 agreement. WHEREAS, the Parties have agreed to certain changes in the structure of the sale and other terms described in the June 29, 2001 agreement, and agree that agreement shall be replaced in its entirety with this Agreement; WHEREAS, SPC is constructing and installing or otherwise procuring a multiple conduit fiber optic system (the "System") of approximately eight hundred twelve (812) miles in length from Sacramento, California to Salt Lake City, Utah, all along public and private right of way more particularly described in Exhibit A (the "Right-of-Way"); and WHEREAS, Qwest desires to purchase from SPC the following conduits within the Right of Way along the Route: (iv) one (1) one-and-one-quarter inch (1.25") conduit of approximately one hundred forty-six (146) miles in length between Sacramento, California and Reno, Nevada ("Leg One"); (v) one (1) two inch (2") conduit of approximately three hundred fifty (350) miles in length between Reno, Nevada and Ely, Nevada ("Leg Two"); (vi) one (1) two inch (2"") conduit of approximately three hundred sixteen (316) miles in length between Ely, Nevada and Salt Lake City, Utah ("Leg Three"). together with the associated vaults, handholes and manholes, and other related facilities within the Route, as set forth in Section 1 herein and on Exhibit B (collectively, the "Conduit System"), and as constructed pursuant to the specifications attached hereto as Exhibit G (the "Specifications"). NOW THEREFORE, for and in consideration of the Recitals and the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: URRS Agreement Page 174 Dated: September 9, 2002 Appendix M 1. Sale of the Conduit 1.01 Purchase and Sale. Subject to the terms and conditions of this Agreement, SPC agrees to convey to Qwest, and Qwest agrees to purchase from SPC, the Conduit System. SPC shall use commercial best efforts to effect the completion of the Conduit System according to the schedule set forth on Exhibit E (the "Scheduled Completion Dates"). SPC shall provide Qwest as-built drawings within sixty (60) days following the Acceptance Date as defined in Section 3.02. 1.02 Access and Maintenance. The Parties acknowledge that SPC will install, or cause to be installed, handholes or manholes at standard intervals along the Route in accordance with the Specifications. To the extent SPC has such rights and as further set forth in Section 2.06, SPC shall convey to Qwest any and all access rights to the Conduit System, and Qwest shall maintain any fiber optic cable contained therein; provided, however, such access is conditioned upon Qwest complying with any access protocols. In addition, Qwest shall also have such access to all vaults, handholes, manholes and other facilities where such access is commonly shared by SPC and other telecommunications facility users and collocators within the Right of Way along the Route, subject to STA access protocols as stated in Maintenance Agreement. 1.03 Maintenance. Concurrent with the Final Payment, Qwest and SPC shall execute a maintenance agreement, in the form of Exhibit F hereto, for the maintenance, repair, and relocation of the Conduit System (excluding fiber optic cable) in accordance with the Specifications (the "Maintenance Agreement"). Qwest's obligation to purchase said maintenance from SPC shall be limited to one (1) two (2) year term with monthly payments equal to $24,000 per month, commencing on the effective date of this Agreement. The first payment shall be prorated to reflect a partial month, if applicable. Qwest shall have the option to renew the Maintenance Agreement at the same monthly rate and in one-year increments for a total of two (2) renewal years. At such time as Qwest places fiber in the Conduit system, the Parties agree to modify the specifications and procedures of the Maintenance Agreement as appropriate to address the presence of such fiber. 1.04 Additional Associated Property. Provided that Qwest gives SPC written notice of additional requirements prior to the completion of construction of the standard handholes or manholes, SPC will install or cause to be installed, if any such installation does not materially interfere with the existing facilities of SPC and is otherwise reasonably practicable as determined by SPC in its reasonable discretion, additional handholes or manholes at such other locations as requested by Qwest at Qwest's expense. Prior to installing such handholes or manholes, SPC shall notify Qwest of whether such handholes or manholes are subject to rights of way requirements of private entities, or subject to approval by permitting agencies and governmental authorities. Based on such information, Qwest may elect not to install the additional handholes or manholes. If Qwest elects to install additional handholes or manholes, Qwest shall pay SPC all direct costs and out-of-pocket expenses associated with such additional work plus a management fee equal to fifteen percent (15%) of such costs. 2. Payment. URRS Agreement Page 175 Dated: September 9, 2002 Appendix M 2.01 Total Purchase Price. Qwest shall pay SPC twenty million and no/100 dollars (US$20,000,000.00) for the Conduit System (the "Total Purchase Price") as set forth in this Section 2. 2.02 First Payment. Qwest has already paid to SPC, and SPC acknowledges the receipt thereof, the sum of four million nine hundred eighty-eight thousand seven hundred eighty four and no/100 dollars (US$4,988,784.00) (the "First Payment"). 2.03 Second Payment. Qwest shall pay SPC by wire transfer of immediately available funds the sum of five million eleven thousand two hundred sixteen and no/100 dollars (US$5,011,216.00) immediately upon the execution of this Agreement by both Parties (the "Second Payment"). 2.04 Final Payment. Final payment due for the conduit system shall be ten million and no/100 dollars (US $10,000,000.00) payable as set forth below (the "Final Payment"). Qwest shall pay SPC by wire transfer of immediately available funds the sum of nine million four hundred thousand and no/100 dollars (US$9,400,000.00) payable on the Acceptance Date (as defined in Section 3.03 below). Upon receipt of said $9,400,00.00, SPC shall promptly transfer title to the Conduit System to Qwest via a bill of sale in the form attached as Exhibit C upon receipt of the Final Payment. Qwest shall hold back ("Hold Back") an amount of six hundred thousand and no/100 dollars until SPC delivers the as-built drawings as set forth in section 1.01 and shall pay by wire transfer of immediately available funds such Hold Back amount upon receipt of the as built drawings 2.05 Security. SPC hereby grants Qwest a security interest in (i) the Conduit System, (ii) all equipment, goods and materials purchased or otherwise obtained for use in the Conduit System, and (iii) SPC's transferable occupancy rights in the Right-of-Way in so far as such rights extend to the Conduit System, to secure payments made by Qwest to SPC, and SPC's performance, under this Agreement. SPC hereby warrants and covenants that the security interests granted to Qwest in this Section 2.05 are (i) a first-priority security interest in Legs One and Two of the Conduit System, (ii) a security interest in Leg Three of Conduit System and (iii) SPC's transferable occupancy rights in the Right-of-Way in so far as such rights extend to the Conduit System. Qwest agrees and acknowledges that the enforcement of the security interest granted to Qwest in this Section 2.05 is subject to the terms and conditions of Section 4.01(a) of this Agreement. SPC shall take all reasonable action requested by Qwest to assist Qwest in the perfection of the security interest granted to Qwest herein. Immediately upon the first to occur of (i) SPC's transfer of title to the Conduit System via bill of sale as provided hereunder, or (ii) Qwest's default under Section 4.01(b) of this Agreement, the security interest granted herein shall immediately extinguish and terminate and be of no further force or effect. 2.06 Right of Way. Promptly following full payment of the Final Payment to SPC, SPC shall partially assign to Qwest the assignable occupancy rights in the Right-of-Way occupied by the Conduit System to the extent such rights are legally transferable; provided, however, Qwest shall cooperate with SPC in obtaining any required consents to such transfers from private entities or governmental authorities, and shall be responsible for its share of any annual recurring fees charged in connection with such occupancy rights. SPC URRS Agreement Page 176 Dated: September 9, 2002 Appendix M will convey such rights by way of occupancy agreements. If SPC's occupancy rights cannot be assigned directly to Qwest, then SPC shall grant, to the extent permissible under applicable law and underlying rights of way agreements, access rights to Qwest through license, indefeasible right of use or otherwise so that it may access the Conduit System to operate, maintain, and repair the Conduit System and install, maintain, and repair fiber optic cable in the Conduit System. If SPC cannot grant the full rights to access, operate, maintain and repair the Conduit System, then SPC shall agree to perform, or cause to be performed, such services, not allowed or permitted to be performed by Qwest, on Qwest's behalf at customary and reasonable costs and timeframes. 2.07 AMP Sites. For that portion of the Conduit System located in Nevada and Utah, SPC shall provide Qwest with (i) a 20 year IRU for a minimum of one-half (1/2) acre (Qwest Space) at each of the applicable AMP sites described on Exhibit H, and shall deliver said IRUs to Qwest upon receipt of Final Payment (ii) all easements, permits and associated rights of way necessary for Qwest to utilize said Qwest Space as is customary, and shall deliver said easements, permits and associated rights of way necessary for Qwest to utilize said Qwest Space as is customary to Qwest upon receipt of Final Payment (iii) 48V DC power at $10 and amp per month at each Qwest Space, at a minimum of 200 amps per site, with an option for Qwest to increase the amperage within the Regen sites at the same cost per each additional amp. Qwest shall indemnify SPC for any damage to persons or property in connection with its access to, and use and occupancy of, such space on the site, in conformity with Qwest's indemnification obligations set forth in Section 6.06. Qwest agrees to pay its pro rata share of the total of the acquisition price and acquisition costs specific to each such regeneration or AMP site, including but not necessarily limited to costs associated with government permits, licenses, and other authorizations, environmental reviews, physical inspections, and due diligence investigations for each site. Such pro rata share shall be equivalent to Qwest's proportionate share of such costs based on the total square acreage of the land to be used by Qwest as compared to the total square acreage of the land actually permitted or licensed to SPC. SPC shall acquire the use of said property on behalf of SPC and Qwest and convey to Qwest its portion through assignment, license, indefeasible right of use or similar instrument upon receipt of the Final Payment. 2.08 Interest Rate. If Qwest fails to make any payment under this Agreement when due, then such payment shall accrue interest both before and after judgment at the lower of (i) the highest rate permitted by law, or (ii) one (1%) per month. 3. Conduit System Completion 3.01 Completion of the Conduit System. When SPC has determined that the Conduit System has been constructed and installed substantially in conformity with the Specifications, SPC shall provide Qwest a written notice of the same of the Conduit System (a "Completion Notice"). SPC's delivery of the Completion Notice shall constitute SPC's representation and warranty to Qwest (i) that the Conduit System has been constructed and installed substantially in conformity with the Specifications, (ii) that all costs and expenses of construction have been paid, and (iii) that the Conduit System has been tested and is in good working order. 3.02 Acceptance of the Conduit System. Within fifteen (15) days of receipt of a Completion Notice, Qwest shall either accept or reject the Completion Notice (specifying in reasonable detail the defect in the applicable specifications) by delivery of written notice to URRS Agreement Page 177 Dated: September 9, 2002 Appendix M SPC. In the event Qwest rejects the Completion Notice, SPC shall promptly commence to remedy, or cause to remedy, any nonconforming item. Thereafter, SPC shall again provide Qwest a Completion Notice and the foregoing procedure shall again apply. Any failure of Qwest to timely reject a Completion Notice shall be deemed to constitute final acceptance for purposes of this Agreement and in such event Qwest shall be deemed to have accepted the Conduit System, as applicable, on the fifteenth day after delivery of the Completion Notice. 3.03 Acceptance Date. The acceptance date (the "Acceptance Date") shall be defined as the later of (i) February 1, 2003 or (ii) thirty (30) days following acceptance of the Completion Notice with respect to the Conduit System as set forth in Section 3.02. 3.04 Fiber Installation. Qwest shall perform all work with respect to the pulling, splicing and testing of the fiber optic cable within the Conduit System 4. Default and Termination Provisions. 4.01 Default. Except as set forth below, neither Party shall be in default under this Agreement herein unless and until the Party shall have received written notice of such default from the other Party, and shall have failed to cure the same within thirty (30) days after receipt of such notice. Any event of default may be waived under the terms of this Agreement at the other Party's option. Events of default and the remedies of the parties shall include, but not be limited to, the following: (a) Failure to Complete the Conduit System or Other Failure of SPC. If Qwest has not received a Completion Notice by June 30, 2003, or upon SPC's breach of any other term or condition of this Agreement and its failure to cure such breach, Qwest's sole remedy shall be the right to immediately terminate this Agreement and enforce the security interest granted to Qwest in Section 2.05 of this Agreement and/or cause SPC to transfer clear title and ownership of the Conduit System to Qwest as follows: (i) Qwest may enforce its security interest against, and/or cause SPC to transfer to Qwest clear title and ownership to Legs One and Two of the Conduit System.; and (ii) Upon Qwest's payment of Ten Million Dollars ($10,000,000.00) to SPC, Qwest may enforce its security against, and/or cause SPC to transfer clear title and ownership to Leg Three of the Conduit System. (b) Failure to Make Payment. Upon the failure by Qwest to timely cure any undisputed payment default after notice thereof from SPC, Qwest shall immediately forfeit any right, title or interest in any portion of the Conduit System, its security interest in the Conduit System shall immediately extinguish and terminate and be of no further force or effect, and SPC shall retain all amounts paid by Qwest through the date of default. The foregoing shall not mitigate or reduce any claim SPC may have for any amounts due and owing it by Qwest pursuant to the terms and conditions of this Agreement. URRS Agreement Page 178 Dated: September 9, 2002 Appendix M 5. Legal Requirements. 5.01 Authorizations; Compliance. To the best of SPC's knowledge, SPC is permitted to install and locate the Conduit System and Qwest is permitted to own, operate, maintain, remove, repair and reinstall the Conduit System as provided under this Agreement. SPC shall assign to Qwest any and all underlying rights, permits, licenses and governmental approvals to the extent permitted. Qwest shall be responsible for obtaining any and all underlying rights, permits, licenses and governmental approvals that are required for Qwest use, operation and ownership of the Conduit System subsequent to the Acceptance Date. In implementing the terms of this Agreement, SPC and Qwest agree to comply with all applicable local, municipal, state or federal laws, rules, regulations and orders. 5.02 Permittee Agreement. Qwest acknowledges and agrees that all rights of Qwest with respect to that segment of the Route that is upon and within rights-of-way owned or controlled by the Nevada Department of Transportation ("NDOT") are dependent upon and subject to SPC's rights under that certain June 29, 2001 Permittee Agreement between NDOT and SPC. Qwest agrees that it will not do any act or thing that will cause or result in a default by SPC under the Permittee Agreement. This Agreement shall be subject to all terms, conditions, and provisions of the Permittee Agreement, and Qwest hereby binds itself to and agrees, with respect to the Conduit System located within NDOT rights of way, to all terms and provisions of the Permittee Agreement applicable thereto, which are hereby incorporated by reference. Additionally, attached as Exhibit D is form release language, which is required by NDOT to be incorporated into this Agreement. 5.03 Taxes. Qwest shall pay all taxes, fees and other impositions, including without limitation personal property taxes, value added and gross receipts taxes, which are assessed on the Conduit System after the relevant Acceptance Date. SPC shall be responsible for all taxes imposed on the Conduit System prior to the relevant Acceptance Date. 5.04 Confidentiality. This Agreement and all materials, maps, and other documents which are disclosed by one party to the other in fulfilling the provisions and intent of this Agreement, are and shall be confidential ("Confidential Information"). Neither party shall divulge or otherwise disclose Confidential Information to any third party without the prior written consent of the other party except as required for the implementation of this Agreement, and to auditors, attorneys, financial advisors, lenders and prospective lenders, provided that in each case the recipient agrees in writing to be bound by the confidentiality provisions set forth in this Section 4.04. A party may also disclose Confidential Information without the prior written consent of the other party if required by a court order or as otherwise required by law or in any legal or arbitration proceeding relating to this Agreement; provided, however, that in such case, the disclosing party shall give the other party five (5) days' written notice of such disclosure to allow such party to seek a protective order or otherwise prevent or protect such disclosure. 6. General 6.01 Notices. All notices and other communications required or permitted under this Agreement shall be in writing and shall be given by United States first class mail, postage prepaid, registered or certified, return receipt requested], or by hand delivery (including by means of a professional messenger service) addressed as follows: URRS Agreement Page 179 Dated: September 9, 2002 Appendix M To SPC: Sierra Pacific Communications P.O. Box 300088 Reno, NV 89520 Attention: Manager, Facilities With a copy to: Sierra Pacific Communications Associate General Counsel Nevada Power Company M/S 3A P.O. Box 230 Las Vegas, NV 89151 To Qwest: Qwest Communications Corporation 13952 Denver West Parkway Building 53, Suite 200 Denver, CO 80401. Attention: Vice President of Outside Plant Construction With a copy to: Qwest Law Department 1801 California Street, Suite 3800 Denver, Colorado 80202 Attention: Procurement Attorney Any such notice or other communication shall be deemed to be effective when actually received or refused. Either party may by similar notice given change the address to which future notices or other communications shall be sent. 6.02 Modification. This Agreement may not be rescinded, amended or otherwise modified except by a writing executed by an authorized representative of both SPC and Qwest. 6.03 Assignment. Neither party shall assign or otherwise transfer, by operation of law or otherwise, any of its rights or obligations under this Agreement without the express written consent of the other party, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, either party may assign or otherwise transfer without the express written consent of the other in connection with: (i) any disposition of all or substantially all of the assets of either party; (ii) any merger, consolidation or reorganization of either party; (iii) any assignment, in whole or in part, to any subsidiary, parent company or other affiliate of either party; (iv) any collateral assignment, security interest or pledge of this Agreement to a lender. In any event the assignor shall remain obligated to the other party under the terms of this Agreement unless the other party releases and discharges the assignor in writing. 6.04 Warranties. SPC represents and warrants that Qwest shall receive title to the personal property that comprises the Conduit System free and clear of all encumbrances, including any mechanics or material liens, except as may be specifically provided in Section 6.14(c). SPC warrants that all construction of the Conduit System shall have been performed in a manner consistent with telecommunication industry standards and the Specifications. All warranties made under this Section 6.04 shall be true and correct as of the Acceptance Date and shall survive expiration or termination of this Agreement for a URRS Agreement Page 180 Dated: September 9, 2002 Appendix M period of one (1) year from the Acceptance Date. EXCEPT AS SET FORTH IN THIS SECTION 6.04, SPC MAKES NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE CONDUIT SYSTEM, INCLUDING ANY WARRANTY OF MERCHANTABILITY AND FITNESS FOR PARTICULAR PURPOSE, AND ALL SUCH WARRANTIES ARE EXPRESSLY DISCLAIMED. THE WARRANTIES SET FORTH IN THIS AGREEMENT CONSTITUTE THE ONLY WARRANTIES MADE BY SPC TO QWEST WITH RESPECT TO THIS AGREEMENT AND ARE MADE IN LIEU OF ALL OTHER WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED. If Qwest discovers any defect in the Conduit System within one (1) year of the Acceptance Date, Qwest shall notify SPC in writing of the same and SPC shall, within thirty (30) days of receiving such notice, correct or cause to be corrected any defect at SPC's cost and expense. If the defect is of a nature that will cause immediate damage or harm to the Conduit System, Qwest shall notify SPC of the same and SPC shall use reasonable commercial efforts to have any defect repaired within forty-eight (48) hours of receiving such notice or, if SPC cannot have the defect repaired within forty-eight (48) hours of receiving notice, Qwest may repair the defect at SPC's cost. Additionally, SPC agrees to pass on and assign to Qwest any warranty it may have received from the manufacturer or supplier, to the extent that such warranty is assignable. 6.05 Insurance. Each Party shall procure and maintain in force, at its own expense, insurance coverage in amounts that a reasonably prudent business person would maintain considering the obligations of the parties hereunder but in no event less than coverage of the following types and limits: (a) workers' compensation as required by applicable law; (b) employer's liability with minimum limits of $1,000,000; (c) general liability with minimum limits of $2,000,000; and (d) automobile liability with minimum limits of $2,000,000. Such required insurance shall be obtained through insurers reasonably acceptable to the other party and licensed to conduct business in the jurisdiction. Each party shall obtain from the insurance companies providing the coverage required by this Agreement, the permission of such insurers to allow such party to waive all rights of subrogation and each party does hereby waive all such subrogation rights. Both parties expressly acknowledge that a party shall be deemed to be in compliance with the provisions of this Section 6.05 if it maintains a state-approved self-insurance program providing for a retention of up to $1,000,000, and covers any excess coverage requirements under subsections (a) - (d) above with insurance 6.06 Indemnity. Each Party hereby agrees to indemnify, defend, protect and hold harmless the other party, its employees, agents, officers and directors (the "Indemnified Persons"), from and against, and assumes liability for, all suits, actions, damages or claims of any character brought against the Indemnified Persons because of any damage received or sustained by any persons or tangible property which in whole or in part arise on account of (i) the negligent acts or omissions or willful misconduct of the indemnifying Party in the performance of or related to the indemnifying Party's duties or obligations under this Agreement, or (ii) a breach of this Agreement. Notwithstanding the termination of this Agreement for any reason, the provisions in this paragraph shall survive such termination. 6.07 Complete Agreement. This Agreement represents the entire understanding between SPC and Qwest with respect to the installation and sale of the Conduit System covered hereunder and incorporate all prior and contemporaneous understandings, whether written or oral, between the parties. This Agreement supersedes all other prior oral or written agreements concerning the installation and sale of the Conduit System URRS Agreement Page 181 Dated: September 9, 2002 Appendix M covered hereunder. This Agreement may not be rescinded, amended, or otherwise modified except in writing executed by the authorized representatives of both parties. 6.08 No Personal Liability. Each action or claim against any party arising under or relating to this Agreement shall be made only against such party as a corporation, and any liability relating thereto shall be enforceable only against the corporate assets of such party. No party shall seek to pierce the corporate veil or otherwise seek to impose any liability relating to, or arising from, this Agreement against any shareholder, employee, officer, director or agent of the other party. Each of such persons is an intended beneficiary of the mutual promises set forth in this Section and shall be entitled to enforce the obligations or provisions of this Section. 6.09 Attorneys' Fees. Subject to Sections 3.02 and 6.19 , in the event any suit or action is brought by a party under this Agreement to enforce any of its terms, or in an appeal therefrom, the prevailing party will be entitled to have the other party pay its reasonable attorneys' fees, as fixed by the trial court and/or appellate court, whichever the case may be. 6.10 Damages; Limitation of Liability. Notwithstanding any provision of this Agreement to the contrary, neither party shall be liable to the other party for any loss of profits or indirect, incidental, consequential, punitive or exemplary damages of any type whatsoever arising under or related to this agreement. The parties expressly agree that damages of the types referenced in the immediately preceding sentence do not include damages for termination of contract provided under Section 4 of this Agreement. The parties further agree that no claim for losses or damages whatsoever in connection with this Agreement shall be made more than two (2) years after the date that the event giving rise to such claim is known or reasonably should have been known to the party making such claim. 6.11 Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument. 6.12 Severability. In the event that any provision of this Agreement is held unenforceable or invalid, the remainder of the Agreement shall remain in full force and effect, and that the unenforceable or invalid provision be replaced with a reasonable provision that most closely reflects the intention of the parties. 6.13 Governing Law. This Agreement shall be governed by the laws of the State of Nevada, without reference to conflicts of law principles. 6.14 SPC's Representations and Warranties. SPC represents and warrants that: (a) SPC is a corporation duly organized, validly existing and in good standing under the Laws of its state of incorporation. SPC has full power and lawful authority to enter into this Agreement and consummate the transactions contemplated by this Agreement. (b) As of the Acceptance Date, SPC has good and marketable title to the personal property which comprises the Conduit System, free and clear of all liens, claims and encumbrances. URRS Agreement Page 182 Dated: September 9, 2002 Appendix M (c) To the best of SPC's knowledge and except as otherwise set forth in Exhibit G, neither SPC nor the Conduit System is subject to any pending or threatened litigation, proceeding or administrative investigation. (d) To the best of SPC's knowledge and as of the Acceptance Date, the Conduit System complies with all applicable laws. (e) As of the Acceptance Date, there are no parties in possession of any of the Conduit System, and there are no other rights of possession to or use of the Conduit System which have been granted to any third party or parties, except where access is commonly shared by SPC and other telecommunications facility users and collocators within the Right of Way along the Route. (f) As of the Acceptance Date SPC has not granted to any party any option, contract or other agreement with respect to the purchase or sale of the Conduit System. (g) To the best of SPC's knowledge, there are no pending or threatened condemnations or similar proceedings affecting any of the Conduit System and, to the best of SPC's knowledge, no such proceeding is contemplated by any governmental authority. SPC has no knowledge i) that the Conduit System is situated within any special assessment district, or ii) of any proposal under which the Conduit System is to be placed in any such special assessment district. (h) To the best of SPC's knowledge and provided Qwest performs its transactional and continuing obligations under this Agreement, the entering into and consummation of the transactions contemplated hereby will not conflict with or, with or without notice or the passage of time or both, constitute a default under, any contract, lease or other agreement, including, without limitation, the contracts to which SPC is a party or by which SPC may be bound or any laws affecting SPC or the Conduit System. This Agreement and all documents referenced herein to be executed by SPC are and shall be valid and legally binding obligations of SPC. (i) To the best of SPC's knowledge, (i) all representations and warranties made by SPC in this Agreement, and all information contained in any statement, document or certificate furnished to Qwest in connection with this transaction, are free from any untrue statement of material fact and do not omit to state any material facts necessary to make the statements contained herein or therein not misleading; and (ii) the copies of any documents furnished to Qwest in connection with this transaction are true and complete copies of the documents they purport to be. Each of the representations and warranties of SPC contained in this Agreement are acknowledged by SPC to be material and to be relied upon by Qwest in proceeding with this transaction, shall be deemed to have been remade by SPC as of the Acceptance Date and shall survive the Acceptance Date. 6.16 Qwest's Representations and Warranties. Qwest represents and warrants that: (a) Qwest is a corporation duly organized, validly existing and in good standing under the Laws of its state of incorporation, and has or will have the corporate power and authority to enter into this Agreement and to consummate the URRS Agreement Page 183 Dated: September 9, 2002 Appendix M transactions contemplated by this Agreement. Prior to the date of execution of this Agreement, this Agreement will have been duly authorized by all necessary corporate action on the part of the Qwest. This Agreement constitutes the legal, valid and binding obligation of Qwest, enforceable against Qwest in accordance with its terms. (b) No third party approval or consent is required to enter into this Agreement or the documents referenced herein or to consummate the transactions contemplated hereby. To the best of Qwest's knowledge, the entering into and consummation of the transactions contemplated hereby will not conflict with or, with or without notice or the passage of time or both, constitute a default under, any contract, lease or other agreement, including, without limitation, the contracts to which Qwest is a party or by which Qwest may be bound or any laws affecting Qwest.This Agreement and all documents referenced herein to be executed by Qwest are and shall be valid and legally binding obligations of Qwest. (c) All representations and warranties made by Qwest in this Agreement, and all information contained in any statement, document or certificate furnished to SPC in connection with this transaction, are free from any untrue statement of material fact and do not omit to state any material facts necessary to make the statements contained herein or therein not misleading. The copies of any documents furnished to SPC in connection with this transaction are true and complete copies of the documents they purport to be. Each of the representations and warranties of Qwest contained in this Agreement are acknowledged by Qwest to be material and to be relied upon by SPC in proceeding with this transaction, shall be deemed to have been remade by Qwest as of the Acceptance Date and shall survive the Acceptance Date. 6.17 Conditions to Qwest's Obligations. Qwest's obligations under this Agreement are subject to the satisfaction, on the Acceptance Date, of each of the following conditions, any of which may be waived in writing by Qwest: (a) SPC will have fully complied with and performed all of its obligations under this Agreement. (b) All representations of SPC in this Agreement will be true and complete as of the date when given and on the Acceptance Date. (c) All consents, approvals and waivers required to consummate the transactions contemplated by this Agreement will have been obtained in writing by SPC. 6.18 Conditions to SPC's Obligations. SPC's obligations under this Agreement are subject to the satisfaction, on the Acceptance Date, of each of the following conditions, any of which may be waived in writing by SPC: (a) Qwest will have fully complied with and performed all of its obligations under this Agreement. (b) All representations of Qwest in this Agreement will be true and complete as of the date when given and on the Acceptance Date. (c) All consents, approvals and waivers required to consummate the URRS Agreement Page 184 Dated: September 9, 2002 Appendix M transactions contemplated by this Agreement will have been obtained in writing by Qwest. 6.19 Risk of Loss. If, prior to the Scheduled Completion Date, the Conduit System or any portion thereof is destroyed by any casualty or is the subject of a taking, SPC may repair or replace the affected potion of the Conduit System and, in such event, all the terms and conditions of this Agreement shall remain in full force and effect. If SPC chooses not to repair the Conduit System, then Qwest will have the option, to be exercised within twenty (20) days following the date on which SPC notifies Qwest in writing that it will not repair or replace the affected portion of the Conduit System, to (a) terminate this Agreement and receive from SPC, within ten (10) days of providing SPC with notice of such termination, any portion of the Purchase Price which Qwest paid to SPC as of the date of the destruction or taking, or (b) deduct from the Purchase Price the value of that portion of the Conduit System which was so destroyed or taken as is mutually agreed to by Qwest and SPC or, in the event of disagreement, the amount determined by an arbitrator or appraiser mutually agreeable to Qwest and SPC, and to otherwise consummate this transaction. 6.20 Dispute Resolution. Except for an action seeking a temporary restraining order or injunction, or suit to compel compliance with this dispute resolution process, the Parties agree to exclusively use the dispute resolution procedures set forth in this Section 6.20 with respect to any controversy or claim arising out of or relating to this Agreement. For a period of forty-five (45) days after notice from either Party, the Parties shall attempt in good faith to resolve the dispute by direct negotiation of representatives of the Parties. If the Parties do not resolve the dispute within such period, such dispute shall be resolved by arbitration in a location agreed to by the parties and in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The Federal Arbitration Act, 9 U.S.C. Sections 1-15, not state law, shall govern the arbitrability of all claims, the arbitration shall be held in the jurisdiction of the Party against whom the arbitration is filed Judgment on any award rendered by the arbitrator under this Section may be entered in any court having jurisdiction thereof. No award rendered under this Section, shall include indirect, consequential, special or punitive damages. If any party files a judicial or administrative action asserting claims subject to arbitration as prescribed herein, and another party successfully stays such action or compels arbitration of said claims, the party filing said action shall pay the other party's costs and expenses incurred in seeking such stay or compelling arbitration, including reasonable attorneys' fees. 6.21 Force Majeure. Neither party shall be liable to the other party, and each party's performance under this Agreement shall be excused, if and to the extent that any failure or delay in such party's performance of one or more of its obligations hereunder is caused by any of the following conditions, and such party's performance of such obligation or obligations shall be excused and extended for and during the period of any such delay: act of God; fire; flood; fiber, cable, conduit, or other material failures, shortages or unavailability or other delay in delivery not resulting from the responsible party's failure to timely place orders therefor; lack of or delay in transportation; the effect of applicable laws, or the imposition of any governmental codes, ordinances, laws, rules, regulations or restrictions, or delay in governmental authorizations; war or civil disorder; strikes or other labor disputes; failure of a third party to grant or recognize an underlying right (provided that SPC has made timely and reasonable commercial efforts to obtain the same); or any other cause beyond the reasonable control of such party. The party claiming relief under this Section shall notify the other in writing of the existence of the event relied on and the URRS Agreement Page 185 Dated: September 9, 2002 Appendix M cessation or termination of said event, and the party claiming relief shall exercise reasonable commercial efforts to minimize the time of any such delay. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first written above. QWEST COMMUNICATIONS CORPORATION By: _______________________________ By: _____________________________ Name: _____________________________ Name: RICHARD J. COYLE, JR. Title: ____________________________ Title: President URRS Agreement Page 186 Dated: September 9, 2002 Appendix M EXHIBIT A MAP OF THE RIGHT-OF-WAY [GRAPHIC] URRS Agreement Page 187 Dated: September 9, 2002 Appendix M EXHIBIT B THE CONDUIT SYSTEM VERDI, NEVADA TO SACRAMENTO, CALIFORNIA This portion of the route consists of approximately 131 miles (691,680') in length. The telecommunications system along the route from the Union Pacific Railroad milepost 227, approximately 8/10 of a mile east of the California - Nevada State Line near Verdi Nevada to Hirshdale Road UPRR MP 218.3, approximately 11 miles (58,080'). From Hirshdale Road to West Truckee, approximately 16.5 miles (87,120'). West Truckee to Soda Spring, approximately 6.8 miles (35,904'). Soda Springs to Cisco Grove approximately 9.1 miles (48,048'). Cisco Grove to Blue Canyon approximately 12 miles (63,360'). Blue Canyon to Colfax UPRR MP 142, approximately 21 miles (110,880'). UPRR MP 142 to Sacramento UPRR MP 89 approximately 53.7 mile (283,536'). Sacramento UPRR MP 89 to 1005 North B Street approximately 1 mile (5280'). RENO METRO The fiber optic cable line will start .8 of a mile from the California border into Nevada and ties in with a Williams handhole between UPRR and 1-80 and ends at the Wells Fargo building at 200 South Virginia Street. Phase II begins at 200 South Virginia Street, Wells Fargo building, and ends at South Meadows Parkway. LONG HAUL The fiber optic cable line will start at the intersection of South Meadows Parkway and South Virginia Street in Reno and follow the highway right-of-way south from Reno along U.S. highway 395 to East Lake Boulevard. From East Lake Boulevard, the cable will continue southward along a corridor to Goni Road and then to Arrowhead Drive in Carson City. At Arrowhead Drive it will head eastward to US Highway 50 and continue east crossing the rest of Nevada, passing through the cities of Fallon, Austin, Eureka, and Ely and continuing into Delta Utah. At Delta the route would follow US Highway 6 northeastward to State Route 132 In Lynndyl, Utah. At State Route 132 the cable would continue northeast to just west of Nephi, Utah, where it would intersect State Route 91. On State Route 91 the fiber optic cable would continue northward through Mona to Santaquin, Utah. The cable would then head northeast, following side roads and a portion of State Route 115 on the west side of Interstate 15 (1-15). Just north of Spanish Fork the fiber optic cable would cross under 1-15 and tie in with another fiber optic cable system on 4800 South, approximately 0.2 miles east of 1-15. The route would then continue north on I-15 to Provo, UT, run along city streets into the Provo POP located at the corner of East 100 and North 100, then along city streets to I-15, then north on I-15 to the vicinity of the Bangerter Highway, north to west 700 south, along city streets to 161 Regent Street, north on Regent Street to the termination point at 100 South State Street. CALIFORNIA - - Verdi Nevada on UPRR MP 227 to MP 218.3 at Hirshdale Rd. spread 5.1. - - Hirshdale Rd. to West Truckee, spread 5.2. - - West Truckee to Soda Springs, spread 5.3 - - Soda Springs to Cisco Grove, spread 5.4 - - Cisco Grove to Blue Canyon, spread 5.5 - - Blue Canyon to Colfax UPRR MP 142, spread 5.6 - - Colfax UPRR MP 142 to Sacramento UPRR 89, spread 6 - - Sacramento UPRR 89 to 1005 North "B" Street, Sacramento Ca, spread 7 URRS Agreement Page 188 Dated: September 9, 2002 Appendix M NEVADA - - Reno Metro, Phase 1 is approximately 74,406 feet - - Phase 2 is approximately 51,069 feet. - - Spread 1, South Meadow Parkway to Lyon County line Is approximately 321,496 feet. - - Spread 2, Churchill County line to the Lander County line is approximately 567,791 feet. - - Spread 3, Lender County line to the White Pine County line is approximately 578,458 feet. - - Spread 4, White Pine County to Utah border is approximately 702,319 feet. UTAH - - Spread 5, Millard County at the Nevada/Utah border to Juab County line is approximately 616,238 feet. - - Spread 6, Juab County line to north of Spanish Fork approximately 0.2 miles east of 1-15 end is approximately 355,097 feet. - - Spanish Fork to Provo, UT approximately 7.95 miles (42,000 feet). - - Provo north to Salt Lake City, UT approximately 59.14 miles (312,265 feet). URRS Agreement Page 189 Dated: September 9, 2002 Appendix M EXHIBIT C BILL OF SALE KNOW ALL MEN BY THESE PRESENTS that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Sierra Pacific Communications, a Nevada corporation ("SPC"), does hereby sell, transfer, and convey to Qwest Communications Corporation, a Delaware corporation ("Qwest"), all right, title and interest in the following personal property: (i) one (1) one-and-one-quarter inch (1.25") conduit of approximately one hundred forty-six (146) miles in length between Sacramento, California and Reno, Nevada; (ii) one (1) two inch (2") conduit of approximately three hundred fifty (350) miles in length between Reno, Nevada and Ely, Nevada; (iii) one (1) two inch (2"") conduit of approximately three hundred sixteen (316) miles in length between Ely, Nevada and Salt Lake City, Utah; together with the associated vaults, handholes and manholes, and other related facilities within the Route as set forth in Exhibit B (the "Conduit System"), installed on approximately 812 miles between Sacramento, CA and Salt Lake City, Utah and as more particularly described in the Amended and Restated Agreement for Construction and Sale of a Conduit between the SPC and Qwest dated September 4, 2002. SPC hereby warrants to Qwest that good and clear title to the personal property that comprises the Conduit System is hereby vested in Qwest free and clear of all liens, claims, encumbrances and rights of others. IN WITNESS WHEREOF, SPC has caused this Bill of Sale to be executed and delivered in its name this ____ day of _______, 2003. SIERRA PACIFIC COMMUNICATIONS ("SPC") Insert Company Name By: _________________________________ Name: ________________________________ Title: _______________________________ URRS Agreement Page 190 Dated: September 9, 2002 Appendix M Date: _______________________________ EXHIBIT D NDOT FORM RELEASE LANGUAGE IRU Grantee acknowledges and agrees that neither NDOT, nor its representatives, agents, servants, and/or employees is responsible for the continuing Operation and Maintenance of the System and the IRU Grantee's IRU Fibers. Neither NDOT, its representatives, agents, servants, and/or employees shall be responsible or liable for any damage to, or interruption of the Operational status of IRU Grantee's network and/or the IRU Fibers, provided, however, that in the event that Maintenance on the IRU Fibers is required due to the supervening negligence or willful misconduct of NDOT, its representatives, agents, servants of employees, the reasonable costs and expenses of such Maintenance work shall be borne by NDOT, subject to any limitations set forth in the Permittee Agreement between NDOT and SPC. IRU Grantee understands and agrees that the Installation of the IRU Fibers and the System is within a public highway environment and therefore subject to the inherent dangers of such environment including, without limitation damage to the IRU Fibers resulting from traffic accident or construction along the ROW. IRU Grantee agrees to release, remise and forever discharge NDOT, its representatives, agents, servants, and employees from any liability associated with or relating to damage to, or interruption of the Operational status of, the System and/or the IRU Fibers, whether or not the proximate cause of such damage or interruption was the negligence of NDOT, representatives, agents, servants, and/or employees, including, without limitation, liability for incidental or consequential damages and/or loss of business or business revenue; provided, however, that in the event that Maintenance on the IRU Fibers is required due to the supervening negligence or willful misconduct of NDOT, its representatives, agents, servants or employees, the reasonable costs and expenses of such Maintenance work shall be borne by NDOT, subject to the limitations set forth in the Permittee Agreement between NDOT and SPC. URRS Agreement Page 191 Dated: September 9, 2002 Appendix M EXHIBIT E COMPLETION DATES
ROUTE STATUS CONDUIT INSTALLATION: STATUS EST. COMPLETION Sacramento to Reno Complete South Meadows - Lyon/Churchill 79.7% complete 10-30-02 Churchill County NV 98.5% complete 10-30-02 Lander & Eureka Counties, NV 94% complete 10-30-02 White Pine county, NV 87% complete 10-30-02 Millard County, UT 99.1% Complete 10-30-02 Juab & Utah Counties, UT 98% complete 10-30-02 Spanish Fork - Bangerter UT 0.0% complete 11-31-02 I15 - Provo POP, UT 0.0% complete 12-31-02 Provo, UT - SLC 0.0% complete 01-31-03
URRS Agreement Page 192 Dated: September 9, 2002 Appendix M EXHIBIT F MAINTENANCE SPECIFICATIONS AND PROCEDURES 1. DEFINITIONS: Terms used in this exhibit are defined in the Agreement and as follows: Agreement: The Agreement between Qwest Communications ("CUSTOMER") and Sierra Pacific Communications, the Service Provider ("SP") Cable Relocation: The physical relocation of the System, which may be required by public (e.g., city or state government) or private entities. Facilities: All physical building spaces, including but not limited to regenerator huts, terminal offices, terminal huts, and manholes, where the System is present along the Route. Maintenance Activity: All work activities as defined in Section 2 of this Schedule. Method of Procedure (MOP): The plan developed by the SP, which details the activities, required to be followed during work activities near or on the System. One-Call Agency: Each state has a state run agency established by the state for anyone (including but not limited to contractors) to call a pre-designated phone number to report potential intrusions to the System. Every state has its own One-Call Agency. Operations Center (OC): The facility or facilities, along with the personnel and other assets required to monitor, communicate, coordinate, restore, repair, and perform all Maintenance Activity. Planned Cable Activity (PCA) : Any planned conduit activity, including activities that do not impair the conduit as well as activities that do impair the conduit, that could potentially affect SP's service of the System. Planned System Work Period (PSWP): A pre-arranged period of time reserved for performing certain work on the System that may potentially impact traffic. Generally, this will be restricted to weekends, avoiding the first and last weekend of each month and high-traffic weekends. The PSWP shall be agreed upon per this Exhibit C of this Agreement. Restoration, Total (Total Restoration): A condition whereby the conduit cannot carry service along one or more Route Segment(s) or Route Section(s) on a Link(s). An example of this condition is a backhoe severing the conduit. Service Acceptance Date: The date that the Customer accepts the System and requires service on the System. 2. MAINTENANCE ACTIVITIES The following subsections describe the types of Maintenance Activities that must be performed. All Maintenance Activity types described below shall be performed by or under the direction of the SP. For all Maintenance Activities, CUSTOMER may contact SP at any time to discuss fiber status or URRS Agreement Page 193 Dated: September 9, 2002 Appendix M to notify SP of changes in status or any other issues which require action by the SP. However, no other party, including but not limited to a lessee of the CUSTOMER's conduit (i.e. CUSTOMER subleases its conduit to a third party), shall call the SP for anything related to CUSTOMER's conduit without the written agreement of both the CUSTOMER's and SP's escalation lists (Attachment 2) Tier 3 representative. It is the intention of this Agreement that any lessee of fibers in the conduit coordinate all problems and issues solely with the originating party of the Disposition. Parties have the right to review each other's maintenance standards, which include preventative maintenance procedures, Planned Cable Activity procedures, and cable restoration procedures. SP shall notify CUSTOMER at least ten (10) business days prior to the date in connection with any Planned System Work Period (PSWP) of any Maintenance Activity and as soon as possible after becoming aware of the need for unscheduled maintenance. CUSTOMER shall have the right to be present during the performance of any Maintenance Activity or unscheduled maintenance so long as this requirement does not interfere with SP's ability to perform its obligations under this Agreement. In the event that Maintenance Activity is canceled or delayed for whatever reason as previously notified, SP shall notify CUSTOMER at SP's earliest opportunity, and will comply with the provisions of the first sentence of this paragraph to reschedule any delayed activity. 2.2. Preventative Maintenance Preventative maintenance will be performed according to the SP's standards. Each SP's maintenance standards must include the following: 2.1. Consistent with Transportation Equity Act 21 (TEA21) Best practices, the SP will: - Subscribe to each and all One-Call Agencies that govern Route Segment(s), Route Section(s) or Link(s) they maintain. - Abide by all state One-Call Agency laws - Respond to all locate requests. - Analyze, assign, and dispatch locate request to SP's qualified technicians 2.2. The SP will positively respond to excavation activity notifications as follows: - --------------------------------------------------------------------------------------- Locate and Mark Cable Within fifty (50) feet of System - --------------------------------------------------------------------------------------- Locate, Mark, and Standby to protect conduit Within ten (10) feet of System - --------------------------------------------------------------------------------------- Positive confirmation of the location of the Within eighteen (18) inches Customer's Conduit will be done through either side of System various means of (e.g. Potholing) to ensure that Customers' cable is not damaged - ---------------------------------------------------------------------------------------
2.3. Positively respond to boring operations as follows: - ---------------------------------------------------------------------------------------- Standby and monitor the boring operation Within one hundred (100) feet of to ensure the cable is not damaged. System (Potholing, etc. as required) - ----------------------------------------------------------------------------------------
2.4. Route Patrol Patrol the route by a qualified technician in accordance with the current SP's procedures for maintenance a minimum of four (4) times a year. This "patrol" will consist of riding the route to identify potential maintenance issues (e.g. erosion, encroachments, damaged or missing signs, URRS Agreement Page 194 Dated: September 9, 2002 Appendix M etc.). 2.5. Signs The SP will routinely replace signs that are damaged. 2.6. Right Of Way Maintenance Brush, trees and/or other vegetation should be trimmed to the edge of the ROW as required to support ROW accessibility and worker safety. Under no circumstances should prevailing growth exceed 30 inches in height or lower if it obstructs signage visibility. Ongoing trimming of the ROW communicates a message to others that the underground plant exists in the right of way and that the SP cares about it. As such, ROW-clearing and trimming serves as a crucial part of the overall right-of-way maintenance effort to enhance plant protection. At a minimum ROW maintenance must comply with local, state, and federal requirements. 2.7. Voltage Suppressor / Arrestor Wherever the cable sheath voltage exceeds 50v AC, voltage suppressers or arrestors shall be installed by Customer at the splice points and regenerator locations. 2.8. Planned Cable Activity A Planned Cable Activity (PCA) is any activity, which can be planned in advance (i.e., not an emergency) that will cause maintenance personnel to physically move the conduit. There are two types of PCAs: intrusive and non-intrusive. 2.9. Intrusive PCAs An intrusive PCA is an activity where the SP will expose the buffer tube. Examples: - installation of insulating joints / isolation closures, - reroutes / cutovers / hot cuts Intrusive PCAs must be performed from 6pm to 6am local time Monday through Friday or any time during the weekends, excluding holidays. If exceptions are required to these times, including holidays, utilize the escalation list. 2.10. Non-Intrusive PCAs Examples of non-intrusive PCAs are as follows: - conduit lowering or rearrangements - conduit or manhole rearrangements Non-intrusive PCAs can be performed anytime. 2.2.4. Responsibilities of SP and CUSTOMER For ALL PCAs, the SP must notify the CUSTOMER at least fourteen (14) calendar days prior to the activity. For PCA activity that will result in signal discontinuity, the following process will be performed: URRS Agreement Page 195 Dated: September 9, 2002 Appendix M - AT LEAST FOURTEEN (14) CALENDAR DAYS IN ADVANCE: SP shall provide a copy of its Method of Procedure (MOP) in writing to CUSTOMER and will notify CUSTOMER of this PCA per escalation list. - AT LEAST TEN (10) CALENDAR DAYS IN ADVANCE: After receipt of SP's MOP, CUSTOMER then will provide a copy of its MOP to the SP that incorporates the switching, verification, identification, and testing of CUSTOMER's fibers. - AT THE TIME OF THE PCA: The SP and CUSTOMER shall maintain communication via phone for the entire execution of the event. CUSTOMER shall coordinate the execution of CUSTOMER's MOP with SP. - If for any reason any PCA is canceled or delayed, then SP shall notify CUSTOMER as soon as SP is aware of the change, and SP will reschedule the activity. 2.11. Cable and Conduit Restoration The SP will respond to all CUSTOMER's notifications indicating any failure, any interruption, or any impairment to the CUSTOMER's conduit System. 2.12. Restoration The SP shall notify CUSTOMER of the cable cut, per the escalation list, including the time of the conduit cut, and the Route Section as soon as possible, but no later than 15 minutes from the time the cut occurs. Once this information is provided to the CUSTOMER, the SP shall establish a communications bridge with the CUSTOMER and stay in constant communication throughout the cable cut. The SP shall notify the CUSTOMER of the physical location of the conduit cut as soon as possible but no later than 90 minutes from the time the cable cut occurs. For every total cable cut, SP shall respond immediately after receiving notification with a goal of restoring CUSTOMER's conduit in six (6) hours from the time of the cable cut. The only exception to this response time is when an uncontrolled incident, such as a flood, a chemical spill, a fire, a bridge collapse, a riot, or other circumstance prevents access to the damage area. To accomplish this conduit restoration, it is acknowledged that the repairs so affected may be temporary in nature. In such event, within twenty-four (24) hours after completion of all temporary Restoration activity, SP shall commence its planning for permanent repair, and thereafter promptly shall notify CUSTOMER of such plans. If the SP informs the CUSTOMER that the temporary conduit repair cannot be made permanent immediately, then the permanent repair shall be mutually agreed upon by both parties. The parties agree to mutually support each other during restoration activities. In the event the restoration cable is exposed above ground, the SP must provide on-site personnel for conduit protection. 2.13. Conduit Damage and Restoration The SP will respond to all notifications indicating any damage to the Conduits in the System. The CUSTOMER will affect repairs to the conduit immediately in occupied conduit or as soon as commercially reasonable and practical in the case of damaged empty conduit. The trench will be back filled using approved materials appropriate to the field conditions. Restoration standards will be at least as found prior to the excavation or better. URRS Agreement Page 196 Dated: September 9, 2002 Appendix M Verification of continuity of Dark Fibers shall be the responsibility of the CUSTOMER. 2.14. Hazardous Conditions / Service Precautions A hazardous condition or service precaution is when an event, such as flooding, fire, street collapse, cable wash-out or a man-made event such as a train derailment occurs, and there is an increased probability that the System may be damaged, and maintenance activity is needed to prevent any potential damage. For these events SP shall notify CUSTOMER, per escalation list, as soon as the SP knows of such event. The SP shall establish a communications bridge for these events and stay in constant communication. 2.15. Disaster Recovery Disaster recovery is any event that affects service on the System and involves significantly more maintenance activity than just a cable restoration. Examples of disaster recovery are as follows: - train derailment occurs, which by itself would be a hazardous condition, but for this example it destroys a regeneration site, or - the cable at a bridge is washed out and restoration involves deploying several miles of cable to restore service. For these events SP shall notify CUSTOMER, per escalation list, as soon as the SP knows of such event. The SP shall establish a communications bridge for these events and stay in constant communication. The parties agree to mutually support each other during disaster recovery activities. Examples of support may include providing fault locating, splicing, or running cable. All support is at the discretion of the SP -- meaning that the SP shall have its crew performing disaster recovery and may accept and direct the support from the CUSTOMER if the CUSTOMER offers such support. 3. OPERATIONS / NETWORK CONTROL CENTER(S) 3.1. Operations / Network Control Centers The terms Operations Center and Network Control Center are synonymous, and will be called Operations Centers for the remainder of this Schedule. SP shall operate and maintain an Operations Center (OC) staffed twenty-four (24) hours a day, seven (7) days a week including all holidays. The OC shall be staffed by trained and qualified personnel. SP's maintenance personnel shall be available for dispatch twenty-four (24) hours a day, seven (7) days a week. 4. ESCALATION LIST An escalation list (Attachment 1) will be shared between the parties. This list shall provide for coordination between SP and CUSTOMER for day-to-day issues, coordination of all Maintenance Activity communication and coordination, as well as escalation personnel in the event agreement cannot be reached at the lowest level of the escalation list. URRS Agreement Page 197 Dated: September 9, 2002 Appendix M This escalation list may be modified by either party at any time if the party making the change notifies the other party in writing twenty-four (24) hours in advance of the change. The escalation's Tier 1 contact shall be the day-to-day working level, which shall address daily maintenance operations activities. 5. FACILITIES Except to the extent otherwise expressly provided in the Agreement, CUSTOMER will be solely responsible for providing and paying for any and all maintenance of all electronic, optical, and any other equipment, materials and facilities used by CUSTOMER in connection with the operation of the Dark Fibers, none of which is included in the maintenance services to be provided hereunder. Each party agrees that the Facilities shall be placed and maintained in accordance with the requirements and specifications of current editions of the National Electrical Code and the National Electrical Safety Code, the applicable rules and regulations of the Occupational Safety and Health Act (including those of 29 C.F.R. Section 1910.268(a) et seq.) and the requirements of any other authority having jurisdiction. Each party shall promptly furnish to each other, but in no case later than twenty-four (24) hours, copies of all notices, reports, correspondence, submissions, made by either party to federal, state, or municipal environmental, safety, or health authorities. Each party agrees that Facilities shall not physically, electronically or inductively interfere with those of facilities in place. 6. COVERAGE PERIOD Maintenance will be performed for agreed upon Route Segment(s) or Route Section(s) on a Link(s) commencing upon the Service Acceptance Date, and conclude upon expiration or termination of the Agreement. 7. SUBCONTRACTING The SP may subcontract any Maintenance Activities herein, provided the SP shall require the subcontractor(s) to perform in accordance with the Agreement. The use of any such subcontractor shall not relieve SP of any of its obligations herein. 8. ESCALATION LISTS 1. Touch America 24 by 7 NOC 877-638-6621 2. Transport Manager - Tom Good 3. NOC Director - Jonathan Strong 4. Director, Field Operations - Jerry Piazzola 5. Vice President, Networks - Kevin Dennehy URRS Agreement Page 198 Dated: September 9, 2002 Appendix M EXHIBIT G 15. LITIGATION 1. Bayport Pipeline, Inc. v. STA and Mastec North America, Inc.; Case No. CV-02-0187-HDM (VPC); United States District Court for the District of Nevada; alleged breach of contract action. 16. 2. TI Energy Services, Inc. v. STA; Cause No. 2001-59361; Harris County, Texas; 164th Judicial District; alleged breach of contract action. 3. Cleveland Inspection Services, Inc. v. Sierra Pacific Communications and Touch America, Inc.; Cause No. 0020905259; Salt Lake City, UT; lien foreclosure action. 4. Sorensen Construction, Inc. v. STA; Cause No. 020901281; Salt Lake City, UT; lien foreclosure action. 5. Adesta Bankruptcy - includes Adesta facilities in Bangerter Hwy and I15 in Utah URRS Agreement Page 199 Dated: September 9, 2002 Appendix M EXHIBIT H REGENERATION/AMP SITES IN NEVADA AND UTAH Moundhouse, NV Lahontan, NV Salt Wells, NV Edwards Creek, NV Cape Horn, NV Eureka, NV Moorman, NV Ely, NV Dry Gulch, NV Dog Valley, UT Hinkley, UT 17. URRS Agreement Page 200 Dated: September 9, 2002 Appendix M EX-10.5 11 b44528spexv10w5.txt AMEND. & RESTATED CONDUIT SALE AGREEMENT EXHIBIT 10.5 AMENDED AND RESTATED AGREEMENT FOR CONSTRUCTION AND SALE OF A CONDUIT THIS AMENDED AND RESTATED CONDUIT SALE AGREEMENT ("Agreement") dated this 11th day of September, 2002, is made by and between Sierra Pacific Communications ("SPC"), a Nevada corporation with offices located at 5860 South Pecos Road, Building G, Suite 100, Las Vegas, Nevada 89120, and Qwest Communications Corporation ("Qwest"), a Delaware corporation, with offices located at 1801 California Street, Denver, Colorado 80202. SPC and Qwest may be referred to individually as a "Party," and collectively may be referred to as the "Parties". RECITALS WHEREAS, Qwest and SPC previously entered into an agreement regarding the subject matter of this Agreement on or about June 29, 2001; and further agree that each Party hereby waives any default of the other Party under such June 29, 2001 agreement. WHEREAS, the Parties have agreed to certain changes in the structure of the sale and other terms described in the June 29, 2001 agreement, and agree that agreement shall be replaced in its entirety with this Agreement; WHEREAS, SPC is constructing and installing or otherwise procuring a multiple conduit fiber optic system (the "System") of approximately eight hundred twelve (812) miles in length from Sacramento, California to Salt Lake City, Utah, all along public and private right of way more particularly described in Exhibit A (the "Right-of-Way"); and WHEREAS, Qwest desires to purchase from SPC the following conduits within the Right of Way along the Route: (i) one (1) one-and-one-quarter inch (1.25") conduit of approximately one hundred forty-six (146) miles in length between Sacramento, California and Reno, Nevada ("Leg One"); (ii) one (1) two inch (2") conduit of approximately three hundred fifty (350) miles in length between Reno, Nevada and Ely, Nevada ("Leg Two"); (iii) one (1) two inch (2"") conduit of approximately three hundred sixteen (316) miles in length between Ely, Nevada and Salt Lake City, Utah ("Leg Three"). together with the associated vaults, handholes and manholes, and other related facilities within the Route, as set forth in Section 1 herein and on Exhibit B (collectively, the "Conduit System"), and as constructed pursuant to the specifications attached hereto as Exhibit G (the "Specifications"). NOW THEREFORE, for and in consideration of the Recitals and the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt and Amended and Restated Agreement Page 1 of 28 As of September 11, 2002 sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Sale of the Conduit 1.01 Purchase and Sale. Subject to the terms and conditions of this Agreement, SPC agrees to convey to Qwest, and Qwest agrees to purchase from SPC, the Conduit System. SPC shall use commercial best efforts to effect the completion of the Conduit System according to the schedule set forth on Exhibit E (the "Scheduled Completion Dates"). SPC shall provide Qwest as-built drawings within sixty (60) days following the Acceptance Date as defined in Section 3.02. 1.02 Access and Maintenance. The Parties acknowledge that SPC will install, or cause to be installed, handholes or manholes at standard intervals along the Route in accordance with the Specifications. To the extent SPC has such rights and as further set forth in Section 2.06, SPC shall convey to Qwest any and all access rights to the Conduit System, and Qwest shall maintain any fiber optic cable contained therein; provided, however, such access is conditioned upon Qwest complying with any access protocols. In addition, Qwest shall also have such access to all vaults, handholes, manholes and other facilities where such access is commonly shared by SPC and other telecommunications facility users and collocators within the Right of Way along the Route, subject to STA access protocols as stated in Maintenance Agreement. 1.03 Maintenance. Concurrent with the Final Payment, Qwest and SPC shall execute a maintenance agreement, in the form of Exhibit F hereto, for the maintenance, repair, and relocation of the Conduit System (excluding fiber optic cable) in accordance with the Specifications (the "Maintenance Agreement"). Qwest's obligation to purchase said maintenance from SPC shall be limited to one (1) two (2) year term with monthly payments equal to $24,000 per month, commencing on the effective date of this Agreement. The first payment shall be prorated to reflect a partial month, if applicable. Qwest shall have the option to renew the Maintenance Agreement at the same monthly rate and in one-year increments for a total of two (2) renewal years. At such time as Qwest places fiber in the Conduit system, the Parties agree to modify the specifications and procedures of the Maintenance Agreement as appropriate to address the presence of such fiber. 1.04 Additional Associated Property. Provided that Qwest gives SPC written notice of additional requirements prior to the completion of construction of the standard handholes or manholes, SPC will install or cause to be installed, if any such installation does not materially interfere with the existing facilities of SPC and is otherwise reasonably practicable as determined by SPC in its reasonable discretion, additional handholes or manholes at such other locations as requested by Qwest at Qwest's expense. Prior to installing such handholes or manholes, SPC shall notify Qwest of whether such handholes or manholes are subject to rights of way requirements of private entities, or subject to approval by permitting agencies and governmental authorities. Based on such information, Qwest may elect not to install the additional handholes or manholes. If Qwest elects to install additional handholes or manholes, Qwest shall pay SPC all direct costs and out-of-pocket expenses associated with such additional work plus a management fee equal to fifteen percent (15%) of such costs. Amended and Restated Agreement Page 2 of 28 As of September 11, 2002 2. Payment 2.01 Total Purchase Price. Qwest shall pay SPC twenty million and no/100 dollars (US$20,000,000.00) for the Conduit System (the "Total Purchase Price") as set forth in this Section 2. 2.02 First Payment. Qwest has already paid to SPC, and SPC acknowledges the receipt thereof, the sum of four million nine hundred eighty-eight thousand seven hundred eighty four and no/100 dollars (US$4,988,784.00) (the "First Payment"). 2.03 Second Payment. Qwest shall pay SPC by wire transfer of immediately available funds the sum of five million eleven thousand two hundred sixteen and no/100 dollars (US$5,011,216.00) immediately upon the execution of this Agreement by both Parties (the "Second Payment"). 2.04 Final Payment. Final payment due for the conduit system shall be ten million and no/100 dollars (US $10,000,000.00) payable as set forth below (the "Final Payment"). Qwest shall pay SPC by wire transfer of immediately available funds the sum of nine million four hundred thousand and no/100 dollars (US$9,400,000.00) payable on the Acceptance Date (as defined in Section 3.03 below). Upon receipt of said $9,400,00.00, SPC shall promptly transfer title to the Conduit System to Qwest via a bill of sale in the form attached as Exhibit C upon receipt of the Final Payment. Qwest shall hold back ("Hold Back") an amount of six hundred thousand and no/100 dollars until SPC delivers the as-built drawings as set forth in section 1.01 and shall pay by wire transfer of immediately available funds such Hold Back amount upon receipt of the as built drawings 2.05 Security. SPC hereby grants Qwest a security interest in (i) the Conduit System, (ii) all equipment, goods and materials purchased or otherwise obtained for use in the Conduit System, and (iii) SPC's transferable occupancy rights in the Right-of-Way in so far as such rights extend to the Conduit System, to secure payments made by Qwest to SPC, and SPC's performance, under this Agreement. SPC hereby warrants and covenants that the security interests granted to Qwest in this Section 2.05 are (i) a first-priority security interest in Legs One and Two of the Conduit System, (ii) a security interest in Leg Three of Conduit System and (iii) a security interest in SPC's transferable occupancy rights in the Right-of-Way in so far as such rights extend to the Conduit System, to secure payments made by Qwest to SPC, and SPC's performance, under this Agreement. Qwest agrees and acknowledges that the enforcement of the security interest granted to Qwest in this Section 2.05 is subject to the terms and conditions of Section 4.01(a) of this Agreement. Qwest agrees to immediately create, modify, amend, cancel and perfect any existing security interests to bring them into accordance with this Agreement. SPC shall take all reasonable action requested by Qwest to assist Qwest in the perfection of the security interest granted to Qwest herein. Immediately upon the first to occur of (i) SPC's transfer of title to the Conduit System via bill of sale as provided hereunder, or (ii) Qwest's default under Section 4.01(b) of this Agreement, the security interest granted herein shall immediately extinguish and terminate and be of no further force or effect. Amended and Restated Agreement Page 3 of 28 As of September 11, 2002 2.06 Right of Way. Promptly following full payment of the Final Payment to SPC, SPC shall partially assign to Qwest the assignable occupancy rights in the Right-of-Way occupied by the Conduit System to the extent such rights are legally transferable; provided, however, Qwest shall cooperate with SPC in obtaining any required consents to such transfers from private entities or governmental authorities, and shall be responsible for its share of any annual recurring fees charged in connection with such occupancy rights. SPC will convey such rights by way of occupancy agreements. If SPC's occupancy rights cannot be assigned directly to Qwest, then SPC shall grant, to the extent permissible under applicable law and underlying rights of way agreements, access rights to Qwest through license, indefeasible right of use or otherwise so that it may access the Conduit System to operate, maintain, and repair the Conduit System and install, maintain, and repair fiber optic cable in the Conduit System. If SPC cannot grant the full rights to access, operate, maintain and repair the Conduit System, then SPC shall agree to perform, or cause to be performed, such services, not allowed or permitted to be performed by Qwest, on Qwest's behalf at customary and reasonable costs and timeframes. 2.07 AMP Sites. For that portion of the Conduit System located in Nevada and Utah, SPC shall provide Qwest with (i) a 20 year IRU for a minimum of one-half (1/2) acre (Qwest Space) at each of the applicable AMP sites described on Exhibit H, and shall deliver said IRUs to Qwest upon receipt of Final Payment (ii) all easements, permits and associated rights of way necessary for Qwest to utilize said Qwest Space as is customary, and shall deliver said easements, permits and associated rights of way necessary for Qwest to utilize said Qwest Space as is customary to Qwest upon receipt of Final Payment (iii) 48V DC power at $10 and amp per month at each Qwest Space, at a minimum of 200 amps per site, with an option for Qwest to increase the amperage within the Regen sites at the same cost per each additional amp. Qwest shall indemnify SPC for any damage to persons or property in connection with its access to, and use and occupancy of, such space on the site, in conformity with Qwest's indemnification obligations set forth in Section 6.06. Qwest agrees to pay its pro rata share of the total of the acquisition price and acquisition costs specific to each such regeneration or AMP site, including but not necessarily limited to costs associated with government permits, licenses, and other authorizations, environmental reviews, physical inspections, and due diligence investigations for each site. Such pro rata share shall be equivalent to Qwest's proportionate share of such costs based on the total square acreage of the land to be used by Qwest as compared to the total square acreage of the land actually permitted or licensed to SPC. SPC shall acquire the use of said property on behalf of SPC and Qwest and convey to Qwest its portion through assignment, license, indefeasible right of use or similar instrument upon receipt of the Final Payment. 2.08 Interest Rate. If Qwest fails to make any payment under this Agreement when due, then such payment shall accrue interest both before and after judgment at the lower of (i) the highest rate permitted by law, or (ii) one (1%) per month. 3. Conduit System Completion 3.01 Completion of the Conduit System. When SPC has determined that the Conduit System has been constructed and installed substantially in conformity with the Specifications, SPC shall provide Qwest a written notice of the same of the Conduit System (a "Completion Notice"). SPC's delivery of the Completion Notice shall constitute SPC's representation and warranty to Qwest (i) that the Conduit System has been constructed and installed substantially in Amended and Restated Agreement Page 4 of 28 As of September 11, 2002 conformity with the Specifications, (ii) that all costs and expenses of construction have been paid, and (iii) that the Conduit System has been tested and is in good working order. 3.02 Acceptance of the Conduit System. Within fifteen (15) days of receipt of a Completion Notice, Qwest shall either accept or reject the Completion Notice (specifying in reasonable detail the defect in the applicable specifications) by delivery of written notice to SPC. In the event Qwest rejects the Completion Notice, SPC shall promptly commence to remedy, or cause to remedy, any nonconforming item. Thereafter, SPC shall again provide Qwest a Completion Notice and the foregoing procedure shall again apply. If SPC disputes the rejection by Qwest, the Parties shall immediately implement Dispute Resolution as set forth in Section 6.20. Any failure of Qwest to timely reject a Completion Notice shall be deemed to constitute final acceptance for purposes of this Agreement and in such event Qwest shall be deemed to have accepted the Conduit System, as applicable, on the fifteenth day after delivery of the Completion Notice. 3.03 Acceptance Date. The acceptance date (the "Acceptance Date") shall be defined as the later of (i) February 1, 2003 or (ii) thirty (30) days following acceptance of the Completion Notice with respect to the Conduit System as set forth in Section 3.02. 3.04 Fiber Installation. Qwest shall perform all work with respect to the pulling, splicing and testing of the fiber optic cable within the Conduit System 4. Default and Termination Provisions. 4.01 Default. Except as set forth below, neither Party shall be in default under this Agreement herein unless and until the Party shall have received written notice of such default from the other Party, and shall have failed to cure the same within thirty (30) days after receipt of such notice. Any event of default may be waived under the terms of this Agreement at the other Party's option. Events of default and the remedies of the parties shall include, but not be limited to, the following: (a) Failure to Complete the Conduit System or Other Failure of SPC. If Qwest has not received a Completion Notice by June 30, 2003 (with no cure period allowed), or upon SPC's breach of any other term or condition of this Agreement and its failure to cure such breach, Qwest's sole remedy shall be the right to immediately terminate this Agreement and enforce the security interest granted to Qwest in Section 2.05 of this Agreement and/or cause SPC to transfer clear title and ownership of the Conduit System to Qwest as follows: (i) Qwest may enforce its security interest against, and/or cause SPC to transfer to Qwest clear title and ownership to Legs One and Two of the Conduit System, including SPC's transferable occupancy rights in the Right-of-Way to Legs One and Two; and (ii) Upon Qwest's payment of Ten Million Dollars ($10,000,000.00) to SPC, Qwest may enforce its security against, and/ or cause SPC to transfer clear title and Amended and Restated Agreement Page 5 of 28 As of September 11, 2002 ownership to Leg Three of the Conduit System, including SPC's transferable occupancy rights in the Right-of-Way to Leg Three. (b) Failure to Make Payment. Upon the failure by Qwest to timely cure any undisputed payment default after notice thereof from SPC, Qwest shall immediately forfeit any right, title or interest in any portion of the Conduit System, its security interest in the Conduit System shall immediately extinguish and terminate and be of no further force or effect, and SPC shall retain all amounts paid by Qwest through the date of default. The foregoing shall not mitigate or reduce any claim SPC may have for any amounts due and owing it by Qwest pursuant to the terms and conditions of this Agreement. 5. Legal Requirements. 5.01 Authorizations; Compliance. To the best of SPC's knowledge, SPC is permitted to install and locate the Conduit System and Qwest is permitted to own, operate, maintain, remove, repair and reinstall the Conduit System as provided under this Agreement. SPC shall assign to Qwest any and all underlying rights, permits, licenses and governmental approvals to the extent permitted. Qwest shall be responsible for obtaining any and all underlying rights, permits, licenses and governmental approvals that are required for Qwest use, operation and ownership of the Conduit System subsequent to the Acceptance Date. In implementing the terms of this Agreement, SPC and Qwest agree to comply with all applicable local, municipal, state or federal laws, rules, regulations and orders. 5.02 Permittee Agreement. Qwest acknowledges and agrees that all rights of Qwest with respect to that segment of the Route that is upon and within rights-of-way owned or controlled by the Nevada Department of Transportation ("NDOT") are dependent upon and subject to SPC's rights under that certain June 29, 2001 Permittee Agreement between NDOT and SPC. Qwest agrees that it will not do any act or thing that will cause or result in a default by SPC under the Permittee Agreement. This Agreement shall be subject to all terms, conditions, and provisions of the Permittee Agreement, and Qwest hereby binds itself to and agrees, with respect to the Conduit System located within NDOT rights of way, to all terms and provisions of the Permittee Agreement applicable thereto, which are hereby incorporated by reference. Additionally, attached as Exhibit D is form release language, which is required by NDOT to be incorporated into this Agreement. 5.03 Taxes. Qwest shall pay all taxes, fees and other impositions, including without limitation personal property taxes, value added and gross receipts taxes, which are assessed on the Conduit System after the relevant Acceptance Date. SPC shall be responsible for all taxes imposed on the Conduit System prior to the relevant Acceptance Date. 5.04 Confidentiality. This Agreement and all materials, maps, and other documents which are disclosed by one party to the other in fulfilling the provisions and intent of this Agreement, are and shall be confidential ("Confidential Information"). Neither party shall divulge or otherwise disclose Confidential Information to any third party without the prior written consent of the other party except as required for the implementation of this Agreement, and to auditors, attorneys, financial advisors, lenders and prospective lenders, provided that in Amended and Restated Agreement Page 6 of 28 As of September 11, 2002 each case the recipient agrees in writing to be bound by the confidentiality provisions set forth in this Section 4.04. A party may also disclose Confidential Information without the prior written consent of the other party if required by a court order or as otherwise required by law or in any legal or arbitration proceeding relating to this Agreement; provided, however, that in such case, the disclosing party shall give the other party five (5) days' written notice of such disclosure to allow such party to seek a protective order or otherwise prevent or protect such disclosure. 6. General 6.01 Notices. All notices and other communications required or permitted under this Agreement shall be in writing and shall be given by United States first class mail, postage prepaid, registered or certified, return receipt requested], or by hand delivery (including by means of a professional messenger service) addressed as follows: To SPC: Sierra Pacific Communications P.O. Box 300088 Reno, NV 89520 Attention: Manager, Facilities With a copy to: Sierra Pacific Communications Associate General Counsel Nevada Power Company M/S 3A P.O. Box 230 Las Vegas, NV 89151 To Qwest: Qwest Communications Corporation 13952 Denver West Parkway Building 53, Suite 200 Denver, CO 80401. Attention: Vice President of Outside Plant Construction With a copy to: Qwest Law Department 1801 California Street, Suite 3800 Denver, Colorado 80202 Attention: Procurement Attorney Any such notice or other communication shall be deemed to be effective when actually received or refused. Either party may by similar notice given change the address to which future notices or other communications shall be sent. 6.02 Modification. This Agreement may not be rescinded, amended or otherwise modified except by a writing executed by an authorized representative of both SPC and Qwest. 6.03 Assignment. Neither party shall assign or otherwise transfer, by operation of law or otherwise, any of its rights or obligations under this Agreement without the express written consent of the other party, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, either party may assign or otherwise transfer without the express Amended and Restated Agreement Page 7 of 28 As of September 11, 2002 written consent of the other in connection with: (i) any disposition of all or substantially all of the assets of either party; (ii) any merger, consolidation or reorganization of either party; (iii) any assignment, in whole or in part, to any subsidiary, parent company or other affiliate of either party; (iv) any collateral assignment, security interest or pledge of this Agreement to a lender. In any event the assignor shall remain obligated to the other party under the terms of this Agreement unless the other party releases and discharges the assignor in writing. 6.04 Warranties. SPC represents and warrants that Qwest shall receive title to the personal property that comprises the Conduit System free and clear of all encumbrances, including any mechanics or material liens, except as may be specifically provided in Section 6.14(c). SPC warrants that all construction of the Conduit System shall have been performed in a manner consistent with telecommunication industry standards and the Specifications. All warranties made under this Section 6.04 shall be true and correct as of the Acceptance Date and shall survive expiration or termination of this Agreement for a period of one (1) year from the Acceptance Date. EXCEPT AS SET FORTH IN THIS SECTION 6.04, SPC MAKES NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE CONDUIT SYSTEM, INCLUDING ANY WARRANTY OF MERCHANTABILITY AND FITNESS FOR PARTICULAR PURPOSE, AND ALL SUCH WARRANTIES ARE EXPRESSLY DISCLAIMED. THE WARRANTIES SET FORTH IN THIS AGREEMENT CONSTITUTE THE ONLY WARRANTIES MADE BY SPC TO QWEST WITH RESPECT TO THIS AGREEMENT AND ARE MADE IN LIEU OF ALL OTHER WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED. If Qwest discovers any defect in the Conduit System within one (1) year of the Acceptance Date, Qwest shall notify SPC in writing of the same and SPC shall, within thirty (30) days of receiving such notice, correct or cause to be corrected any defect at SPC's cost and expense. If the defect is of a nature that will cause immediate damage or harm to the Conduit System, Qwest shall notify SPC of the same and SPC shall use reasonable commercial efforts to have any defect repaired within forty-eight (48) hours of receiving such notice or, if SPC cannot have the defect repaired within forty-eight (48) hours of receiving notice, Qwest may repair the defect at SPC's cost. Additionally, SPC agrees to pass on and assign to Qwest any warranty it may have received from the manufacturer or supplier, to the extent that such warranty is assignable. 6.05 Insurance. Each Party shall procure and maintain in force, at its own expense, insurance coverage in amounts that a reasonably prudent business person would maintain considering the obligations of the parties hereunder but in no event less than coverage of the following types and limits: (a) workers' compensation as required by applicable law; (b) employer's liability with minimum limits of $1,000,000; (c) general liability with minimum limits of $2,000,000; and (d) automobile liability with minimum limits of $2,000,000. Such required insurance shall be obtained through insurers reasonably acceptable to the other party and licensed to conduct business in the jurisdiction. Each party shall obtain from the insurance companies providing the coverage required by this Agreement, the permission of such insurers to allow such party to waive all rights of subrogation and each party does hereby waive all such subrogation rights. Both parties expressly acknowledge that a party shall be deemed to be in compliance with the provisions of this Section 6.05 if it maintains a state-approved self-insurance program providing for a retention of up to $1,000,000, and covers any excess coverage requirements under subsections (a) - (d) above with insurance Amended and Restated Agreement Page 8 of 28 As of September 11, 2002 6.06 Indemnity. Each Party hereby agrees to indemnify, defend, protect and hold harmless the other party, its employees, agents, officers and directors (the "Indemnified Persons"), from and against, and assumes liability for, all suits, actions, damages or claims of any character brought against the Indemnified Persons because of any damage received or sustained by any persons or tangible property which in whole or in part arise on account of (i) the negligent acts or omissions or willful misconduct of the indemnifying Party in the performance of or related to the indemnifying Party's duties or obligations under this Agreement, or (ii) a breach of this Agreement. Notwithstanding the termination of this Agreement for any reason, the provisions in this paragraph shall survive such termination. 6.07 Complete Agreement. This Agreement represents the entire understanding between SPC and Qwest with respect to the installation and sale of the Conduit System covered hereunder and incorporate all prior and contemporaneous understandings, whether written or oral, between the parties. This Agreement supersedes all other prior oral or written agreements concerning the installation and sale of the Conduit System covered hereunder. This Agreement may not be rescinded, amended, or otherwise modified except in writing executed by the authorized representatives of both parties. 6.08 No Personal Liability. Each action or claim against any party arising under or relating to this Agreement shall be made only against such party as a corporation, and any liability relating thereto shall be enforceable only against the corporate assets of such party. No party shall seek to pierce the corporate veil or otherwise seek to impose any liability relating to, or arising from, this Agreement against any shareholder, employee, officer, director or agent of the other party. Each of such persons is an intended beneficiary of the mutual promises set forth in this Section and shall be entitled to enforce the obligations or provisions of this Section. 6.09 Attorneys' Fees. Subject to Sections 3.02 and 6.19 , in the event any suit or action is brought by a party under this Agreement to enforce any of its terms, or in an appeal therefrom, the prevailing party will be entitled to have the other party pay its reasonable attorneys' fees, as fixed by the trial court and/or appellate court, whichever the case may be. 6.10 Damages; Limitation of Liability. Notwithstanding any provision of this Agreement to the contrary, neither party shall be liable to the other party for any loss of profits or indirect, incidental, consequential, punitive or exemplary damages of any type whatsoever arising under or related to this agreement. The parties expressly agree that damages of the types referenced in the immediately preceding sentence do not include damages for termination of contract provided under Section 4 of this Agreement. The parties further agree that no claim for losses or damages whatsoever in connection with this Agreement shall be made more than two (2) years after the date that the event giving rise to such claim is known or reasonably should have been known to the party making such claim. 6.11 Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument. 6.12 Severability. In the event that any provision of this Agreement is held unenforceable or invalid, the remainder of the Agreement shall remain in full force and effect, Amended and Restated Agreement Page 9 of 28 As of September 11, 2002 and that the unenforceable or invalid provision be replaced with a reasonable provision that most closely reflects the intention of the parties. 6.13 Governing Law. This Agreement shall be governed by the laws of the State of Nevada, without reference to conflicts of law principles. 6.14 SPC's Representations and Warranties. SPC represents and warrants that: (a) SPC is a corporation duly organized, validly existing and in good standing under the Laws of its state of incorporation. SPC has full power and lawful authority to enter into this Agreement and consummate the transactions contemplated by this Agreement. (b) As of the Acceptance Date, SPC has good and marketable title to the personal property which comprises the Conduit System, free and clear of all liens, claims and encumbrances. (c) To the best of SPC's knowledge and except as otherwise set forth in Exhibit G, neither SPC nor the Conduit System is subject to any pending or threatened litigation, proceeding or administrative investigation. (d) To the best of SPC's knowledge and as of the Acceptance Date, the Conduit System complies with all applicable laws. (e) As of the Acceptance Date, there are no parties in possession of any of the Conduit System, and there are no other rights of possession to or use of the Conduit System which have been granted to any third party or parties, except where access is commonly shared by SPC and other telecommunications facility users and collocators within the Right of Way along the Route. (f) As of the Acceptance Date SPC has not granted to any party any option, contract or other agreement with respect to the purchase or sale of the Conduit System. (g) To the best of SPC's knowledge, there are no pending or threatened condemnations or similar proceedings affecting any of the Conduit System and, to the best of SPC's knowledge, no such proceeding is contemplated by any governmental authority. SPC has no knowledge i) that the Conduit System is situated within any special assessment district, or ii) of any proposal under which the Conduit System is to be placed in any such special assessment district. (h) To the best of SPC's knowledge and provided Qwest performs its transactional and continuing obligations under this Agreement, the entering into and consummation of the transactions contemplated hereby will not conflict with or, with or without notice or the passage of time or both, constitute a default under, any contract, lease or other agreement, including, without limitation, the contracts to which SPC is a party or by which SPC may be bound or any laws affecting SPC or the Conduit System. This Agreement and all documents referenced herein to be executed by SPC are and shall be valid and legally binding obligations of SPC. Amended and Restated Agreement Page 10 of 28 As of September 11, 2002 (i) To the best of SPC's knowledge, (i) all representations and warranties made by SPC in this Agreement, and all information contained in any statement, document or certificate furnished to Qwest in connection with this transaction, are free from any untrue statement of material fact and do not omit to state any material facts necessary to make the statements contained herein or therein not misleading; and (ii) the copies of any documents furnished to Qwest in connection with this transaction are true and complete copies of the documents they purport to be. Each of the representations and warranties of SPC contained in this Agreement are acknowledged by SPC to be material and to be relied upon by Qwest in proceeding with this transaction, shall be deemed to have been remade by SPC as of the Acceptance Date and shall survive the Acceptance Date. 6.16 Qwest's Representations and Warranties. Qwest represents and warrants that: (a) Qwest is a corporation duly organized, validly existing and in good standing under the Laws of its state of incorporation, and has or will have the corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. Prior to the date of execution of this Agreement, this Agreement will have been duly authorized by all necessary corporate action on the part of the Qwest. This Agreement constitutes the legal, valid and binding obligation of Qwest, enforceable against Qwest in accordance with its terms. (b) No third party approval or consent is required to enter into this Agreement or the documents referenced herein or to consummate the transactions contemplated hereby. To the best of Qwest's knowledge, the entering into and consummation of the transactions contemplated hereby will not conflict with or, with or without notice or the passage of time or both, constitute a default under, any contract, lease or other agreement, including, without limitation, the contracts to which Qwest is a party or by which Qwest may be bound or any laws affecting Qwest. This Agreement and all documents referenced herein to be executed by Qwest are and shall be valid and legally binding obligations of Qwest. (c) All representations and warranties made by Qwest in this Agreement, and all information contained in any statement, document or certificate furnished to SPC in connection with this transaction, are free from any untrue statement of material fact and do not omit to state any material facts necessary to make the statements contained herein or therein not misleading. The copies of any documents furnished to SPC in connection with this transaction are true and complete copies of the documents they purport to be. Each of the representations and warranties of Qwest contained in this Agreement are acknowledged by Qwest to be material and to be relied upon by SPC in proceeding with this transaction, shall be deemed to have been remade by Qwest as of the Acceptance Date and shall survive the Acceptance Date. 6.17 Conditions to Qwest's Obligations. Qwest's obligations under this Agreement are subject to the satisfaction, on the Acceptance Date, of each of the following conditions, any of which may be waived in writing by Qwest: Amended and Restated Agreement Page 11 of 28 As of September 11, 2002 (a) SPC will have fully complied with and performed all of its obligations under this Agreement. (b) All representations of SPC in this Agreement will be true and complete as of the date when given and on the Acceptance Date. (c) All consents, approvals and waivers required to consummate the transactions contemplated by this Agreement will have been obtained in writing by SPC. 6.18 Conditions to SPC's Obligations. SPC's obligations under this Agreement are subject to the satisfaction, on the Acceptance Date, of each of the following conditions, any of which may be waived in writing by SPC: (a) Qwest will have fully complied with and performed all of its obligations under this Agreement. (b) All representations of Qwest in this Agreement will be true and complete as of the date when given and on the Acceptance Date. (c) All consents, approvals and waivers required to consummate the transactions contemplated by this Agreement will have been obtained in writing by Qwest. 6.19 Risk of Loss. If, prior to the Scheduled Completion Date, the Conduit System or any portion thereof is destroyed by any casualty or is the subject of a taking, SPC may repair or replace the affected potion of the Conduit System and, in such event, all the terms and conditions of this Agreement shall remain in full force and effect. If SPC chooses not to repair the Conduit System, then Qwest will have the option, to be exercised within twenty (20) days following the date on which SPC notifies Qwest in writing that it will not repair or replace the affected portion of the Conduit System, to (a) terminate this Agreement and receive from SPC, within ten (10) days of providing SPC with notice of such termination, any portion of the Purchase Price which Qwest paid to SPC as of the date of the destruction or taking, or (b) deduct from the Purchase Price the value of that portion of the Conduit System which was so destroyed or taken as is mutually agreed to by Qwest and SPC or, in the event of disagreement, the amount determined by an arbitrator or appraiser mutually agreeable to Qwest and SPC, and to otherwise consummate this transaction. 6.20 Dispute Resolution. Except for an action seeking a temporary restraining order or injunction, or suit to compel compliance with this dispute resolution process, the Parties agree to exclusively use the dispute resolution procedures set forth in this Section 6.20 with respect to any controversy or claim arising out of or relating to this Agreement. For a period of forty-five (45) days after notice from either Party, the Parties shall attempt in good faith to resolve the dispute by direct negotiation of representatives of the Parties. If the Parties do not resolve the dispute within such period, such dispute shall be resolved by arbitration in a location agreed to by the parties and in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The Federal Arbitration Act, 9 U.S.C. Section 1-15, not state law, shall govern the arbitrability of all claims, the arbitration shall be held in the jurisdiction of the Party against whom the arbitration is filed Judgment on any award rendered by the arbitrator under this Amended and Restated Agreement Page 12 of 28 As of September 11, 2002 Section may be entered in any court having jurisdiction thereof. No award rendered under this Section, shall include indirect, consequential, special or punitive damages. If any party files a judicial or administrative action asserting claims subject to arbitration as prescribed herein, and another party successfully stays such action or compels arbitration of said claims, the party filing said action shall pay the other party's costs and expenses incurred in seeking such stay or compelling arbitration, including reasonable attorneys' fees. 6.21 Force Majeure. Neither party shall be liable to the other party, and each party's performance under this Agreement shall be excused, if and to the extent that any failure or delay in such party's performance of one or more of its obligations hereunder is caused by any of the following conditions, and such party's performance of such obligation or obligations shall be excused and extended for and during the period of any such delay: act of God; fire; flood; fiber, cable, conduit, or other material failures, shortages or unavailability or other delay in delivery not resulting from the responsible party's failure to timely place orders therefor; lack of or delay in transportation; the effect of applicable laws, or the imposition of any governmental codes, ordinances, laws, rules, regulations or restrictions, or delay in governmental authorizations; war or civil disorder; strikes or other labor disputes; failure of a third party to grant or recognize an underlying right (provided that SPC has made timely and reasonable commercial efforts to obtain the same); or any other cause beyond the reasonable control of such party. The party claiming relief under this Section shall notify the other in writing of the existence of the event relied on and the cessation or termination of said event, and the party claiming relief shall exercise reasonable commercial efforts to minimize the time of any such delay. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first written above. QWEST COMMUNICATIONS SIERRA PACIFIC COMMUNICATIONS CORPORATION By: __________________________________ By:_______________________________ Name: ________________________________ Name: RICHARD J. COYLE, JR. Title: _______________________________ Title: President Amended and Restated Agreement Page 13 of 28 As of September 11, 2002 EXHIBIT A MAP OF THE RIGHT-OF-WAY [GRAPHIC] Amended and Restated Agreement Page 14 of 28 As of September 11, 2002 EXHIBIT B THE CONDUIT SYSTEM VERDI, NEVADA TO SACRAMENTO, CALIFORNIA This portion of the route consists of approximately 131 miles (691,680') in length. The telecommunications system along the route from the Union Pacific Railroad milepost 227, approximately 8/10 of a mile east of the California - Nevada State Line near Verdi Nevada to Hirshdale Road UPRR MP 218.3, approximately 11 miles (58,080'). From Hirshdale Road to West Truckee, approximately 16.5 miles (87,120'). West Truckee to Soda Spring, approximately 6.8 miles (35,904'). Soda Springs to Cisco Grove approximately 9.1 miles (48,048'). Cisco Grove to Blue Canyon approximately 12 miles (63,360'). Blue Canyon to Colfax UPRR MP 142, approximately 21 miles (110,880'). UPRR MP 142 to Sacramento UPRR MP 89 approximately 53.7 mile (283,536'). Sacramento UPRR MP 89 to 1005 North B Street approximately 1 mile (5280'). RENO METRO The fiber optic cable line will start .8 of a mile from the California border into Nevada and ties in with a Williams handhole between UPRR and 1-80 and ends at the Wells Fargo building at 200 South Virginia Street. Phase II begins at 200 South Virginia Street, Wells Fargo building, and ends at South Meadows Parkway. LONG HAUL The fiber optic cable line will start at the intersection of South Meadows Parkway and South Virginia Street in Reno and follow the highway right-of-way south from Reno along U.S. highway 395 to East Lake Boulevard. From East Lake Boulevard, the cable will continue southward along a corridor to Goni Road and then to Arrowhead Drive in Carson City. At Arrowhead Drive it will head eastward to US Highway 50 and continue east crossing the rest of Nevada, passing through the cities of Fallon, Austin, Eureka, and Ely and continuing into Delta Utah. At Delta the route would follow US Highway 6 northeastward to State Route 132 In Lynndyl, Utah. At State Route 132 the cable would continue northeast to just west of Nephi, Utah, where it would intersect State Route 91. On State Route 91 the fiber optic cable would continue northward through Mona to Santaquin, Utah. The cable would then head northeast, following side roads and a portion of State Route 115 on the west side of Interstate 15 (1-15). Just north of Spanish Fork the fiber optic cable would cross under 1-15 and tie in with another fiber optic cable system on 4800 South, approximately 0.2 miles east of 1-15. The route would then continue north on I-15 to Provo, UT, run along city streets into the Provo POP located at the corner of East 100 and North 100, then along city streets to I-15, then north on I-15 to the vicinity of the Bangerter Highway, north to west 700 south, along city streets to 161 Regent Street, north on Regent Street to the termination point at 100 South State Street. CALIFORNIA - - Verdi Nevada on UPRR MP 227 to MP 218.3 at Hirshdale Rd. spread 5.1. - - Hirshdale Rd. to West Truckee, spread 5.2. - - West Truckee to Soda Springs, spread 5.3 - - Soda Springs to Cisco Grove, spread 5.4 - - Cisco Grove to Blue Canyon, spread 5.5 Amended and Restated Agreement Page 15 of 28 As of September 11, 2002 - - Blue Canyon to Colfax UPRR MP 142, spread 5.6 - - Colfax UPRR MP 142 to Sacramento UPRR 89, spread 6 - - Sacramento UPRR 89 to 1005 North "B" Street, Sacramento Ca, spread 7 NEVADA - - Reno Metro, Phase 1 is approximately 74,406 feet - - Phase 2 is approximately 51,069 feet. - - Spread 1, South Meadow Parkway to Lyon County line Is approximately 321,496 feet. - - Spread 2, Churchill County line to the Lander County line is approximately 567,791 feet. - - Spread 3, Lender County line to the White Pine County line is approximately 578,458 feet. - - Spread 4, White Pine County to Utah border is approximately 702,319 feet. UTAH - - Spread 5, Millard County at the Nevada/Utah border to Juab County line is approximately 616,238 feet. - - Spread 6, Juab County line to north of Spanish Fork approximately 0.2 miles east of 1-15 end is approximately 355,097 feet. - - Spanish Fork to Provo, UT approximately 7.95 miles (42,000 feet). - - Provo north to Salt Lake City, UT approximately 59.14 miles (312,265 feet). Amended and Restated Agreement Page 16 of 28 As of September 11, 2002 EXHIBIT C BILL OF SALE KNOW ALL MEN BY THESE PRESENTS that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Sierra Pacific Communications, a Nevada corporation ("SPC"), does hereby sell, transfer, and convey to Qwest Communications Corporation, a Delaware corporation ("Qwest"), all right, title and interest in the following personal property: (i) one (1) one-and-one-quarter inch (1.25") conduit of approximately one hundred forty-six (146) miles in length between Sacramento, California and Reno, Nevada; (ii) one (1) two inch (2") conduit of approximately three hundred fifty (350) miles in length between Reno, Nevada and Ely, Nevada; (iii) one (1) two inch (2"") conduit of approximately three hundred sixteen (316) miles in length between Ely, Nevada and Salt Lake City, Utah; (iv) together with the associated vaults, handholes and manholes, and other related facilities within the Route as set forth in Exhibit B (the "Conduit System"), installed on approximately 812 miles between Sacramento, CA and Salt Lake City, Utah and as more particularly described in the Amended and Restated Agreement for Construction and Sale of a Conduit between the SPC and Qwest dated September 4, 2002. SPC hereby warrants to Qwest that good and clear title to the personal property that comprises the Conduit System is hereby vested in Qwest free and clear of all liens, claims, encumbrances and rights of others. IN WITNESS WHEREOF, SPC has caused this Bill of Sale to be executed and delivered in its name this ____ day of _______, 2003. SIERRA PACIFIC COMMUNICATIONS ("SPC") By: ________________________________ Name: ______________________________ Title: _____________________________ Date: ______________________________ Amended and Restated Agreement Page 17 of 28 As of September 11, 2002 EXHIBIT D NDOT FORM RELEASE LANGUAGE IRU Grantee acknowledges and agrees that neither NDOT, nor its representatives, agents, servants, and/or employees is responsible for the continuing Operation and Maintenance of the System and the IRU Grantee's IRU Fibers. Neither NDOT, its representatives, agents, servants, and/or employees shall be responsible or liable for any damage to, or interruption of the Operational status of IRU Grantee's network and/or the IRU Fibers, provided, however, that in the event that Maintenance on the IRU Fibers is required due to the supervening negligence or willful misconduct of NDOT, its representatives, agents, servants of employees, the reasonable costs and expenses of such Maintenance work shall be borne by NDOT, subject to any limitations set forth in the Permittee Agreement between NDOT and SPC. IRU Grantee understands and agrees that the Installation of the IRU Fibers and the System is within a public highway environment and therefore subject to the inherent dangers of such environment including, without limitation damage to the IRU Fibers resulting from traffic accident or construction along the ROW. IRU Grantee agrees to release, remise and forever discharge NDOT, its representatives, agents, servants, and employees from any liability associated with or relating to damage to, or interruption of the Operational status of, the System and/or the IRU Fibers, whether or not the proximate cause of such damage or interruption was the negligence of NDOT, representatives, agents, servants, and/or employees, including, without limitation, liability for incidental or consequential damages and/or loss of business or business revenue; provided, however, that in the event that Maintenance on the IRU Fibers is required due to the supervening negligence or willful misconduct of NDOT, its representatives, agents, servants or employees, the reasonable costs and expenses of such Maintenance work shall be borne by NDOT, subject to the limitations set forth in the Permittee Agreement between NDOT and SPC. Amended and Restated Agreement Page 18 of 28 As of September 11, 2002 EXHIBIT E COMPLETION DATES
ROUTE STATUS CONDUIT INSTALLATION: STATUS EST. COMPLETION Sacramento to Reno Complete South Meadows - Lyon/Churchill 79.7% complete 10-30-02 Churchill County NV 98.5% complete 10-30-02 Lander & Eureka Counties, NV 94% complete 10-30-02 White Pine county, NV 87% complete 10-30-02 Millard County, UT 99.1% Complete 10-30-02 Juab & Utah Counties, UT 98% complete 10-30-02 Spanish Fork - Bangerter UT 0.0% complete 11-31-02 I15 - Provo POP, UT 0.0% complete 12-31-02 Provo, UT - SLC 0.0% complete 01-31-03
Amended and Restated Agreement Page 19 of 28 As of September 11, 2002 EXHIBIT F MAINTENANCE SPECIFICATIONS AND PROCEDURES 1. DEFINITIONS: Terms used in this exhibit are defined in the Agreement and as follows: Agreement: The Agreement between Qwest Communications ("CUSTOMER") and Sierra Pacific Communications, the Service Provider ("SP") Cable Relocation: The physical relocation of the System, which may be required by public (e.g., city or state government) or private entities. Facilities: All physical building spaces, including but not limited to regenerator huts, terminal offices, terminal huts, and manholes, where the System is present along the Route. Maintenance Activity: All work activities as defined in Section 2 of this Schedule. Method of Procedure (MOP): The plan developed by the SP, which details the activities, required to be followed during work activities near or on the System. One-Call Agency: Each state has a state run agency established by the state for anyone (including but not limited to contractors) to call a pre-designated phone number to report potential intrusions to the System. Every state has its own One-Call Agency. Operations Center (OC): The facility or facilities, along with the personnel and other assets required to monitor, communicate, coordinate, restore, repair, and perform all Maintenance Activity. Planned Cable Activity (PCA) : Any planned conduit activity, including activities that do not impair the conduit as well as activities that do impair the conduit, that could potentially affect SP's service of the System. Planned System Work Period (PSWP): A pre-arranged period of time reserved for performing certain work on the System that may potentially impact traffic. Generally, this will be restricted to weekends, avoiding the first and last weekend of each month and high-traffic weekends. The PSWP shall be agreed upon per this Exhibit C of this Agreement. Restoration, Total (Total Restoration): A condition whereby the conduit cannot carry service along one or more Route Segment(s) or Route Section(s) on a Link(s). An example of this condition is a backhoe severing the conduit. Service Acceptance Date: The date that the Customer accepts the System and requires service on the System. 2. MAINTENANCE ACTIVITIES The following subsections describe the types of Maintenance Activities that must be performed. All Maintenance Activity types described below shall be performed by or under the direction of the SP. Amended and Restated Agreement Page 20 of 28 As of September 11, 2002 For all Maintenance Activities, CUSTOMER may contact SP at any time to discuss fiber status or to notify SP of changes in status or any other issues which require action by the SP. However, no other party, including but not limited to a lessee of the CUSTOMER's conduit (i.e. CUSTOMER subleases its conduit to a third party), shall call the SP for anything related to CUSTOMER's conduit without the written agreement of both the CUSTOMER's and SP's escalation lists (Attachment 2) Tier 3 representative. It is the intention of this Agreement that any lessee of fibers in the conduit coordinate all problems and issues solely with the originating party of the Disposition. Parties have the right to review each other's maintenance standards, which include preventative maintenance procedures, Planned Cable Activity procedures, and cable restoration procedures. SP shall notify CUSTOMER at least ten (10) business days prior to the date in connection with any Planned System Work Period (PSWP) of any Maintenance Activity and as soon as possible after becoming aware of the need for unscheduled maintenance. CUSTOMER shall have the right to be present during the performance of any Maintenance Activity or unscheduled maintenance so long as this requirement does not interfere with SP's ability to perform its obligations under this Agreement. In the event that Maintenance Activity is canceled or delayed for whatever reason as previously notified, SP shall notify CUSTOMER at SP's earliest opportunity, and will comply with the provisions of the first sentence of this paragraph to reschedule any delayed activity. Preventative maintenance will be performed according to the SP's standards. Each SP's maintenance standards must include the following: 2.1. Consistent with Transportation Equity Act 21 (TEA21) Best practices, the SP will: - Subscribe to each and all One-Call Agencies that govern Route Segment(s), Route Section(s) or Link(s) they maintain. - Abide by all state One-Call Agency laws - Respond to all locate requests. - Analyze, assign, and dispatch locate request to SP's qualified technicians 2.2. The SP will positively respond to excavation activity notifications as follows: - ------------------------------------------------------------------------ Locate and Mark Cable Within fifty (50) feet of System - ------------------------------------------------------------------------ Locate, Mark, and Standby to Within ten (10) feet of System protect conduit - ------------------------------------------------------------------------ Positive confirmation of the Within eighteen (18)inches either location of the Customer's Conduit side of System will be done through various means (e.g. Potholing) to ensure that Customers' cable is not damaged - ------------------------------------------------------------------------
2.3. Positively respond to boring operations as follows: - ------------------------------------------------------------------------ Standby and monitor the boring Within one hundred (100) feet operation to ensure the cable of System is not damaged. (Potholing, etc. as required) - ------------------------------------------------------------------------
Amended and Restated Agreement Page 21 of 28 As of September 11, 2002 2.4. Route Patrol Patrol the route by a qualified technician in accordance with the current SP's procedures for maintenance a minimum of four (4) times a year. This "patrol" will consist of riding the route to identify potential maintenance issues (e.g. erosion, encroachments, damaged or missing signs, etc.). 2.5. Signs The SP will routinely replace signs that are damaged. 2.6. Right Of Way Maintenance Brush, trees and/or other vegetation should be trimmed to the edge of the ROW as required to support ROW accessibility and worker safety. Under no circumstances should prevailing growth exceed 30 inches in height or lower if it obstructs signage visibility. Ongoing trimming of the ROW communicates a message to others that the underground plant exists in the right of way and that the SP cares about it. As such, ROW-clearing and trimming serves as a crucial part of the overall right-of-way maintenance effort to enhance plant protection. At a minimum ROW maintenance must comply with local, state, and federal requirements. 2.7. Voltage Suppressor / Arrestor Wherever the cable sheath voltage exceeds 50v AC, voltage suppressers or arrestors shall be installed by Customer at the splice points and regenerator locations. 2.8. Planned Cable Activity A Planned Cable Activity (PCA) is any activity, which can be planned in advance (i.e., not an emergency) that will cause maintenance personnel to physically move the conduit. There are two types of PCAs: intrusive and non-intrusive. 2.9. Intrusive PCAs An intrusive PCA is an activity where the SP will expose the buffer tube. Examples: - installation of insulating joints / isolation closures, - reroutes / cutovers / hot cuts Intrusive PCAs must be performed from 6pm to 6am local time Monday through Friday or any time during the weekends, excluding holidays. If exceptions are required to these times, including holidays, utilize the escalation list. 2.10. Non-Intrusive PCAs Examples of non-intrusive PCAs are as follows: - conduit lowering or rearrangements - conduit or manhole rearrangements Non-intrusive PCAs can be performed anytime. Amended and Restated Agreement Page 22 of 28 As of September 11, 2002 For ALL PCAs, the SP must notify the CUSTOMER at least fourteen (14) calendar days prior to the activity. For PCA activity that will result in signal discontinuity, the following process will be performed: - AT LEAST FOURTEEN (14) CALENDAR DAYS IN ADVANCE: SP shall provide a copy of its Method of Procedure (MOP) in writing to CUSTOMER and will notify CUSTOMER of this PCA per escalation list. - AT LEAST TEN (10) CALENDAR DAYS IN ADVANCE: After receipt of SP's MOP, CUSTOMER then will provide a copy of its MOP to the SP that incorporates the switching, verification, identification, and testing of CUSTOMER's fibers. - AT THE TIME OF THE PCA: The SP and CUSTOMER shall maintain communication via phone for the entire execution of the event. CUSTOMER shall coordinate the execution of CUSTOMER's MOP with SP. - If for any reason any PCA is canceled or delayed, then SP shall notify CUSTOMER as soon as SP is aware of the change, and SP will reschedule the activity. 2.11. Cable and Conduit Restoration The SP will respond to all CUSTOMER's notifications indicating any failure, any interruption, or any impairment to the CUSTOMER's conduit System. 2.12. Restoration The SP shall notify CUSTOMER of the cable cut, per the escalation list, including the time of the conduit cut, and the Route Section as soon as possible, but no later than 15 minutes from the time the cut occurs. Once this information is provided to the CUSTOMER, the SP shall establish a communications bridge with the CUSTOMER and stay in constant communication throughout the cable cut. The SP shall notify the CUSTOMER of the physical location of the conduit cut as soon as possible but no later than 90 minutes from the time the cable cut occurs. For every total cable cut, SP shall respond immediately after receiving notification with a goal of restoring CUSTOMER's conduit in six (6) hours from the time of the cable cut. The only exception to this response time is when an uncontrolled incident, such as a flood, a chemical spill, a fire, a bridge collapse, a riot, or other circumstance prevents access to the damage area. To accomplish this conduit restoration, it is acknowledged that the repairs so affected may be temporary in nature. In such event, within twenty-four (24) hours after completion of all temporary Restoration activity, SP shall commence its planning for permanent repair, and thereafter promptly shall notify CUSTOMER of such plans. If the SP informs the CUSTOMER that the temporary conduit repair cannot be made permanent immediately, then the permanent repair shall be mutually agreed upon by both parties. The parties agree to mutually support each other during restoration activities. In the event the restoration cable is exposed above ground, the SP must provide on-site personnel for conduit protection. Amended and Restated Agreement Page 23 of 28 As of September 11, 2002 2.13. Conduit Damage and Restoration The SP will respond to all notifications indicating any damage to the Conduits in the System. The CUSTOMER will affect repairs to the conduit immediately in occupied conduit or as soon as commercially reasonable and practical in the case of damaged empty conduit. The trench will be back filled using approved materials appropriate to the field conditions. Restoration standards will be at least as found prior to the excavation or better. Verification of continuity of Dark Fibers shall be the responsibility of the CUSTOMER. 2.14. Hazardous Conditions / Service Precautions A hazardous condition or service precaution is when an event, such as flooding, fire, street collapse, cable wash-out or a man-made event such as a train derailment occurs, and there is an increased probability that the System may be damaged, and maintenance activity is needed to prevent any potential damage. For these events SP shall notify CUSTOMER, per escalation list, as soon as the SP knows of such event. The SP shall establish a communications bridge for these events and stay in constant communication. 2.15. Disaster Recovery Disaster recovery is any event that affects service on the System and involves significantly more maintenance activity than just a cable restoration. Examples of disaster recovery are as follows: - train derailment occurs, which by itself would be a hazardous condition, but for this example it destroys a regeneration site, or - the cable at a bridge is washed out and restoration involves deploying several miles of cable to restore service. For these events SP shall notify CUSTOMER, per escalation list, as soon as the SP knows of such event. The SP shall establish a communications bridge for these events and stay in constant communication. The parties agree to mutually support each other during disaster recovery activities. Examples of support may include providing fault locating, splicing, or running cable. All support is at the discretion of the SP -- meaning that the SP shall have its crew performing disaster recovery and may accept and direct the support from the CUSTOMER if the CUSTOMER offers such support. 3. OPERATIONS / NETWORK CONTROL CENTER(S) 3.1. Operations / Network Control Centers The terms Operations Center and Network Control Center are synonymous, and will be called Operations Centers for the remainder of this Schedule. SP shall operate and maintain an Operations Center (OC) staffed twenty-four (24) hours a day, seven (7) days a week including all holidays. The OC shall be staffed by trained and Amended and Restated Agreement Page 24 of 28 As of September 11, 2002 qualified personnel. SP's maintenance personnel shall be available for dispatch twenty-four (24) hours a day, seven (7) days a week. 4. ESCALATION LIST An escalation list (Attachment 1) will be shared between the parties. This list shall provide for coordination between SP and CUSTOMER for day-to-day issues, coordination of all Maintenance Activity communication and coordination, as well as escalation personnel in the event agreement cannot be reached at the lowest level of the escalation list. This escalation list may be modified by either party at any time if the party making the change notifies the other party in writing twenty-four (24) hours in advance of the change. The escalation's Tier 1 contact shall be the day-to-day working level, which shall address daily maintenance operations activities. 5. FACILITIES Except to the extent otherwise expressly provided in the Agreement, CUSTOMER will be solely responsible for providing and paying for any and all maintenance of all electronic, optical, and any other equipment, materials and facilities used by CUSTOMER in connection with the operation of the Dark Fibers, none of which is included in the maintenance services to be provided hereunder. Each party agrees that the Facilities shall be placed and maintained in accordance with the requirements and specifications of current editions of the National Electrical Code and the National Electrical Safety Code, the applicable rules and regulations of the Occupational Safety and Health Act (including those of 29 C.F.R. Section 1910.268(a) et seq.) and the requirements of any other authority having jurisdiction. Each party shall promptly furnish to each other, but in no case later than twenty-four (24) hours, copies of all notices, reports, correspondence, submissions, made by either party to federal, state, or municipal environmental, safety, or health authorities. Each party agrees that Facilities shall not physically, electronically or inductively interfere with those of facilities in place. 6. COVERAGE PERIOD Maintenance will be performed for agreed upon Route Segment(s) or Route Section(s) on a Link(s) commencing upon the Service Acceptance Date, and conclude upon expiration or termination of the Agreement. 7. SUBCONTRACTING The SP may subcontract any Maintenance Activities herein, provided the SP shall require the subcontractor(s) to perform in accordance with the Agreement. The use of any such subcontractor shall not relieve SP of any of its obligations herein. Amended and Restated Agreement Page 25 of 28 As of September 11, 2002 8. ESCALATION LISTS 1. Touch America 24 by 7 NOC 877-638-6621 2. Transport Manager - Tom Good 3. NOC Director - Jonathan Strong 4. Director, Field Operations - Jerry Piazzola 5. Vice President, Networks - Kevin Dennehy Amended and Restated Agreement Page 26 of 28 As of September 11, 2002 EXHIBIT G LITIGATION 1. Bayport Pipeline, Inc. v. STA and Mastec North America, Inc.; Case No. CV-02-0187-HDM (VPC); United States District Court for the District of Nevada; alleged breach of contract action. 2. TI Energy Services, Inc. v. STA; Cause No. 2001-59361; Harris County, Texas; 164th Judicial District; alleged breach of contract action. 3. Cleveland Inspection Services, Inc. v. Sierra Pacific Communications and Touch America, Inc.; Cause No. 0020905259; Salt Lake City, UT; lien foreclosure action. 4. Sorensen Construction, Inc. v. STA; Cause No. 020901281; Salt Lake City, UT; lien foreclosure action. 5. Adesta Bankruptcy - includes Adesta facilities in Bangerter Hwy and I15 in Utah Amended and Restated Agreement Page 27 of 28 As of September 11, 2002 EXHIBIT H REGENERATION/AMP SITES IN NEVADA AND UTAH Moundhouse, NV Lahontan, NV Salt Wells, NV Edwards Creek, NV Cape Horn, NV Eureka, NV Moorman, NV Ely, NV Dry Gulch, NV Dog Valley, UT Hinkley, UT Amended and Restated Agreement Page 28 of 28 As of September 11, 2002 EX-99.1 12 b44528spexv99w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the combined Quarterly Report of Sierra Pacific Resources, Nevada Power Company and Sierra Pacific Company (the "Companies") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Walter M. Higgins, III, Chief Executive Officer of the Companies, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) the combined Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the combined Report fairly presents, in all material respects, the financial condition and results of operations of the Companies. /s/ Walter M. Higgins, III - -------------------------------------- Walter M. Higgins, III Chief Executive Officer November 14, 2002 This Certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. EX-99.2 13 b44528spexv99w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the combined Quarterly Report of Sierra Pacific Resources, Nevada Power Company and Sierra Pacific Company (the "Companies") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dennis Schiffel, Chief Financial Officer of the Companies, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Companies. /s/ Dennis Schiffel - ------------------------------- Dennis Schiffel Chief Financial Officer November 14, 2002 This Certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----