<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 4, 1994
REGISTRATION NO. 33-52439
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CALIFORNIA ENERGY COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2213782
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION)
----------------
10831 OLD MILL ROAD
OMAHA, NEBRASKA 68154
(402) 330-8900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
STEVEN A. MCARTHUR, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
CALIFORNIA ENERGY COMPANY, INC.
10831 OLD MILL ROAD
OMAHA, NEBRASKA 68154
(402) 330-8900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
WITH A COPY TO:
PETER J. HANLON, ESQ. STACY J. KANTER, ESQ.
WILLKIE FARR & GALLAGHER SKADDEN, ARPS, SLATE, MEAGHER & FLOM
ONE CITICORP CENTER 919 THIRD AVENUE
153 EAST 53RD STREET NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10022 (212) 735-3000
(212) 821-8000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject To Completion, Dated March 4, 1994
PROSPECTUS
LOGO OF CALIFORNIA ENERGY COMPANY INC.
$
CALIFORNIA ENERGY COMPANY, INC.
% SENIOR DISCOUNT NOTES DUE 2004
------------
The issue price of the % Senior Discount Notes due 2004 (the "Notes") being
offered hereby (the "Offering") by California Energy Company, Inc. (the
"Company") will be $ per $1,000 principal amount at maturity (the "Issue
Price") ( % of the principal amount at maturity). The Notes will be offered at
a substantial discount from their principal amount and will provide gross
proceeds of approximately $400,000,000 to the Company. The Notes will mature on
January 15, 2004. The Issue Price of each Note represents a yield to maturity
of % (computed on a semi-annual bond equivalent basis) calculated from ,
1994. Cash interest will not accrue on the Notes prior to January 15, 1997.
Commencing July 15, 1997, cash interest on the Notes will be payable on January
15 and July 15 of each year at a rate of % per annum. See "Description of the
Notes" and "Certain Federal Income Tax Considerations."
The Notes will be redeemable, at the option of the Company, at any time, in
whole or in part, on or after January 15, 1999, at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, to the date of
redemption. See "Description of the Notes--Optional Redemption." In addition,
in the event of a Change of Control (as defined), each holder of the Notes (a
"Holder") will have the right to require the Company to repurchase all or any
part of such Holder's Notes at a repurchase price equal to 101% of the Accreted
Value (as defined) thereof, plus accrued and unpaid interest, if any, to the
date of repurchase. See "Description of the Notes--Certain Covenants--Purchase
of Notes Upon a Change of Control."
The Notes will be senior unsecured obligations of the Company ranking pari
passu in right of payment of principal and interest with all other existing and
future senior unsecured obligations of the Company and will rank senior to all
other existing and future subordinated debt of the Company. The provisions of
the indenture pursuant to which the Notes will be issued will permit the
Company's subsidiaries, and certain joint ventures in which the Company will
own a significant interest, to incur substantial indebtedness which would be
effectively senior to the Notes.
------------
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount Price to Underwriting Proceeds to
at Maturity Public(1) Discount(2) Company(3)
- --------------------------------------------------------------------------------
- -
<S> <C> <C> <C> <C>
Per Note.................... 100.0% % % %
- --------------------------------------------------------------------------------
- -
Total....................... $ $ $ $
- --------------------------------------------------------------------------------
- -
</TABLE>
- --------------------------------------------------------------------------------
(1) Plus accrued original issue discount, if any, from , 1994.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
------------
The Notes offered by this Prospectus are offered by the Underwriters subject
to prior sale, withdrawal, cancellation or modification of the offer without
notice, to delivery to and acceptance by the Underwriters and to certain other
conditions. It is expected that delivery of the Notes will be made at the
office of Lehman Brothers Inc., New York, New York, on or about March , 1994.
------------
LEHMAN BROTHERS
SALOMON BROTHERS INC
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
March , 1994
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the Commission located at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
materials can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such
reports, proxy statements and other information can also be inspected at the
offices of the New York Stock Exchange at 20 Broad Street, New York, New York
10005, and at the offices of the Pacific Stock Exchange at 301 Pine Street,
San Francisco, California 94104 and 233 South Beaudry Avenue, Los Angeles,
California 90012, on which the Company's common stock is listed and traded.
The Company has filed with the Commission a Registration Statement on Form
S-3 (which, together with all amendments and exhibits thereto, is referred to
herein as the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Notes offered hereby. This
Prospectus does not contain all information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Notes offered hereby, reference is made to the Registration
Statement, including the exhibits filed or incorporated by reference as a part
thereof. Statements contained herein concerning the provisions of documents
filed with, or incorporated by reference in, the Registration Statement as
exhibits are necessarily summaries of such documents and each such statement
is qualified in its entirety by reference to the copy of the applicable
documents filed with the Commission.
The Company's principal executive offices are located at 10831 Old Mill
Road, Omaha, Nebraska 68154, and its telephone number is (402) 330-8900. The
Company was incorporated in 1971 under the laws of the State of Delaware.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are hereby incorporated by reference to File No. 1-9874:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1993, June 30, 1993 and September 30, 1993.
3. The Company's Current Reports on Form 8-K dated April 6, 1993, April 20,
1993, May 3, 1993, June 18, 1993, June 29, 1993, August 12, 1993,
September 28, 1993, November 1, 1993 and December 1, 1993.
4. The Company's Registration Statement on Form 8-A dated July 28, 1993.
2
<PAGE>
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act prior to the termination of the Offering shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of the filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom this Prospectus is delivered, on the written or oral request of such
person, a copy of any and all of the documents incorporated by reference in
this Prospectus (other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference into the documents that this
Prospectus incorporates). Written or oral requests for such copies should be
directed to the Chief Financial Officer, California Energy Company, Inc., 10831
Old Mill Road, Omaha, Nebraska 68154, telephone number (402) 330-8900.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Certain
capitalized terms used but not defined in this summary are used herein as
defined elsewhere in this Prospectus.
THE COMPANY
California Energy Company, Inc. (the "Company"), together with its
subsidiaries, is primarily engaged in the exploration for and development of
geothermal resources and the development, ownership and operation of
environmentally responsible independent power production facilities worldwide
utilizing geothermal resources or other energy sources, such as hydroelectric,
natural gas, oil and coal. The Company was an early participant in the domestic
independent power market and is now one of the largest geothermal power
producers in the United States. The Company is also actively pursuing
opportunities in the international independent power market. In the year ended
December 31, 1993, the Company had revenues of $149.3 million, net income of
$47.2 million, and as of that date, cash and investments at the Company level
of $127.8 million. Peter Kiewit Sons', Inc. ("Kiewit") is a 36.6% stockholder
(on a fully-diluted basis) in the Company and a participant in certain of the
Company's international private power projects.
Through its subsidiaries, the Company currently has significant ownership
interests in, and operates, four geothermal facilities that are qualified
facilities under the Public Utility Regulatory Policies Act of 1978 ("PURPA"),
which requires electric utilities to purchase electricity from qualified
independent power producers.
THE COSO PROJECT
Three of the Company's geothermal facilities, located together at the Naval
Weapons Center at China Lake, California (collectively, the "Coso Project"),
have an aggregate generating capacity of approximately 240 megawatts ("MW").
The Company is the managing general partner, operator and owner of an
approximately 50% interest in the Coso Project, which currently constitutes the
Company's primary source of revenues. Electricity generated by the Coso Project
is sold pursuant to three long-term "Standard Offer No. 4" contracts (the "SO4
Agreements") to Southern California Edison Company ("SCE"). In 1993, the Coso
Project achieved record MW production results and received the maximum level of
capacity and capacity bonus payments under the S04 Agreements.
OTHER DOMESTIC OPERATIONS AND DEVELOPMENT OPPORTUNITIES
The Company also owns and operates a 10 MW geothermal power plant located at
Desert Peak, Nevada, which is a qualified facility that sells power to Sierra
Pacific Power Company, and operates and owns a 70% interest in a geothermal
steam field at Roosevelt Hot Springs, Utah, which supplies 25 MW of geothermal
steam to Utah Power & Light Company under a 30-year steam sales contract.
Pursuant to a memorandum of understanding, the Company has commenced early
stage site work on a proposed 30 MW geothermal project at Newberry, Oregon (the
"Newberry Project"), which is expected to be completed in early 1997 and to be
wholly owned and operated by the Company.
Domestically, the Company plans to focus on developing and operating
geothermal power projects, an area in which the Company believes it has a
competitive advantage due to its geotechnical and project management expertise
and extensive geothermal leaseholdings. The Company intends to continue to
pursue geothermal opportunities in the Pacific Northwest where it has extensive
geothermal leaseholdings. In addition, the Company has diversified into other
environmentally responsible sources of power generation. The Company is
currently constructing a 50 MW natural gas fired cogeneration project in Yuma,
Arizona (the "Yuma Project"), which is expected to be wholly owned by the
Company and to sell electricity to San Diego Gas & Electric Company ("SDG&E")
under a 30-year power sales contract. The Company anticipates that this project
will be completed by mid-year 1994. The Company expects future diversification
through the selective acquisition of partially developed or existing power
generating projects and intends to maintain a significant equity interest in,
and to operate, the projects which it develops or acquires.
4
<PAGE>
INTERNATIONAL PROJECTS AND DEVELOPMENT OPPORTUNITIES
The Company presently believes that the international independent power
market holds the majority of new opportunities for financially attractive
private power development in the next several years. The Company is actively
pursuing selected opportunities in nations where power demand is high and the
Company's geothermal resource development and operating experience, project
development expertise and strategic relationships are expected to provide it
with a competitive advantage. The Company believes that the opportunities to
successfully develop, construct, finance, own and operate international power
projects are increasing as several countries have initiated the privatization
of their power generation capacity and have solicited bids from foreign
developers to purchase existing generating facilities or to develop new
capacity. Some of these countries, such as the Philippines and Indonesia, also
have extensive geothermal resources.
The Company has recently entered into international joint venture agreements
with Kiewit and Distral S.A. ("Distral"), two firms with significant power
plant construction experience, in an effort to augment and accelerate the
Company's capabilities in foreign energy markets. Joint venture activities with
Distral will be conducted in South America, Central America and the Caribbean
and joint venture activities with Kiewit will be conducted in Asia, in
particular the Philippines and Indonesia, and in other regions not covered by
the Distral joint venture agreement. See "Business--International Projects and
Development Opportunities--International Joint Venture Agreements." To better
position itself to pursue international project development opportunities in
the Asian market, the Company recently established an office in Singapore to
oversee its activities in that region, including the Philippines and Indonesia.
THE PHILIPPINES
The Company has obtained "take-or-pay" power sales contracts for two
geothermal power projects in the Philippines aggregating approximately 300 MW
in capacity. The Upper Mahiao Project, a 120 MW geothermal facility with an
estimated total project cost of approximately $226 million, is expected to be
constructed on the island of Leyte and will be over 95% owned and operated by
the Company. A syndicate of international banks is expected to provide an
approximately $170 million project finance construction loan for the project.
The Company expects that a portion of the proceeds of the Offering will be used
to provide all or part of its approximately $56 million equity commitment to
such project. The Export-Import Bank of the United States ("ExIm Bank") is
expected to provide the term loan that would be used to refinance the
construction loan for this project, as well as political risk insurance to the
syndicate of commercial banks for the construction loan. The Company intends to
arrange for similar insurance on its equity investment through the Overseas
Private Investment Corporation ("OPIC") or from other governmental agencies or
commercial sources. The Company expects that both the construction and term
loan agreements for the Upper Mahiao Project will be executed in April 1994 and
that the notice to proceed will be issued promptly thereafter under the
construction contract, which was executed in January 1994. Commercial operation
of this project is presently scheduled for mid-year 1996.
The Mahanagdong Project, a proposed 180 MW geothermal project with an
anticipated total project cost of approximately $310 million, is expected to be
operated by the Company and owned 45% by the Company, 45% by Kiewit and up to
10% by another industrial company. The Company intends to use a portion of the
proceeds of the Offering to fund all or part of its approximately $40 million
equity investment to the Mahanagdong Project, and to obtain political risk
insurance on its investment similar to that for the Upper Mahiao Project. The
Company is in the process of arranging construction financing for this project
from a syndicate of international banks on terms similar to those of the Upper
Mahiao construction loan. Such construction financing documentation is expected
to be executed by the end of the second quarter of 1994. The Company may use a
portion of the proceeds of the Offering to fund all or part of the
approximately $225 million in construction costs for the Project. The
construction financing is expected to close in mid-year 1994, with commercial
operation presently scheduled for mid-year 1997. See "Business--International
Projects and Development Opportunities--The Philippines."
5
<PAGE>
INDONESIA
The Company has been awarded the geothermal development rights to three
geothermal fields in Indonesia at Dieng, Patuha and Lampung/South Sumatra, the
initial phases of which could aggregate an additional generating capacity of
500 MW. The Company is currently negotiating power sales contracts for these
projects in Indonesia and, should such negotiations be successful and such
projects proceed, the Company intends to utilize a portion of the proceeds of
the Offering to fund equity investments and/or construction loans to these
projects. See "Business--International Projects and Development Opportunities--
Indonesia."
USE OF PROCEEDS
The Company intends to use the net proceeds from the Offering (i) to fund
equity investments in, and the construction costs of, geothermal power projects
presently planned in the Philippines and Indonesia, (ii) to fund equity
investments in, and loans to, other potential international and domestic
private power projects and related facilities, (iii) for corporate or project
acquisitions permitted under the Indenture governing the Notes and (iv) for
general corporate purposes. As project loans are repaid, the Company may use
the proceeds again for any of such permitted uses. See "Use of Proceeds."
6
<PAGE>
THE OFFERING
Notes Offered............... $ principal amount at maturity of % Senior
Discount Notes due 2004 (the "Notes")
Issue Price................. $ per $1,000 principal amount at maturity (or
% of the principal amount at maturity)
Gross Proceeds.............. $400,000,000
Maturity Date............... January 15, 2004
Yield and Interest..........
% per annum (computed on a semi-annual bond
equivalent basis) calculated from , 1994. No
cash interest will accrue on the Notes prior to
January 15, 1997. Commencing January 15, 1997,
interest on the Notes will accrue at the rate of
% per annum and will be payable in cash semi-
annually on January 15 and July 15, commencing on
July 15, 1997 to holders of record on the
immediately preceding January 1 and July 1. See
"Description of the Notes--General."
NYSE Listing................
The Company intends to make application to the
New York Stock Exchange to have the Notes listed
for trading thereon. There can be no assurance
that the Notes will be accepted for listing on
such exchange or, if listed, that an active
trading market for the Notes will develop or be
sustained.
Optional Redemption......... The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or
after January 15, 1999 at the redemption prices
set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption. See
"Description of the Notes--Optional Redemption."
Change in Control...........
Upon the occurrence of a Change of Control, each
Holder will have the right to require the Company
to repurchase all or any part of such Holder's
Notes at a purchase price in cash equal to 101%
of the Accreted Value thereof on the date of
repurchase, plus accrued and unpaid interest, if
any, to the date of repurchase in accordance with
the procedures set forth in the Indenture. See
"Description of the Notes--Certain Covenants--
Purchase of Notes Upon a Change of Control."
Ranking.....................
The Notes will be senior unsecured obligations of
the Company ranking pari passu in right of
payment of principal and interest with all other
existing and future senior unsecured obligations
of the Company. The Company is a holding company
that derives substantially all of its income from
its operating subsidiaries and joint venture
projects. The Indenture does not limit the amount
of Non-Recourse Debt (as defined) which may be
incurred by the Company or at the subsidiary or
project level. Accordingly, the Notes will
effectively be subordinated to any secured Non-
Recourse Debt of the Company and to debt at the
project or subsidiary level. The Notes will rank
senior to all other existing and future
subordinated indebtedness of the Company. As of
7
<PAGE>
December 31, 1993, on a pro forma basis, after
giving effect to the completion of this Offering
and the Company's planned defeasance of its 12%
Senior Notes with Contingent Interest due 1995
(the "Senior Notes"), the Company's total
consolidated indebtedness (excluding deferred
income and redeemable preferred stock), would
have been $746.9 million, its total consolidated
assets would have been $1,077.0 million and its
stockholders' equity would have been $208.2
million.
Original Issue Discount..... The Notes will be issued with "original issue
discount" for federal income tax purposes. Thus,
although cash interest will not accrue on the
Notes prior to January 15, 1997, and there will
be no periodic payments of interest on the Notes
prior to July 15, 1997, original issue discount
(that is, the difference between the stated
redemption price at maturity and the issue price)
will accrue from the issue date of the Notes to
January 15, 1997 and will be includable as
interest income periodically in a Holder's gross
income for federal income tax purposes in advance
of receipt of the cash payments to which the
income is attributable. See "Certain Federal
Income Tax Considerations."
Certain Covenants...........
The Indenture governing the Notes contains
certain covenants which, among other things, will
restrict the ability of the Company, its
Restricted Subsidiaries (as defined) and its
Eligible Joint Ventures (as defined) to incur
additional Debt (as defined) (other than Non-
Recourse Debt), to pay dividends and make certain
other restricted payments, to encumber or sell
assets, to enter into transactions with
Affiliates (as defined), to enter into new lines
of business, to make certain investments, to
merge or consolidate with any other person or to
transfer or lease assets. These covenants are
described in detail below under the caption
"Description of the Notes--Certain Covenants."
Events of Default...........
Events of Default under the Indenture include,
among other things, (i) default in the payment of
any interest on the Notes which continues for a
period of 30 days, (ii) default in the payment of
principal, or premium, if any, when due,
including pursuant to a required repurchase,
(iii) the failure by the Company to perform any
covenant contained in the Indenture, which breach
continues for 30 days after written notice
thereof, (iv) the failure of the Company or any
Significant Subsidiary (as defined) to pay when
due beyond any applicable grace period, or the
acceleration of, Debt (other than Non-Recourse
Debt of Significant Subsidiaries) in excess of
$25 million, (v) the entry by a court of one of
more judgments against the Company or any
Significant Subsidiary for an aggregate amount in
excess of $25 million, subject to certain
conditions, and (vi) the occurrence of certain
events of bankruptcy, insolvency or
reorganization. See "Description of the Notes--
Events of Default."
8
<PAGE>
SUMMARY SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING DATA
The following tables present summary selected consolidated historical
financial and operating data of the Company as of and for the years ended
December 31, 1989, 1990, 1991, 1992 and 1993. The financial data set forth
below should be read in conjunction with the historical consolidated financial
statements of the Company and the related notes thereto contained elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1989 1990 1991 1992 1993
--------- ---------- --------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................. $48,396 $96,813 $ 115,563 $ 127,529 $ 149,253
Income before
depreciation,
amortization, interest,
income taxes,
extraordinary item and
cumulative effect of
change in accounting
principle............... 34,781 59,401 74,057 82,346 102,459
Income before
extraordinary item and
cumulative effect of
change in accounting
principle (1)........... 10,336 12,043 26,582 38,810 43,074
Net income (1)........... 10,336 12,043 26,582 33,819 47,174
Preferred dividends (paid
in kind)................ N/A N/A N/A 4,275 4,630
Net income available to
common stockholders..... 10,336 12,043 26,582 29,544 42,544
Income per share before
extraordinary item and
cumulative effect of
change in accounting
principle (1)........... .38 .44 .75 .92 1.00
Extraordinary item per
share (2)............... N/A N/A N/A (.13) N/A
Cumulative effect of
change in accounting
principle per share (3). N/A N/A N/A N/A .11
Net income per share..... .38 .44 .75 .79 1.11
Weighted average shares
outstanding (4)......... 27,019 27,254 35,471 37,495 38,485
Ratio of earnings to
fixed charges (5)....... 1.02 1.30 2.00 3.20 2.81
Capital expenditures..... 124,749 32,514 68,377 32,446 87,191
OTHER DATA (UNAUDITED):
Consolidated EBITDA (6).. 5,748 8,373 42,788 66,695 80,712
Consolidated
EBITDA/Consolidated
Fixed Charges (6)....... 0.86 0.77 5.20 6.34 5.60
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------
1989 1990 1991 1992 1993
-------- -------- -------- -------- -----------------------
ACTUAL AS ADJUSTED(7)
-------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and investments.... $ 11 $ 316 $ 49,279 $ 54,671 $127,756 $ 476,756
Properties and plants,
net.................... 302,514 321,303 373,948 389,646 458,974 458,974
Total assets............ 349,282 393,853 517,994 580,550 715,984 1,076,984
Project finance loans... 224,390 229,008 221,308 263,604 246,880 246,880
Senior Notes (8)........ 35,730 35,730 35,730 35,730 35,730 N/A
Senior Discount Notes
(7).................... N/A N/A N/A N/A N/A 400,000
Convertible Subordinated
Debentures............. N/A N/A N/A N/A 100,000 100,000
Total liabilities....... 305,265 331,134 298,146 336,272 425,393 789,663
Redeemable preferred
stock.................. N/A 4,705 54,705 54,350 58,800 58,800
Total stockholders' eq-
uity................... 42,163 55,088 143,128 168,764 211,503 208,233
</TABLE>
9
<PAGE>
- --------
(1) The Coso Project consists of three geothermal facilities (referred to
herein as the "Navy I Plant," the "BLM Plant" and the "Navy II Plant"). The
Navy I Plant commenced operation prior to 1989 and the BLM and Navy II
Plants commenced commercial operation in February 1989 and January 1990,
respectively. The Desert Peak facility and the Roosevelt Hot Springs field
were acquired in March and January 1991, respectively.
(2) The refinancing of the Coso joint ventures' project financing debt resulted
in an extraordinary item in 1992 in the amount of $5.0 million, after the
tax effect of $1.5 million.
(3) On January 1, 1993, the Company adopted Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes," which resulted in a
cumulative adjustment to net income of $4.1 million in 1993.
(4) The number of shares outstanding is calculated by using the treasury stock
method.
(5) For information concerning the calculation of the ratio of earnings to
fixed charges, see Note 5 to "Selected Historical Consolidated Financial
and Operating Data--Statement of Operations Data."
(6) "Consolidated EBITDA" and "Consolidated Fixed Charges" are calculated in
accordance with the respective definitions of such terms in the Indenture
and set forth herein under "Description of the Notes--Certain Definitions."
The Company has included information concerning EBITDA herein because the
concept is used in the financial covenants in the Indenture under which the
Notes will be issued. EBITDA is presented here not as a measure of
operating results, but rather as a measure of the Company's ability to
service debt. EBITDA should not be construed as an alternative either (i)
to operating income (determined in accordance with generally accepted
accounting principles) or (ii) to cash flows from operating activities
(determined in accordance with generally accepted accounting principles).
In 1989, 1990 and 1991, the calculation of EBITDA was negatively affected
by restrictions on cash balances imposed relating to the filing of
mechanics' liens against, and related construction litigation involving,
the Coso Project. Such restrictions were removed as part of the refinancing
of the Coso Project in 1992 and subsequent settlement of such litigation.
See Note 5 of Notes to the Consolidated Financial Statements.
(7) As adjusted to give effect to the net proceeds of the Offering and the
transaction described in Note 8, before deducting certain expenses payable
by the Company in connection with the Offering estimated at $500,000. See
"Use of Proceeds."
(8) Simultaneously with the Offering, the Company intends to use approximately
$39.0 million of its existing cash balances to defease and provide for the
repayment of the entire aggregate principal amount of the Senior Notes
outstanding.
10
<PAGE>
INVESTMENT CONSIDERATIONS
In addition to the other information contained in this Prospectus and the
documents incorporated herein by reference, prospective investors should
consider the factors set forth below prior to deciding whether to invest in the
Notes offered hereby.
DEVELOPMENT UNCERTAINTY
The Company is actively seeking to develop, construct, own and operate new
power projects utilizing geothermal and other technologies, both domestically
and internationally, the completion of any of which is subject to substantial
risk. Development can require the Company to expend significant sums for
preliminary engineering, permitting, legal and other expenses in preparation
for competitive bids which the Company may not win or before it can be
determined whether a project is feasible, economically attractive or capable of
being financed. Successful development is contingent upon, among other things,
negotiation of construction, fuel supply and power sales contracts with other
project participants on terms satisfactory to the Company, and receipt of
required governmental permits and consents. Further, there can be no assurance
that the Company will obtain access to the substantial debt and equity capital
required to develop and construct electric power projects or to refinance
projects for which the Company has provided initial construction financing from
the proceeds of the Notes. See "Business--International Projects and
Development Opportunities--Funding for International Projects." The Company's
future growth is dependent, in large part, upon the demand for significant
amounts of additional electrical generating capacity and the Company's ability
to obtain contracts to supply portions of this capacity. There can be no
assurance that development efforts on any particular project, or the Company's
efforts generally, will be successful. See "Business--The Independent Power
Production Market."
DEVELOPMENT UNCERTAINTY OUTSIDE THE UNITED STATES
The Company believes that the international independent power market holds
the majority of new opportunities for financially attractive private power
development in the next several years. The financing and development of
projects outside the United States entails significant political and financial
risks (including, without limitation, uncertainties associated with first time
privatization efforts in the countries involved, currency exchange rate
fluctuations, currency repatriation restrictions, political instability, civil
unrest and expropriation) and other structuring issues that have the potential
to cause substantial delays or material impairment of value to the project
being developed, which the Company may not be fully capable of insuring
against. The uncertainty of the legal environment in certain foreign countries
in which the Company may develop or acquire projects could make it more
difficult for the Company to enforce its rights under agreements relating to
such projects. In addition, the laws and regulations of certain countries may
limit the ability of the Company to hold a majority interest in some of the
projects that it may develop or acquire. The Company's international projects
may, in certain cases, be terminated by the government. See "Business--The
Independent Power Production Market" and "--International Projects and
Development Opportunities."
HOLDING COMPANY STRUCTURE; NOTES ARE UNSECURED OBLIGATIONS
The Company is a holding company which derives substantially all of its
operating income from its subsidiaries' ownership interests in the Coso Project
and through other project subsidiaries. The Company expects that its future
development efforts will be similarly structured to involve operating
subsidiaries, joint ventures and partnerships. The Company intends to loan or
contribute a substantial portion of the net proceeds from the sale of the Notes
to certain of its subsidiaries and joint ventures. See "Use of Proceeds."
The Company will be the sole obligor with respect to the Notes, and the Notes
will not be obligations of, or guaranteed by, any of the Company's subsidiaries
or joint ventures, whose assets will be used to secure future project level
debt. The Notes are not secured by any assets of the Company and the Company
must rely upon dividends and other payments from its subsidiaries, partnerships
and joint ventures to generate the funds necessary to meet its obligations,
including the payment of principal, interest and premium, if any, on
11
<PAGE>
the Notes. The availability of distributions from the Coso Project is subject
to the satisfaction of various covenants and conditions contained in the Coso
joint ventures' refinancing documents. Furthermore, the Company is structuring
Philippine and Indonesian project financing arrangements containing, and
anticipates that future project level financings will contain, certain
conditions and similar restrictions on the distribution of cash flow to the
Company. See "Description of the Notes--Ranking" and "Business--The Coso
Project--Non-Recourse Coso Project Financing."
HIGH LEVERAGE; ADDITIONAL DEBT PERMITTED AT SUBSIDIARY OR PROJECT LEVEL;
PRIORITY OF PROJECT DEBT
After giving effect to the Offering, the Company will be highly leveraged. As
of December 31, 1993, the Company's total consolidated indebtedness was $382.6
million (excluding deferred income and redeemable preferred stock), its total
consolidated assets were $716.0 million and its stockholders' equity was $211.5
million. At such date, on a pro forma basis, after giving effect to the
completion of this Offering and the Company's planned defeasance of its Senior
Notes, the Company's total consolidated indebtedness (excluding deferred income
and redeemable preferred stock) would have been $746.9 million, its total
consolidated assets would have been $1,077.0 million and its stockholders'
equity would have been $208.2 million. See "Capitalization" and "Selected
Historical Consolidated Financial and Operating Data."
The Indenture does not limit the amount of Non-Recourse Debt which may be
incurred by the Company or at the subsidiary or project level. See "Description
of the Notes--Certain Covenants--Limitation on Subsidiary Debt." As a result,
the Notes are effectively subordinated to any secured Non-Recourse Debt of the
Company and to indebtedness and other obligations of the Company's subsidiaries
and the partnerships and joint ventures in which the Company has direct or
indirect interests. Claims of creditors of the Company's subsidiaries or joint
ventures, including trade creditors, will generally have priority as to the
assets of such subsidiaries or joint ventures over the claims of the Company
and the holders of the Company's indebtedness, including the Notes, except to
the extent that the Company may itself be a creditor with recognized claims
against such subsidiary or joint venture. In such case, the Company's claims
would still be subordinate to any security interests in the assets of such
subsidiary or joint venture and any indebtedness of such subsidiary or joint
venture senior to the claims of the Company. The Company intends to loan a
substantial portion of the net proceeds from the sale of the Notes to certain
of its subsidiaries and joint ventures. See "Use of Proceeds" and "Business--
International Projects and Development Opportunities--Funding for International
Projects." In addition, the Indenture limits, but does not prohibit, the
incurrence of additional indebtedness by the Company which may be subordinated
to the Notes or which may rank pari passu with the Notes. See "Description of
the Notes--Certain Covenants--Limitation on Debt."
ENVIRONMENTAL AND OTHER REGULATIONS
The Company's activities are subject to complex and stringent environmental
and other regulations. The construction and operation of power plants require
numerous permits, approvals and certificates from appropriate U.S. and foreign
federal, state and local governmental agencies as well as compliance with
environmental protection legislation and other regulations. While the Company
believes that it has obtained the requisite approvals for its existing
operations and that its business is operated in accordance with applicable law,
it remains subject to a varied and complex body of regulations that both public
officials and private individuals may seek to enforce. There can be no
assurance that existing regulations will not be revised or that new regulations
will not be adopted or become applicable to the Company which could have an
adverse impact on its operations. In addition, regulatory compliance for the
construction of new facilities is a costly and time consuming process and
intricate and rapidly changing environmental regulations may require major
expenditures for permitting and create the risk of expensive delays or material
impairment of project value if projects cannot function as planned due to
changing regulatory requirements or local opposition. See "Business--The Coso
Project--Regulatory and Environmental Matters."
EXPLORATION, DEVELOPMENT AND OPERATION UNCERTAINTIES OF GEOTHERMAL ENERGY
RESOURCES
Geothermal exploration, development and operations are subject to
uncertainties similar to those typically associated with oil and gas
exploration and development, including dry holes and uncontrolled releases.
Because of the geological complexities of geothermal reservoirs, the geographic
area and sustainable
12
<PAGE>
output of a geothermal reservoir can only be estimated and cannot be
definitively established. There is, accordingly, a risk of an unexpected
decline in the capacity of geothermal wells, and a risk of geothermal
reservoirs not being sufficient for sustained generation of the electrical
power capacity desired. See "Business--Geothermal Energy."
CONSIDERATIONS RELATING TO THE COSO PROJECT
The Coso Project currently constitutes the Company's primary source of
revenues. The following factors should be considered in connection with these
facilities:
DEPENDENCE ON A SINGLE UTILITY CUSTOMER
Electricity generated by the three facilities (which facilities are sometimes
referred to as the "Navy I Project," the "BLM Project" and the "Navy II
Project") owned by the Coso Project joint ventures (referred to herein as the
"Navy I Joint Venture," the "BLM Joint Venture" and the "Navy II Joint
Venture," and collectively, the "Coso Joint Ventures") is sold pursuant to
three long-term SO4 Agreements to SCE. Each Coso Joint Venture currently relies
on its SO4 Agreement with SCE to generate 100.0% of its operating revenues. The
payments under these agreements have constituted 100.0% of the operating
revenues of the Coso Joint Ventures since their inception, are expected to
continue to do so for the term of the Notes, and, together, constituted
approximately 94.0% of the operating revenues of the Company in 1993. Any
material failure of SCE or any one of the Coso Joint Ventures to fulfill its
contractual obligations under any of the SO4 Agreements could have a material
adverse effect on the cash flow available to the Company from the Coso Joint
Ventures. See "Business--The Coso Project--Certain Material Contracts" and "--
Non-Recourse Coso Project Financing."
IMPACT OF AVOIDED COST PRICING
Under the SO4 Agreement with each Coso Joint Venture, SCE pays a fixed price
which escalates at an average annual rate of approximately 7.0% per year for
the remainder of the initial ten-year period under each SO4 Agreement, which
period continues until August 1997 for the Navy I Project, March 1999 for the
BLM Project and January 2000 for the Navy II Project. After the fixed price
period expires, while the basis for the capacity and capacity bonus payments
under the SO4 Agreements remains the same, the energy payments adjust to SCE's
then prevailing "Avoided Cost" (as determined by the California Public
Utilities Commission), which at present is substantially lower than the current
energy payments under the SO4 Agreements. The Company cannot predict the likely
level of Avoided Cost energy prices at the expiration of the fixed price
period. See "Business--The Coso Project--Certain Material Contracts."
GOVERNMENT'S RIGHT TO TERMINATE CONTRACTS
As is typical for any government agency which contracts for products or
services, the United States Department of the Navy (the "Navy") has the right
to terminate the lease of lands used by the Coso Joint Ventures under
circumstances that include the convenience of the Navy. In the event of
termination, the Navy is obligated to pay the Coso Joint Ventures owning the
Navy I Project and the Navy II Project an aggregate maximum amount of
approximately $352.5 million. Such payment would not take into consideration
the loss of anticipated future profits. With respect to the Company's
properties which are leased from the United States Bureau of Land Management
(the "BLM"), including the BLM Project, the BLM has the right to terminate its
leases if the leaseholder fails to comply with any of the provisions of such
leases, subject to the notice and hearing requirements and the right to cure
provided in the Geothermal Steam Act of 1970. However, if the leased premises
contain a well capable of steam production in commercial quantities, such
leases may be terminated only by judicial proceedings. At the present time, the
property leased by the Company from the BLM, on which the BLM Project is
situated, contains a well which is producing steam in commercial quantities.
See "Business--The Coso Project--Certain Material Contracts."
SEISMIC DISTURBANCES; ADEQUACY OF INSURANCE
Areas in the United States in which the Company is exploring for geothermal
resources are subject to frequent low-level seismic disturbances, and more
significant seismic disturbances are possible. Non-U.S. geothermal areas of
interest to the Company have been subject to even higher level seismic
disturbances.
13
<PAGE>
While the Company's existing power generating systems are built to withstand
relatively significant levels of seismic disturbance, and the Company seeks
appropriate insurance protection, geothermal power production poses unusual
risks of seismic activity, and there can be no assurance that earthquake,
property damage or business interruption insurance will be adequate to cover
all potential losses sustained in the event of serious seismic disturbances or
that such insurance will be available on commercially reasonable terms. See
"Business--The Coso Project--Insurance."
COMPETITION
In recent years, the domestic power production industry has been
characterized by strong and increasing competition in an effort to obtain new
power sales agreements, which has contributed to a reduction in prices offered
by utilities. In this regard, many utilities often engage in "competitive bid"
solicitation to satisfy new capacity demands. See "Business--The Independent
Power Production Market." Many of the Company's competitors have more extensive
and more diversified developmental or operating experience (including
international experience) and greater financial resources than the Company. In
the domestic market, the Energy Policy Act of 1992 is expected to increase
competition.
ORIGINAL ISSUE DISCOUNT; EFFECT ON THE HOLDERS OF THE NOTES AND THE COMPANY
The Notes will be issued at a substantial discount from their principal
amount at maturity. Consequently, purchasers of the Notes should be aware that,
although cash interest will not accrue on the Notes prior to January 15, 1997,
and there will be no periodic payments of cash interest on the Notes prior to
July 15, 1997, original issue discount (that is, the difference between the
stated redemption price at maturity and the issue price of the Notes) will
accrue from the issue date of the Notes and will be includable as interest
income periodically (including for periods ending prior to January 15, 1997) in
a Holder's gross income for U.S. federal income tax purposes in advance of
receipt of the cash payments to which the income is attributable. See "Certain
Federal Income Tax Considerations" for a more detailed discussion of the
federal income tax consequences to the Holders regarding the purchase,
ownership and disposition of the Notes. Further, the Notes may be subject to
the high yield discount obligation rules, in which case the Company would not
be able to deduct the original issue discount attributable to the Notes until
paid in cash or property. As explained in, and subject to, the discussion under
"Certain Federal Income Tax Considerations--Certain Federal Income Tax
Considerations to the Company and to Corporate Holders," the Notes will be
subject to these rules if their yield to maturity equals or exceeds a Treasury-
based interest rate in effect for the month of their issuance plus five
percentage points. For long-term debt instruments with an average life of more
than 9 years issued in March 1994, such Treasury-based interest rate plus five
percentage points is 11.28% compounded semi-annually. If these high yield
discount rules apply, the Company's after tax cash flow may be less than if
such original issue discount were deductible when accrued. In addition, if a
bankruptcy case were to be commenced by or against the Company under the U.S.
Bankruptcy Code after the issuance of the Notes, the claim of a Holder with
respect to the principal amount thereof may be limited to an amount equal to
the sum of (i) the initial offering price and (ii) that portion of the original
issue discount that is not deemed to constitute "unmatured interest" for
purposes of the U.S. Bankruptcy Code. Any original issue discount that was not
amortized as of any such bankruptcy filing would constitute "unmatured
interest."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF NOTE PRICE
Prior to the Offering, there has been no public market for the Notes. The
Company intends to make application to the New York Stock Exchange to have the
Notes listed for trading thereon, but there can be no assurance that the Notes
will be accepted for listing on such exchange or, if listed, that an active
trading market for the Notes will develop or be sustained. If such a market
were to develop, the Notes could trade at prices that may be higher or lower
than their initial offering price depending upon many factors, including
prevailing interest rates, the Company's operating results and the markets for
similar securities. The Underwriters have advised the Company that they
currently intend to make a market in the Notes; however, they are not obliged
to do so and any market making may be discontinued at any time. Historically
the market for non-investment grade debt has demonstrated substantial
volatility in the prices of securities similar to the Notes. There can be no
assurance that the future market for the Notes will not be subject to similar
volatility.
14
<PAGE>
USE OF PROCEEDS
The Company intends to use the net proceeds from the Offering (i) to fund
equity investments in, and the construction costs of, geothermal power projects
presently planned in the Philippines and Indonesia, (ii) to fund equity
investments in, and loans to, other potential international and domestic
private power projects and related facilities, (iii) for corporate or project
acquisitions permitted under the Indenture and (iv) for general corporate
purposes. As project loans are repaid, the Company may use the proceeds again
for any of such permitted uses. See "Business--International Projects and
Development Opportunities--Funding for International Projects."
The Upper Mahiao and Mahanagdong Projects are expected to require equity
commitments by the Company of approximately $56 million and approximately $40
million, respectively. The Company may apply up to approximately $225 million
to provide interim construction debt financing for the Mahanagdong Project. All
or part of these costs may be funded by the proceeds of this Offering. See
"Business--International Projects and Development Opportunities--The
Philippines."
The Company evaluates from time to time various acquisition opportunities.
The Company may elect to pursue one or more of these opportunities, but has no
present intention to effect any material acquisition.
Pending application, the Company will invest the net proceeds from the sale
of the Notes in Cash Equivalents. See "Description of the Notes--Certain
Definitions."
15
<PAGE>
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of the
Company as of December 31, 1993 and (ii) the consolidated pro forma
capitalization of the Company as adjusted to reflect the sale by the Company of
the Notes offered hereby and the Company's planned defeasance of the entire
aggregate principal amount of its senior notes.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1993
-------------------------
ACTUAL AS ADJUSTED
---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt:
Project finance loans (1).......................... $ 246,880 $246,880
Senior Notes (2)................................... 35,730 N/A
Senior Discount Notes.............................. N/A 400,000
Convertible Subordinated Debentures................ 100,000 100,000
---------- ------------
382,610 746,880
Deferred income (3).................................. 20,288 20,288
Redeemable preferred stock (4)....................... 58,800 58,800
Stockholders' equity:
Preferred stock, no par value, 2,000,000 shares
authorized, no shares issued and outstanding
(other than redeemable preferred stock)........... -- --
Common stock, $.0675 par value, 60,000,000 shares
authorized, 35,446,000 shares issued and
outstanding (5)................................... 2,404 2,404
Additional paid-in capital......................... 100,965 100,965
Retained earnings.................................. 111,031 107,761
Treasury stock, 157,000 common shares at cost...... (2,897) (2,897)
---------- ------------
Total stockholders' equity....................... 211,503 208,233
---------- ------------
Total capitalization........................... $673,201 $1,034,201
========== ============
</TABLE>
- --------
(1) Represents the Company's proportionate share of non-recourse debt incurred
by the Coso Project. See Note 5 of Notes to the Consolidated Financial
Statements.
(2) Simultaneously with the Offering, the Company intends to use approximately
$39.0 million of its existing cash balances to defease and provide for the
repayment of the entire aggregate principal amount of Senior Notes
outstanding.
(3) The Company financed the acquisition of the Roosevelt Hot Springs field in
part through the pre-sale of steam from the Roosevelt Hot Springs field to
the utility-owned power project located at the site. See Note 4 of Notes to
the Consolidated Financial Statements.
(4) See Note 10 of Notes to the Consolidated Financial Statements.
(5) Does not include (i) 8,514,000 shares of common stock reserved at December
31, 1993 for issuance upon exercise of outstanding options, (ii) shares
issuable upon conversion of the outstanding shares of the Company's Series
C redeemable preferred stock and (iii) shares issuable upon conversion of
the Convertible Subordinated Debentures. See Notes 7, 10 and 11 of Notes to
the Consolidated Financial Statements.
16
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth selected historical consolidated financial and
operating data, which should be read in conjunction with the Company's
consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. The selected consolidated data as of and
for each of the five years in the period ended December 31, 1993 have been
derived from the audited historical consolidated financial statements of the
Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1989 1990 1991 1992 1993
-------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales of electricity... $ 43,010 $ 89,026 $ 104,155 $ 115,087 $ 129,861
Sales of steam......... N/A N/A 2,029 2,255 2,198
Interest and other
income................ 5,386 7,787 9,379 10,187 17,194
--------- --------- ---------- ---------- ----------
Total revenue.......... 48,396 96,813 115,563 127,529 149,253
Plant operations,
general and
administrative and
royalty and other
expenses.............. 13,615 37,412 41,506 45,183 46,794
Income before
depreciation,
amortization,
interest, income
taxes, extraordinary
item and cumulative
effect of change in
accounting principle
(1)................... 34,781 59,401 74,057 82,346 102,459
Depreciation and
amortization.......... 6,605 13,372 14,752 16,754 17,812
Interest expense, net
of capitalized
interest.............. 15,125 30,464 24,439 14,860 23,389
Provision for income
taxes................. 2,715 3,522 8,284 11,922 18,184
Income before
extraordinary item and
cumulative effect of
change in accounting
principle (1)......... 10,336 12,043 26,582 38,810 43,074
Extraordinary item-
refinancing (2)....... N/A N/A N/A (4,991) N/A
Cumulative effect of
change in accounting
principle (3)......... N/A N/A N/A N/A 4,100
Net income (1)......... 10,336 12,043 26,582 33,819 47,174
Preferred dividends
(paid in kind)........ N/A N/A N/A 4,275 4,630
Net income available to
common stockholders... 10,336 12,043 26,582 29,544 42,544
Income per share before
extraordinary item and
cumulative effect of
change in accounting
principle (1)......... .38 .44 .75 .92 1.00
Extraordinary item per
share (2)............. N/A N/A N/A (.13) N/A
Cumulative effect of
change in accounting
principle per share
(3)................... N/A N/A N/A N/A .11
Net income per share... .38 .44 .75 .79 1.11
Weighted average shares
outstanding (4)....... 27,019 27,254 35,471 37,495 38,485
Ratio of earnings to
fixed charges (5)..... 1.02 1.30 2.00 3.20 2.81
Capital expenditures... 124,749 32,514 68,377 32,446 87,191
OTHER DATA (UNAUDITED):
Consolidated EBITDA
(6)................... 5,748 8,373 42,788 66,695 80,712
Consolidated
EBITDA/Consolidated
Fixed Charges (6)..... 0.86 0.77 5.20 6.34 5.60
</TABLE>
- --------
(1) The Navy I Plant commenced operation prior to 1989 and the BLM and Navy II
Plants commenced commercial operation in February 1989 and January 1990,
respectively. The Desert Peak facility and the Roosevelt Hot Springs field
were acquired in March and January 1991, respectively.
17
<PAGE>
(2) The refinancing of the Coso Project resulted in an extraordinary item in
1992 in the amount of $5.0 million, after the tax effect of $1.5 million.
(3) On January 1, 1993, the Company adopted Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes," which resulted in a
cumulative adjustment to net income of $4.1 million in 1993.
(4) The number of shares outstanding is calculated by using the treasury stock
method.
(5) For purposes of computing historical ratios of earnings to fixed charges,
earnings are divided by fixed charges. "Earnings" represent the aggregate
of (a) the pre-tax income of the Company, including its proportionate
share of the pre-tax income of the Coso Joint Ventures (see Notes 1 and 2
of Notes to the Consolidated Financial Statements), (b) fixed charges,
less capitalized interest and (c) the amortization of previously
capitalized interest. "Fixed charges" represent interest (whether expensed
or capitalized), amortization of deferred financing and bank fees, and the
portion of rentals considered to be representative of the interest factor
(one-third of lease payments).
(6) "Consolidated EBITDA" and "Consolidated Fixed Charges" are calculated in
accordance with the respective definitions of such terms in the Indenture
and set forth herein under "Description of the Notes--Certain
Definitions." The Company has included information concerning EBITDA
herein because the concept is used in the financial covenants in the
Indenture under which the Notes will be issued. EBITDA is presented here
not as a measure of operating results, but rather as a measure of the
Company's ability to service debt. EBITDA should not be construed as an
alternative either (i) to operating income (determined in accordance with
generally accepted accounting principles) or (ii) to cash flows from
operating activities (determined in accordance with generally accepted
accounting principles). In 1989, 1990 and 1991, the calculation of EBITDA
was negatively affected by restrictions on cash balances imposed relating
to the filing of mechanics' liens against, and related construction
litigation involving, the Coso Project. Such restrictions were removed as
part of the refinancing of the Coso Project in 1992 and subsequent
settlement of such litigation. See Note 5 of Notes to the Consolidated
Financial Statements.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------
1989 1990 1991 1992 1993
-------- -------- -------- -------- --------------------
AS
ACTUAL ADJUSTED(1)
-------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and investments.. $ 11 $ 316 $ 49,279 $ 54,671 $127,756 $ 476,756
Properties and plants,
net.................. 302,514 321,303 373,948 389,646 458,974 458,974
Total assets.......... 349,282 393,853 517,994 580,550 715,984 1,076,984
Project finance loans
(2).................. 224,390 229,008 221,308 263,604 246,880 246,880
Senior notes (3)...... 35,730 35,730 35,730 35,730 35,730 N/A
Senior discount notes
(1).................. N/A N/A N/A N/A N/A 400,000
Convertible
subordinated
debentures (4)....... N/A N/A N/A N/A 100,000 100,000
Total liabilities..... 305,265 331,134 298,146 336,272 425,393 789,663
Deferred income....... 1,854 2,926 22,015 21,164 20,288 20,288
Redeemable preferred
stock (5)............ N/A 4,705 54,705 54,350 58,800 58,800
Total stockholders'
equity............... 42,163 55,088 143,128 168,764 211,503 208,233
</TABLE>
- --------
(1) As adjusted to give effect to the net proceeds of the Offering and the
transaction described in Note 3, before deducting certain expenses payable
by the Company in connection with the Offering estimated at $500,000. See
"Use of Proceeds."
(2) See Note 5 of Notes to the Consolidated Financial Statements.
(3) See Note 6 of Notes to the Consolidated Financial Statements.
Simultaneously with the Offering, the Company intends to use approximately
$39.0 million of its existing cash balances to defease and provide for the
repayment of the entire aggregate principal amount of the Senior Notes
outstanding.
(4) See Note 7 of Notes to the Consolidated Financial Statements.
(5) See Note 10 of Notes to the Consolidated Financial Statements.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial condition and results of
operations during the periods included in the accompanying statements of
operations.
GENERAL
For purposes of consistency in financial presentation, the plants comprising
the Coso Project (including the Navy I, Navy II and BLM Plants) capacity
factors are based upon a capacity amount of 88 gross MW ("GMW")/80 net MW
("NMW") for each plant. The Navy I and Navy II Plants each consist of a set of
three turbines located at a plant site. The BLM Plant consists of two turbines
at one site ("BLM East") and one turbine at another site ("BLM West"). In April
1990, the Company completed a retrofit of the two turbines at BLM East and in
July 1990 completed associated retrofitting of the cooling towers to increase
the aggregate installed capacity of the BLM Plant to 88 GMW/80 NMW, effective
July 2, 1990. Each plant possesses an operating margin which periodically
allows for production in excess of the amount listed above. However, through
1990, the Navy I, Navy II and BLM Plant capacity amounts were restricted by the
then existing PURPA 80 NMW cap. With the lifting of the PURPA 80 NMW cap in
1991, utilization of this operating margin can, at times, produce plant
capacity factors in excess of 100%. Utilization of this operating margin is
based upon a variety of factors and can be expected to vary throughout the year
under normal operating conditions.
RESULTS OF OPERATIONS
Three Years Ended December 31, 1993, 1992 and 1991
Sales of electricity and steam increased to $132.1 million in the year ended
December 31, 1993 from $117.3 million in the year ended December 31, 1992, a
12.5% increase. This improvement was primarily due to a 9.1% increase in the
Coso Project's electric kWh sales to 2,186.7 million kWh from 2,004.0 million
kWh, and an increased price per kWh in accordance with the SO4 Agreements. The
increase in Coso Project kWh sales was primarily due to the completion of new
production wells. The increase in sales of electricity and steam in 1992 to
$117.3 million from $106.2 million in 1991 was primarily due to increasing
electric kWh sales by 6.0% to 2,004.0 million kWh from 1,890.4 million kWh
largely as a result of the drilling of additional production wells and the
aforementioned increase in price per kWh pursuant to the SO4 Agreements.
The following operating data includes the full capacity and electricity
production of the Coso Project only:
<TABLE>
<CAPTION>
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
Overall capacity factor. 104.0% 95.1% 89.9%
kWh produced............ 2,186,700,000 2,004,000,000 1,890,402,000
Installed capacity NMW
average................ 240 240 240
</TABLE>
The overall Coso plant capacity factor was 108.8% in the fourth quarter of
1993 compared to 109.1%, 100.9% and 97.1% for the third, second and first
quarters of 1993, respectively. The Navy I Plant capacity factor was 111.2% in
1993, compared to 99.8% and 98.5% in 1992 and 1991, respectively. The Navy II
Plant capacity factor was 102.6% in 1993, compared to 98.1% and 99.9% in 1992
and 1991, respectively. The BLM Plant capacity factor was 98.1% in 1993
compared to 87.2% and 71.4% in 1992 and 1991, respectively. The BLM Plant, Navy
I Plant and the Navy II Plant were overhauled in conjunction with scheduled
warranty inspections in 1993, 1992 and 1991 respectively, resulting in a
temporary reduction of the plant capacity factor of 3% in the specified year.
Electric sale price per kWh for the Coso Project varies seasonally in
accordance with the rate schedule included in the SO4 Agreements. The price
consists of an energy payment based on the annualized contracted rate of 10.11
cents per kWh in 1993, 9.23 cents per kWh in 1992, and 8.58 cents per kWh in
1991, and
19
<PAGE>
constant annual capacity payments of which the Company's share was $5.4 million
to $5.8 million per annum for each of the three power plants. Capacity payments
are significantly higher in the months of June through September. Bonus
payments are received monthly of which the Company's share was approximately
$1.0 million per annum for each of the three power plants.
The Coso Project's average electricity prices per kWh in 1993, 1992 and 1991
were comprised of (in cents):
<TABLE>
<CAPTION>
CAPACITY
&
ENERGY BONUS TOTAL
------ -------- -----
<S> <C> <C> <C>
Average fiscal 1993.................................... 10.11 1.93 12.04
Average fiscal 1992.................................... 9.23 2.10 11.33
Average fiscal 1991.................................... 8.58 2.24 10.82
</TABLE>
The Desert Peak and Roosevelt Hot Springs facilities ran at or near capacity
levels for each of the past three years. Steam sales from the Roosevelt Hot
Springs field, which was acquired in January 1991, remained relatively
unchanged at $2.2 million, $2.3 million, and $2.1 million in 1993, 1992 and
1991, respectively. Electric sales from Desert Peak were $5.1 million, $5.3
million and $4.0 million for the years 1993, 1992 and 1991, respectively.
Desert Peak was acquired in March 1991 and, accordingly, reflects only nine
months sales in 1991.
Interest and other income increased in 1993 to $17.2 million from $10.2
million in 1992 and from $9.4 million in 1991. The increase reflects higher
average cash balances, interest income on notes receivable from the Coso Joint
Ventures and interest income on the Company's share of the cash reserves
established in the refinancing of the Coso Project debt in December 1992.
The Company's cost per kWh* was as follows (in cents):
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Plant operations (net of Company's operator fees).......... 1.64 1.65 1.77
General and administration................................. 1.03 1.04 1.11
Royalties.................................................. .65 .61 .49
Depreciation and amortization.............................. 1.39 1.33 1.31
Interest, less amounts capitalized......................... 1.82 1.17 2.16
---- ---- ----
Total.................................................... 6.53 5.80 6.84
==== ==== ====
- -------
</TABLE>
* Cost per kWh includes electrical production from the Desert Peak facility and
the electrical production equivalent of the Company's share of geothermal
steam produced at the Roosevelt Hot Springs field, acquired in March and
January 1991, respectively.
The Company's expenses* as a percentage of sales of electricity and steam
were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Plant operations (net of Company's operator fees).......... 15.8% 17.7% 18.8%
General and administration................................. 10.0 11.1 11.7
Royalties.................................................. 6.3 6.6 5.2
Depreciation and amortization.............................. 13.5 14.3 13.9
Interest, less amounts capitalized......................... 17.7 12.7 23.0
---- ---- ----
Total.................................................... 63.3% 62.4% 72.6%
==== ==== ====
</TABLE>
- --------
* Expenses as a percentage of electricity sales and steam sales include
electricity sales from the Desert Peak facility and steam sales from the
Roosevelt Hot Springs field, acquired in March and January 1991,
respectively.
20
<PAGE>
The Company's expenses, excluding interest, increased as a general result of
the greater electricity production of the Coso Project. However, in 1993, plant
operations and general and administration costs per kWh decreased from 1992. In
1992, the Company's total expenses, excluding interest, were proportionally
less than the increase in electricity production of the Coso Project.
The cost of plant operations increased to $25.4 million in 1993 from $24.4
million in 1992, an increase of 3.8%. The cost of plant operations increased to
$24.4 million in 1992 from $23.5 million in 1991, an increase of 3.9%. General
and administration costs remained relatively unchanged at $13.2 million in 1993
compared to $13.0 million in 1992. General and administration costs increased
to $13.0 million in 1992 from $12.5 million in 1991, a 4.5% increase. However,
for 1993 and 1992 both plant operations and general and administration costs
per kWh continued to decrease due to a proportionally greater increase in
electrical production than plant operations and general administration costs.
Plant cost per kWh decreased to 1.64 cents in 1993 from 1.65 cents in 1992 and
1.77 cents in 1991. General and administration costs per kWh decreased to 1.03
cents in 1993 from 1.04 cents in 1992 and 1.11 cents in 1991.
Royalty costs increased to $8.3 million in 1993 from $7.7 million in 1992, an
increase of 7.3%. Royalty costs increased to $7.7 million in 1992 from $5.5
million in 1991, an increase of 40.1%, due to higher electrical sales and a
contractually scheduled increase in the 1992 royalty rate for the second and
third turbines of the Navy I plant. Overall, the royalty cost per kWh increased
to 0.65 cents in 1993 from 0.61 cents in 1992 and 0.49 cents in 1991.
Depreciation and amortization expense increased to $17.8 million in 1993 from
$16.8 million and $14.8 million in 1992 and 1991, respectively, a 6.3% increase
from 1992 to 1993, and a 13.6% increase from 1991 to 1992. Depreciation and
amortization expense for 1993 was 1.39 cents per kWh compared to 1.33 cents in
1992 and 1.31 cents per kWh in 1991. The increase in 1993 was due to additional
capitalized costs associated with the settlement of litigation involving the
Mission Power Engineering Company ("MPE") and the Mission Power Group, as well
as additional wells and gathering systems. The increase in per kWh cost in 1992
was due largely to the costs of an increased number of production and injection
wells.
Interest expense, less amounts capitalized, increased to $23.4 million in
1993 from $14.9 million in 1992, an increase of 57.4% or 1.82 cents per kWh in
1993, compared to 1.17 cents in 1992. Net interest expense decreased to $14.9
million in 1992 from $24.4 million, or 2.16 cents per kWh in 1991. Net interest
expense in 1993 increased due primarily to the Company's higher weighted
average interest rate, higher levels of indebtedness associated with the Coso
Project and the issuance of convertible subordinated debentures in June 1993.
The short-term variable rate debt on the Coso Project was refinanced in 1992
with longer-term fixed rate debt. The weighted average interest rate on the
Coso Project debt was 7.9%, 5.4%, and 8.5% in 1993, 1992 and 1991,
respectively. Net interest expense decreased in 1992 from 1991 as a result of
low interest rates associated with the Coso Project's then variable rate debt.
The provision for income taxes increased to $18.2 million in 1993 from $11.9
million and $8.3 million in 1992 and 1991, respectively. The effective tax rate
was 29.7%, 23.5% and 23.8% in 1993, 1992 and 1991. The increase in the 1993
effective tax rate was a result of adopting Financial Accounting Standard No.
109 ("FAS 109").
Income before the provision for income taxes increased 21.0% to $61.3 million
in 1993 from $50.7 million in 1992. Net income after a cumulative effect of a
change in accounting principle was $47.2 million and net income available to
common shareholders was $42.5 million or $1.11 per common share for the year
ended December 31, 1993. This compares to net income of $33.8 million after an
extraordinary item and net income available to common shareholders of $29.5
million or $.79 per common share for the year ended December 31, 1992. Net
income before cumulative effect of a change in accounting principle for the
year ended December 31, 1993 was $43.1 million or $1.00 per common share versus
net income before an extraordinary item of $38.8 million or $.92 per common
share in 1992. In 1991, income before the provision for income taxes was $34.9
million and net income and net income available to common shareholders was
$26.6 million or $.75 per share.
21
<PAGE>
Earnings per share were favorably impacted in 1992 by the Company's
repurchase of common shares during 1992 at an average price of approximately
$12.00 per share. The Company purchased common shares to be held as treasury
stock which were reissued upon the exercise of options and warrants.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and investments were $127.8 million at December 31, 1993
as compared to $54.7 million at December 31, 1992. In addition, the Coso
Project retained cash and investments in project control accounts of which the
Company's share was $14.9 million and $8.8 million at December 31, 1993 and
1992, respectively. Distributions out of the project control accounts are made
monthly to the Company for operation and maintenance and capital costs and
semiannually to each Coso Joint Venture partner for profit sharing under a
prescribed calculation subject to mutual agreement by the partners. In addition
to these liquid instruments, the Company recorded separately restricted cash of
$48.1 million and $62.5 million at December 31, 1993 and 1992, respectively.
The restricted cash balance in 1993 was comprised primarily of the Company's
proportionate share of Coso Project cash reserves for debt reserve funds and in
1992 included a contingency reserve fund, both of which were established in
conjunction with the Coso Project's refinancing of its previous bank debt.
Accounts receivable normally represents two months of revenues, and
fluctuates with both production and price per kWh.
The balance due from/to the Coso Joint Ventures relates to operations,
maintenance, and management fees for managing the Coso Project. This amount
fluctuates based on the timing of billings and incurrence of costs.
In December 1992, the Company refinanced the existing bank debt of the Coso
Project (see Note 5 of the Notes to the Consolidated Financial Statements).
Coso Funding Corp. ("Funding Corp."), a single-purpose corporation, was formed
to issue $560.2 million of notes for its own account and as an agent acting on
behalf of Navy I, BLM and Navy II Plants. The proceeds were used in part to
replace the outstanding Coso Project bank indebtedness and to provide funding
within the Coso Project for certain reserves. As of December 31, 1993 and 1992
the Company's proportionate share of the Coso Project loan was $246.9 million
and $263.6 million, respectively.
The Funding Corp. notes have remaining terms of up to eight years and
different fixed interest rates for each tranche. The underlying project loans
have identical terms as the Coso Project loans and are also non-recourse to the
Company.
In connection with the Coso Project refinancing, the Company purchased
Community Energy Alternatives Incorporated's ("CEA") interest in the Coso
Project at the close of the Coso Project refinancing. See Note 5 of the Notes
to the Consolidated Financial Statements.
On June 9, 1993, MPE and the Mission Power Group, subsidiaries of SCE Corp.,
and the Coso Joint Ventures reached a final settlement of all of their
outstanding disputes and claims relating to the construction of the Coso
Project. As a result of the various payments and releases involved in such
settlement, the Coso Joint Ventures agreed to make a net payment of $20.0
million to MPE from the cash reserves of the Coso Project contingency funds and
MPE agreed to release its mechanics' liens on the Coso Projects. After making
the $20.0 million payment, the remaining balance of the Coso Project
contingency funds (approximately $49.3 million) was used to increase the Coso
Project debt reserve fund from approximately $43.0 million to its maximum
fully-funded requirement of $67.9 million. The remaining $24.4 million balance
of the contingency fund was retained within the Coso Project for future capital
expenditures and for Coso Project debt service payments. Since the Coso Project
debt service reserve is fully funded in advance, Coso Project cash flows
otherwise intended to fund the Coso Project debt service reserve funds, subject
to satisfaction of certain covenants and conditions contained in the Coso Joint
Ventures' refinancing documents, are available for distribution to the Company
in its proportionate share.
22
<PAGE>
On May 3, 1993, the transmission line dispute was settled and the
transmission line deposit of approximately $7.7 million was released to the
Company.
In June 1993, the Company issued $100.0 million principal amount of 5%
convertible subordinated debentures (the "Convertible Subordinated Debentures")
due July 31, 2000. The Convertible Subordinated Debentures are convertible into
shares of the Company's common stock at any time prior to redemption or
maturity at a conversion price of $22.50 per share, subject to adjustment in
certain circumstances. Interest on the Convertible Subordinated Debentures is
payable semiannually in arrears on July 31 and January 31 each year, commencing
on July 31, 1993. The Convertible Subordinated Debentures are redeemable for
cash at any time on or after July 31, 1996 at a redemption price of (expressed
in percentages of the principal amount) 102%, 101%, 100% and 100% in 1996,
1997, 1998 and 1999, respectively. The Convertible Subordinated Debentures are
unsecured general obligations of the Company and subordinated to all existing
and future senior indebtedness of the Company.
The Senior Notes, of which $35.7 million aggregate principal amount are
currently outstanding, mature in March 1995 and bear interest at the rate of
12.0% per annum, plus contingent interest, calculated by reference to the
Company's share of the cash flow from the Coso Project through December 31,
1994. Simultaneous with the closing of the Offering, the Company intends to use
approximately $39.0 million of its existing cash balances to defease and
provide for the repayment of the entire aggregate principal amount of Senior
Notes outstanding. The Senior Notes prohibit the payment of cash dividends
unless the Company has a net worth of at least $50.0 million after payment of
such dividends, and dividends do not exceed 50% of accumulated net income
subsequent to December 31, 1987. The Senior Notes also place restrictions on
capital expenditures not related to the Coso Project.
Proceeds and benefits from warrants and options for shares of common stock
exercised in 1993 and 1992 aggregated approximately $1.4 million and $8.1
million, respectively. In addition, in August 1993, the Company acquired the
Ben Holt Co. ("BHCO"), a thirty person engineering firm for a combination of
cash and Company stock. In connection with this transaction, 87,000 common
shares were issued having an aggregate market value of $1.6 million.
The Company repurchased 157,000 common shares during 1993 for the aggregate
amount of $2.9 million. The Company purchased common stock to be held as
treasury stock in anticipation of their reissue once upon the exercise of
options. The Company repurchased 565,000 shares of common stock during 1992 at
an aggregate amount of $4.9 million. The shares were reissued during 1992 upon
the exercise of stock options.
On October 13, 1992, the Company repurchased, and cancelled, certain warrants
exercisable for 1.025 million shares of unregistered common stock at $2.04 per
share, for a purchase price of $9.16 per share, or approximately $9.4 million
in the aggregate. Kiewit Energy Company ("Kiewit Energy") simultaneously
purchased and exercised other warrants to purchase 600,000 shares of
unregistered common stock at $2.04 per share, providing the Company with
proceeds of $1.2 million. On October 27, 1992, the Company repurchased and
cancelled warrants exercisable for 250,000 shares of unregistered common stock
at $2.04 per share, for a purchase price of $9.316 per share, or $2.3 million
in aggregate.
On November 15, 1992, the Company called the Company's Series B convertible
preferred stock, no par value (the "Series B preferred stock"), for conversion
into common stock. Each share of Series B preferred stock was converted into
two shares of common stock and, accordingly, the Company issued 954,900 shares
of common stock.
In 1991, the Company and Kiewit Energy signed a stock purchase agreement and
related agreements (see Note 12 to the Consolidated Financial Statements). In
addition, in 1991 the Company issued 1,000 shares of its Series C redeemable
preferred stock to Kiewit Energy for $50,000 per share.
The Company is actively engaged in the acquisition of, and is seeking to
develop, construct, own and operate power projects utilizing geothermal and
other technologies, both domestically and internationally,
23
<PAGE>
the completion of any of which is subject to substantial risk. The Company is
currently pursuing a number of international power project opportunities in
countries where private power generation programs have been initiated,
including the Philippines and Indonesia. Development can require the Company to
expend significant sums for preliminary engineering, permitting, legal and
other expenses in preparation for competitive bids which the Company may not
win or before it can be determined whether a project is feasible, economically
attractive or financeable. Successful development is contingent upon, among
other things, negotiation of construction, fuel supply and power sales
contracts with other project participants on terms satisfactory to the Company,
and receipt of required governmental permits and consents. Further, there can
be no assurance that the Company will obtain access to the substantial debt and
equity capital required for the acquisition or development and construction of
electric power projects. To the extent the Company engages in international
development efforts, the financing and development of projects entails
significant political and financial risks (including, without limitation,
uncertainties associated with first time privatization efforts in the countries
involved, currency exchange rate fluctuations, currency repatriation
restrictions, political instability, civil unrest and expropriation) and other
structuring issues that have the potential to cause substantial delays or that
the Company may not be fully capable of insuring against. There can be no
assurance that development efforts on any particular project, or the Company's
acquisition or development efforts generally, will be successful.
In particular, the Company is developing a number of international projects,
for which it may have significant capital requirements. See "Business--
International Projects and Development Opportunities."
In addition to its international projects, the Company plans to incur
domestic geothermal capital expenditures in the aggregate amount of approximate
$30 million during 1994. The Company's planned capital spending includes, among
other things, its share of recurring Coso Project capital expenditures, as well
as the development of the Newberry Project in the Pacific Northwest.
The Company is constructing the Yuma Project, a 50 MW natural gas fired
cogeneration project in Yuma, Arizona. Engineering and equipment procurement
commenced in 1993. Capital expenditures of $10 million are anticipated through
the completion of the Yuma project by mid-year 1994. The capital expenditures
will be funded from existing cash balances and the Company's operating cash
flows.
Inflation has not had a substantial impact on the Company's operating
revenues and costs. The Coso Project's energy payments for electricity will
continue to be based upon scheduled rate increases through the initial ten year
period of each SO4 Agreement. Prior to the Coso Project refinancing, the
project loans relating to the Coso Project were generally for periods up to
twelve months at LIBOR plus a specified margin. Accordingly, the interest rates
on the loans varied and over the operating period resulted in fluctuating
interest payments. The refinanced Coso Project debt has fixed interest rates.
ADOPTION OF FINANCIAL ACCOUNTING STANDARD NO. 109
On January 1, 1993, the Company adopted FAS 109. The adoption of FAS 109
changes the Company's method of accounting for income taxes from the deferred
method as required by Accounting Principles Board Opinion No. 11 to an asset
and liability approach. Under FAS 109, the net excess deferred tax liability as
of January 1, 1993 was determined to be $4.1 million. This amount is reflected
in 1993 income as the cumulative effect of a change in accounting principle. It
primarily represents the recognition of the Company's tax credit carryforwards
as a deferred tax asset. There was no cash impact to the Company upon the
required adoption of FAS 109. Under FAS 109, the effective tax rate utilized
increased at the time of adoption as a result of the tax credit carryforwards
being recognized as an asset and unavailable to reduce the current period's
effective tax rate for computing the Company's provision for income taxes. The
effective tax rate continues to be less than the statutory rate primarily due
to the depletion deduction and the generation of energy credits in 1993. The
significant components of the deferred tax liability are the temporary
differences between the financial reporting bases and income tax bases of the
power plant and the well and resource development costs, and in addition, the
offsetting benefits of operating loss carryforwards and investment and
geothermal energy tax credit and alternative minimum tax carryforwards.
24
<PAGE>
BUSINESS
The Company, together with its subsidiaries, is primarily engaged in the
exploration for and development of geothermal resources and the development,
ownership and operation of environmentally responsible independent power
production facilities worldwide utilizing geothermal resources or other energy
sources, such as hydroelectric, natural gas, oil and coal. The Company was an
early participant in the domestic independent power market and is now one of
the largest geothermal power producers in the United States. The Company is
also actively pursuing opportunities in the international independent power
market. In the year ended December 31, 1993, the Company had revenues of $149.3
million, net income of $47.2 million, and as of that date, cash and investments
at the Company level of $127.8 million. Peter Kiewit Sons', Inc. ("Kiewit") is
a 36.6% stockholder (on a fully-diluted basis) in the Company and a participant
in certain of the Company's international private power projects.
Through its subsidiaries, the Company currently has significant ownership
interests in, and operates, four geothermal facilities that are qualified
facilities under the Public Utility Regulatory Policies Act of 1978 ("PURPA"),
which requires electric utilities to purchase electricity from qualified
independent power producers. See "--The Independent Power Production Market."
Three of the Company's geothermal facilities, located together at the Naval
Weapons Center at China Lake, California (collectively, the "Coso Project"),
have an aggregate generating capacity of approximately 240 megawatts ("MW").
The Company is the managing general partner, operator and owner of an
approximately 50% interest in the Coso Project, which currently constitutes the
Company's primary source of revenues. Electricity generated by the Coso Project
is sold pursuant to three long-term "Standard Offer No. 4" contracts (the "SO4
Agreements") to Southern California Edison Company ("SCE"). In 1993, the Coso
Project achieved record MW production results and received the maximum level of
capacity and capacity bonus payments under the S04 Agreements. See "--The Coso
Project."
The Company also owns and operates a 10 MW geothermal power plant located at
Desert Peak, Nevada, which is a qualified facility that sells power to Sierra
Pacific Power Company, and operates and owns a 70% interest in a geothermal
steam field at Roosevelt Hot Springs, Utah, which supplies 25 MW of geothermal
steam to Utah Power & Light Company under a 30-year steam sales contract.
Pursuant to a memorandum of understanding, the Company has commenced early
stage site work on a proposed 30 MW geothermal project at Newberry, Oregon,
which is expected to be completed in early 1997 and to be wholly owned and
operated by the Company. See "--Other Domestic Projects and Development
Opportunities--Newberry."
Domestically, the Company plans to focus on developing and operating
geothermal power projects, an area in which the Company believes it has a
competitive advantage due to its geotechnical and project management expertise
and extensive geothermal leaseholdings. The Company intends to continue to
pursue geothermal opportunities in the Pacific Northwest where it has extensive
geothermal leaseholdings. In addition, the Company has diversified into other
environmentally responsible sources of power generation. The Company is
currently constructing a 50 MW natural gas fired cogeneration project in Yuma,
Arizona (the "Yuma Project"), which is expected to be wholly owned by the
Company and to sell electricity to San Diego Gas & Electric Company ("SDG&E")
under a 30-year power sales contract. The Company anticipates that this project
will be completed by mid-year 1994. See "--Other Domestic Projects and
Development Opportunities--Yuma." The Company expects future diversification
through the selective acquisition of partially developed or existing power
generating projects and intends to maintain a significant equity interest in,
and to operate, the projects which it develops or acquires.
The Company presently believes that the international independent power
market holds the majority of new opportunities for financially attractive
private power development in the next several years. The Company is actively
pursuing selected opportunities in nations where power demand is high and the
Company's geothermal resource development and operating experience, project
development expertise and strategic relationships are expected to provide it
with a competitive advantage. The Company believes that the opportunities to
successfully develop, construct, finance, own and operate international power
projects are increasing as several countries have initiated the privatization
of their power generation capacity and have
25
<PAGE>
solicited bids from foreign developers to purchase existing generating
facilities or to develop new capacity. Some of these countries, such as the
Philippines and Indonesia, also have extensive geothermal resources.
The Company has recently entered into international joint venture agreements
with Kiewit and Distral S.A. ("Distral"), two firms with significant power
plant construction experience, in an effort to augment and accelerate the
Company's capabilities in foreign energy markets. Joint venture activities with
Distral will be conducted in South America, Central America and the Caribbean
and joint venture activities with Kiewit will be conducted in Asia, in
particular the Philippines and Indonesia, and in other regions not covered by
the Distral joint venture agreement. See "--International Projects and
Development Opportunities--International Joint Venture Agreements."
The Company has obtained "take-or-pay" power sales contracts for two
geothermal power projects in the Philippines aggregating approximately 300 MW
in capacity. The Upper Mahiao Project, a 120 MW geothermal facility with an
estimated total project cost of approximately $226 million, is expected to be
constructed on the island of Leyte and will be over 95% owned and operated by
the Company. A syndicate of international banks is expected to provide an
approximately $170 million project finance construction loan for the project.
The Company expects that a portion of the proceeds of the Offering will be used
to provide all or part of its approximately $56 million equity commitment to
such project. The Export-Import Bank of the United States ("ExIm Bank") is
expected to provide the term loan that would be used to refinance the
construction loan for this project, as well as political risk insurance to the
syndicate of commercial banks for the construction loan. The Company intends to
arrange for similar insurance on its equity investment through the Overseas
Private Investment Corporation ("OPIC") or from other governmental agencies or
commercial sources. The Company expects that both the construction and the term
loan agreements for the Upper Mahiao Project will be executed in April 1994 and
that the notice to proceed will be issued promptly thereafter under the
construction contract, which was executed in January 1994. Commercial operation
of this project is presently scheduled for mid-year 1996.
The Mahanagdong Project, a 180 MW geothermal project with an anticipated
total project cost of approximately $310 million, is expected to be operated by
the Company and owned 45% by the Company, 45% by Kiewit and up to 10% by
another industrial company. The Company intends to use a portion of the
proceeds of the Offering to fund all or part of its approximately $40 million
equity investment to the Mahanagdong Project, and to obtain political risk
insurance on its investment similar to that for the Upper Mahiao Project. The
Company is in the process of arranging construction financing for this project
from a syndicate of international banks on terms similar to those of the Upper
Mahiao construction loan. Such construction financing documentation is expected
to be executed by the end of the second quarter of 1994. The Company may use a
portion of the proceeds of the Offering to fund all or part of the
approximately $225 million in construction costs for the Project. The
construction financing is expected to close in mid-year 1994, with commercial
operation presently scheduled for mid-year 1997. See "--International Projects
and Development Opportunities--The Philippines."
The Company has been awarded the geothermal development rights to three
geothermal fields in Indonesia at Dieng, Patuha and Lampung/South Sumatra, the
initial phases of which could aggregate an additional generating capacity of
500 MW. The Company is currently negotiating power sales contracts for these
projects in Indonesia and, should such negotiations be successful and such
projects proceed, the Company intends to utilize a portion of the proceeds of
the Offering to fund equity investments and/or construction loans to these
projects. See "--International Projects and Development Opportunities--
Indonesia."
The Company intends to use the net proceeds from the Offering (i) to fund
equity investments in, and the construction costs of, geothermal power projects
presently planned in the Philippines and Indonesia, (ii) to fund equity
investments in, and loans to, other potential international and domestic
private power projects and related facilities, (iii) for corporate or project
acquisitions permitted under the Indenture and (iv) for general corporate
purposes. As project loans are repaid, the Company may use the proceeds again
for any of such permitted uses. See "Use of Proceeds."
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<PAGE>
THE INDEPENDENT POWER PRODUCTION MARKET
In the United States, the independent power industry expanded rapidly in the
1980's, facilitated by the enactment of PURPA. PURPA was enacted to encourage
the production of electricity by non-utility companies. According to the
Utility Data Institute and the North American Electricity Reliability Council,
independent power producers were responsible for about 50,000 MW, or 43%, of
the U.S. electric generation capacity which has come on line since 1980.
As the size of United States independent power market has increased,
available domestic power capacity and competition in the industry have also
significantly increased. Over the past decade, obtaining a power sales contract
from a U.S. utility has generally become increasingly difficult, expensive and
competitive. Many states now require power sales contracts to be awarded by
competitive bidding, which both increases the cost of obtaining such contracts
and decreases the chances of obtaining such contracts as bids significantly
outnumber awards in most competitive solicitations. The federal Energy Policy
Act of 1992 is expected to further increase domestic competition.
Due to the rapidly growing demand for new power generation capacity in many
foreign countries and resulting privatization of power development, significant
new markets for independent power generation now exist outside the United
States. The Company intends to take advantage of opportunities in these new
markets and to develop, construct and acquire generation projects outside the
United States. See "--International Projects and Development Opportunities."
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<PAGE>
GEOTHERMAL ENERGY
Geothermal energy is derived from the heat of the earth's interior and may be
used to generate electricity where geological conditions are suitable for its
commercial extraction. These conditions exist where water contained within
porous or permeable rock formations comes sufficiently close to hot molten rock
to heat the water to temperatures of 400 degrees Fahrenheit or more. The heated
water then ascends towards the surface of the earth, where it can be extracted
by drilling geothermal wells. The geothermal reservoir is a renewable source of
energy if natural ground water sources and reinjection of extracted geothermal
fluids are adequate over the long-term to replenish the geothermal reservoir
after the withdrawal of geothermal fluids.
[Schematic diagram illustrating how geothermal energy is derived.]
[ART GOES HERE]
The geothermal production wells are normally located within approximately one
to two miles of a power plant, as geothermal fluids cannot be transported
economically over longer distances. The geothermal fluids produced at the
wellhead consist of a mixture of hot water and steam. The mixture flows from
the wellhead through a gathering system of insulated steel pipelines to high
pressure separation vessels called separators. There, steam is separated from
the water and is sent to a demister in the power plant, where any remaining
water droplets are removed. This produces a stream of dry steam, which passes
through the high pressure inlet of a turbine generator, producing electricity.
The hot water previously separated from the steam at the high pressure
separators is piped to low pressure separators, where low pressure steam is
separated from the water and sent to the low pressure inlet of a turbine
generator. The hot water remaining after low pressure steam separation is
injected back into the geothermal resource.
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<PAGE>
THE COSO PROJECT
The Coso Project, of which the Company owns approximately 50%, consists of
three qualified geothermal facilities with an aggregate generating capacity of
approximately 240 MW. Each of the three facilities (sometimes the "Navy I
Plant," the "BLM Plant" and the "Navy II Plant") is owned by a separate
partnership. The Company is the managing general partner for and operator of
the Coso Project. The Coso Project facilities are located on land leased by the
Company pursuant to long-term leases from the Navy and the BLM. In 1993, the
Coso Project produced an average output of 250 MW, and achieved the maximum
capacity and capacity bonus payments under the SO4 Agreements with SCE. The
payments under these contracts constituted approximately 94% of the operating
revenues of the Company in 1993.
The Coso geothermal resource is located in Inyo County, California,
approximately 150 miles northeast of Los Angeles. The Coso geothermal resource
is a liquid-dominated hot water resource contained within the heterogeneous
fractured granitic rocks of the Coso mountains. It is believed that the heat
source for the Coso geothermal resource is a hot molten rock body located
beneath the field. Water in the system is believed to be supplied from
groundwater flow from the Sierra Nevada mountains located approximately ten
miles west of the site.
The Company believes, based on geological and engineering surveys and
analysis of wells drilled, that the Coso Project's geothermal resource is
sufficient to supply steam of adequate temperature and in sufficient quantities
for the respective terms of the SO4 Agreements. Because of the uncertainties
related to developing, exploring and operating geothermal resources and the
limited history of extracting the geothermal resource at the sites of the Navy
I Plant, the BLM Plant and the Navy II Plant, there is no assurance that the
geothermal reservoir will continue to supply steam at current levels for the
remaining terms of the SO4 Agreements. See "Investment Considerations--
Exploration, Development and Operation Uncertainties of Geothermal Energy
Resources."
The following sets forth certain information as of December 31, 1993
concerning the three facilities that comprise the Coso Project:
<TABLE>
<CAPTION>
GROSS
NO. OF ELECTRICAL
PRODUCING NO. OF GENERATING
FACILITY WELLS* TURBINES CAPACITY*
-------- --------- -------- ----------
<S> <C> <C> <C>
Navy I...................................... 32 3 96 MW
BLM......................................... 20 3 96 MW
Navy II..................................... 25 3 96 MW
</TABLE>
--------
* Approximate
CERTAIN MATERIAL CONTRACTS
Set forth below is a summary of certain agreements material to the Coso
Project. Such summaries make use of certain terms defined in such agreements
and are qualified in their entirety by reference to such agreements, copies of
which may be obtained from the Company.
The Navy Contract. In December 1979, the Company entered into a 30-year
contract (the "Navy Contract") with the Government of the United States, acting
through the Navy, which granted to the Company exclusive rights to explore,
develop and use the geothermal resource located on 3,520 acres within the China
Lake Naval Air Weapons Station near China Lake, California.
In respect of the electricity generated by Unit 1 of the Navy I Plant, the
Navy I Joint Venture is obligated to pay to the Navy $25 million on or before
December 31, 2009, which amount is, in part, secured by annual
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<PAGE>
contributions to a sinking fund, currently at $2,730,540. Annual payments to
the sinking fund are $600,000. Both the Navy I and Navy II Joint Ventures are
required to pay to the Navy royalties, or the equivalent thereof, for
electricity generated from the Navy I Plant (Units 2 and 3) and the Navy II
Plant. The percentage royalty due to the Navy for Units 2 and 3 of the Navy I
Plant equals 10% of gross revenues attributable to such facility through 1998,
15% through 2003 and 20% for the remaining term. The percentage royalty due to
the Navy for the Navy II Plant equals 4% of gross revenues attributable to such
facility through 1994, 10% through 1999, 18% through 2004 and 20% for the
remaining term.
The Navy has the right to terminate the Navy Contract at any time by giving
the Navy I Joint Venture or the Navy II Joint Venture, or both, as applicable,
six months prior written notice, including for "reasons of national security,
national defense preparedness, national emergency, or for any reasons the
Contracting Officer shall determine that such termination is in the best
interest of the U.S. Government." In the event of such termination, the United
States Government is required to pay the Navy I Joint Venture, or the Navy II
Joint Venture, or both, as applicable, for its unamortized exploratory
investment and for its investment in installed power plant facilities, up to a
maximum amount based on the nameplate capacity of the turbine generators. The
total aggregate termination compensation for both Joint Ventures may not exceed
$352.5 million. There is no provision in the Navy Contract to compensate either
the Navy I or the Navy II Joint Venture for the loss of anticipated profits
resulting from such termination.
The BLM Lease. On April 29, 1985 the Company and the BLM entered into a lease
(the "BLM Lease"), pursuant to which the Company acquired rights to explore,
develop and use the geothermal resource on 2,500 acres of land adjacent to the
land covered by the Navy Contract. The primary term of the BLM Lease is ten
years. The BLM Lease will extend automatically by its terms for so long as
geothermal steam is produced in commercial quantities, but in any event not in
excess of 40 years after the end of the initial term.
The BLM Joint Venture pays a nominal annual rent of $2 to the BLM. Royalties
payable to the BLM under the BLM Lease are 10% of the amount (or value) of the
steam produced, 5% of any by-products, and 5% of commercially demineralized
water, payable monthly.
BLM leases which have been extended due to production of commercial
quantities cannot be cancelled without a noticed hearing. BLM leases can be
terminated by operation of law as follows: (i) at the anniversary date, for
failure to pay the full amount of the annual rental by such date, and (ii) at
the end of the primary term, if there is no production in commercial
quantities, there is no producing well or actual drilling operations are not
being diligently prosecuted.
SO4 POWER SALES AGREEMENTS
Each of the Coso Joint Ventures has been assigned the rights to a long-term
SO4 Agreement with SCE. The SO4 Agreements relating to the Navy I Plant, the
BLM Plant and the Navy II Plant have remaining terms of approximately 17, 25
and 16 years, respectively, and provide for the payment of energy, capacity and
capacity bonus payments. Energy payments are fixed for the first ten years from
the date of firm power delivery (1987 for the Navy I Plant, 1989 for the BLM
Plant and 1990 for the Navy II Plant), with annual increases at a specified
rate, after which energy prices are based upon SCE's Avoided Cost. Average
energy prices under the SO4 Agreements for 1993 for the Navy I Plant, BLM Plant
and Navy II Plant were approximately 12.0 cents per kWh. For the period of
January 10, 1994 through February 13, 1994, SCE's Avoided Cost was 2.9 cents
per kWh (weighted average of mid-peak, off-peak and super off-peak). See
"Investment Considerations--Impact of Avoided Cost Pricing." Capacity payments
are fixed over the life of each contract. Additional capacity bonus payments
will be paid if the plant operates above an 85% capacity utilization level. The
SO4 Agreement for the Navy I Plant specifies a contract capacity of 75 MW after
August 1997. The SO4 Agreements for the BLM Plant and the Navy II Plant specify
a contract capacity of 67.5 MW.
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<PAGE>
FINANCIAL AND OPERATING PERFORMANCE
Set forth below are the average operating capacity factor and total sales
revenues of each Coso Project facility for the years ended December 31, 1991,
1992 and 1993.
<TABLE>
<CAPTION>
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Navy I:
Capacity Factor (1)............................. 98.5% 99.8% 111.2%
Revenues........................................ $73,856 $79,694 $92,920
BLM:
Capacity Factor (1)............................. 71.4% 87.2% 98.1%
Revenues........................................ $56,110 $70,212 $83,738
Navy II:
Capacity Factor (1)............................. 99.9% 98.1% 102.6%
Revenues........................................ $74,580 $77,169 $86,667
</TABLE>
- --------
(1) Based on a capacity of 80 NMW for each year.
NON-RECOURSE COSO PROJECT FINANCING
In December 1992, the Coso Joint Ventures refinanced the existing bank debt
of the Coso Project with the proceeds of the sale of approximately $560 million
in senior secured notes (the "Coso Notes") in a private placement pursuant to
Rule 144A under the Securities Act. The Coso Notes were issued by Funding
Corp., a corporation owned by the Coso Joint Ventures and formed exclusively
for the purpose of issuing the Coso Notes. Funding Corp. has lent the Coso
Joint Ventures all of the net proceeds of the sale of the Coso Notes in loans
referred to as the "Project Loans."
Of the Coso Notes originally issued in December 1992, $47.9 million in
aggregate principal amount has matured and been paid in full when due. The
balance of the Coso Notes bear interest at fixed rates ranging from 6.50% to
8.87% and mature on dates ranging from June 30, 1994 to December 31, 2001.
Mandatory semiannual principal repayments are required with respect to certain
of the Coso Notes. The Coso Notes are currently rated "BBB-" by Standard &
Poor's Corporation, "Baa3" by Moody's Investors Service Inc., and "BBB" by Duff
& Phelps Credit Rating Co.
The obligations of each Coso Joint Venture under the Project Loans are non-
recourse obligations. Funding Corp. may look solely to each Coso Joint
Venture's pledged assets for satisfaction of such Coso Joint Venture's Project
Loan. Support loan and pledge arrangements between the Coso Joint Ventures have
the effect of cross-collateralizing each Project Loan, but only to the extent
of the other Coso Joint Ventures' available cash flow and, under certain
circumstances, the debt service reserve funds, and not as to other assets. The
Company is not liable for the repayment of the Coso Notes or the Project Loans.
The terms of the financing restrict the ability of the Coso Joint Ventures to
distribute cash to their partners. In order to distribute cash, (i) no event of
default may exist under the Project Loans or the Coso Notes, and no notice of
such an impending event of default may have been received from the trustee
under the Indenture governing the Coso Notes, (ii) certain financial ratios
must be met, and (iii) certain thresholds must be met regarding the
availability of adequate geothermal resource for each Coso Plant and for the
Coso Project as a whole, as described in the Coso Notes Indenture. In addition,
the consent of the management committee of the Coso Joint Venture is required
for cash distributions.
In connection with the refinancing of the Coso Project, the Company
contributed approximately $9.8 million to CEGC-Mojave Partnership ("CEGC-
Mojave"), a newly formed partnership which used the proceeds to acquire an
indirect limited partnership interest in Caithness Coso Holdings, L.P., a
partner in the BLM Project and an affiliate of Caithness Corporation
("Caithness"), the Company's primary joint
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<PAGE>
venture partner in the Coso Project. Certain cash flows of four Caithness
affiliates resulting from distributions from the Navy I, BLM and Navy II
Projects have been pledged to CEGC-Mojave . Under the terms of the CEGC-Mojave
partnership agreement, with certain exceptions, up to 25.0% of the cash flows
related to the Caithness affiliates will be distributed to such affiliates, and
the remainder will be distributed to the Company until the Company receives a
return of its initial investment plus a 17.0% annual rate of return, at which
time all distributions will revert to the Caithness affiliates.
Also in connection with the refinancing, the Coso Joint Ventures prepaid a
portion of certain notes to the Company in respect of prior advances made by
the Company to the Coso Project, and amended certain outstanding notes owing to
the Company. As a result, the BLM Joint Venture and the Navy II Joint Venture
have an aggregate of $19.0 million in principal amount of notes due to the
Company on March 19, 2002, which bear interest at 12 1/2% annually. The notes
are subordinated to the Project Loans and interest is not paid currently, but
accrues on a pay-in-kind basis until final maturity.
REGULATORY AND ENVIRONMENTAL MATTERS
The Coso Joint Ventures are subject to environmental laws and regulations at
the federal, state and local levels in connection with the development,
ownership and operation of the plants. These environmental laws and regulations
generally require that a wide variety of permits and other approvals be
obtained for the construction and operation of an energy-producing facility and
that the facility then operate in compliance with such permits and approvals.
Failure to operate the facility in compliance with applicable laws, permits and
approvals can result in the levy of fines or curtailment of operations by
regulatory agencies.
Management of the Coso Joint Ventures believes that the Coso Joint Ventures
are in compliance in all material respects with all applicable environmental
regulatory requirements and that maintaining compliance with current
governmental requirements will not require a material increase in capital
expenditures or materially affect its financial condition or results of
operations. It is possible, however, that future developments, such as more
stringent requirements of environmental laws and enforcement policies
thereunder, could affect the costs and the manner in which the Coso Joint
Ventures conduct their businesses.
INSURANCE
The Coso Project is insured for $600.0 million per occurrence for general
property damage and $600.0 million per occurrence for general property damage
and business interruption, subject to a $25,000 deductible for property damage
($500,000 for turbine generator and machinery) and a 15-day deductible on
business interruption. Catastrophic insurance (earthquake and flood) is capped
at $200.0 million per occurrence for property damage and $200.0 million per
occurrence for business interruption. Liability insurance coverage is $51.0
million (occurrence based) with a $10,000 deductible. Operators' extra expense
(control of well) insurance is $10.0 million per occurrence with a $25,000
deductible, which is non-auditable. The policies are issued by international
and domestic syndicates with each company rated A- or better by A.M. Best Co.
Inc. There can be no assurance, however, that earthquake, property damage,
business interruption or other insurance will be adequate to cover all
potential losses sustained by the Company or that such insurance will continue
to be available on commercially reasonable terms.
EMPLOYEES
The Coso Joint Ventures do not hire or retain any employees. All employees
necessary to the operation of the Coso Project are provided by the Company
under certain plant and field operations and maintenance agreements. As of
December 31, 1993, the Company employed approximately 160 people at the Navy I,
the BLM and the Navy II Plants, collectively.
32
<PAGE>
OTHER DOMESTIC PROJECTS AND DEVELOPMENT OPPORTUNITIES
DESERT PEAK
The Company is the owner and operator of a 10 MW geothermal power plant at
Desert Peak, Nevada that is currently selling electricity to Sierra Pacific
Power Company under a power sales contract that expires December 31, 1995 and
that may be extended on a year-to-year basis as agreed by the parties. The
price for electricity under this contract is 6.3 cents per kWh, comprising an
energy payment of 1.8 cents per kWh (which is adjustable pursuant to an
inflation-based index) and a capacity payment of 4.5 cents per kWh. The Company
is currently negotiating the terms of an extension to this contract.
ROOSEVELT HOT SPRINGS
The Company operates and owns an approximately 70% interest in a 25 MW
geothermal steam field which supplies geothermal steam to a power plant owned
by Utah Power & Light Company ("UP&L") located on the Roosevelt Hot Springs
property under a 30-year steam sales contract. The Company obtained
approximately $20.3 million of the cash portion of the purchase price for the
properties under a pre-sale agreement with UP&L whereby UP&L paid in advance
the entire purchase price for the Company's proportionate share of the steam
produced by the steam field. The Company must make certain penalty payments to
UP&L if the steam produced does not meet quantity and quality requirements.
YUMA
During 1992, the Company acquired a development stage 50 MW natural gas fired
cogeneration project in Yuma, Arizona. The Yuma Project is designed to be a
qualified facility under PURPA and to provide 50 MW (net) of electricity to
SDG&E over an existing 30-year power purchase sales contract. The electricity
is to be sold at SDG&E's Avoided Cost. The power will be transferred to SDG&E
over transmission lines constructed and owned by Arizona Public Service Company
("APS"). A transmission agreement has been executed between APS and the Yuma
Project but is subject to review by the Federal Energy Regulatory Commission.
The power sales contract with SDG&E requires the Yuma Project to commence
reliable operation by December 31, 1994. The Company currently anticipates that
construction will be completed by mid-year 1994. The project entity has
executed steam sales contracts with an adjacent industrial entity to act as its
thermal host in order to maintain its status as a qualified facility, which is
a requirement of its SDG&E contract. Since the industrial entity has the right
to terminate the agreement upon one year's notice if a change in its technology
eliminates its need for steam, and in any case to terminate the agreement at
any time upon three years notice, there can be no assurance that the Yuma
Project will maintain its status as a qualified facility. However, if the
industrial entity terminates the agreement, the Company anticipates that it
will be able to locate an alternative thermal host in order to maintain its
status as a qualified facility or build a greenhouse at the site which the
Company believes would enable the project to maintain its qualified facility
status. A natural gas supply and transportation agreement has been executed
with Southwest Gas Corporation.
The Yuma Project is being constructed pursuant to a fixed price turnkey
contract with Raytheon Engineers & Constructors for approximately $43 million,
of which the Company has to date funded approximately $37 million from internal
sources. The Company currently intends to fund the balance from internal
sources as construction expenses are incurred.
NEWBERRY
Under a Bonneville Power Administration ("BPA") geothermal pilot program, the
Company is developing a 30 MW geothermal project at Newberry, Oregon. Pursuant
to a memorandum of understanding executed in January 1993, the Company has
agreed to sell 20 MW of power to BPA and 10 MW to Eugene Water and Electric
Board ("EWEB") from the project. In addition, BPA has an option to purchase up
to an
33
<PAGE>
additional 100 MW of production from the project under certain circumstances.
In a public-private development effort, the Company is responsible for
development, permitting, financing, construction and operation of the project
(which will be 100% owned by the Company), while EWEB will cooperate in the
development efforts by providing assistance with government and community
affairs and sharing in the development costs (up to 30%). The project is
currently expected to commence commercial operation in 1997. The memorandum of
understanding provides that under certain circumstances the contracts may be
utilized at an alternate location.
A draft environmental impact study with respect to the project was completed
in January 1994 and is expected to be finalized in mid-year 1994, at which time
the Company expects to commence drilling of the geothermal wells and to execute
the power sales contracts, subject to obtaining all governmental permits and
approvals. The Company may use a portion of the proceeds of the Offering to
fund its equity investment in, and/or the construction costs of, the Newberry
Project.
GLASS MOUNTAIN
In March 1993, the Company completed the acquisition of an approximate 65%
interest in 26,000 acres of geothermal leaseholds at Glass Mountain in Northern
California, which include three successful production wells with an aggregate
existing capacity of between 15 to 30 MW. The Company believes that this
acreage represents one of the finest undeveloped geothermal reservoirs in the
country. The Company has attempted to negotiate the terms of a power sales
contract to exploit this geothermal resource, however, no agreement exists to
date.
INTERNATIONAL PROJECTS AND DEVELOPMENT OPPORTUNITIES
OVERVIEW
The Company presently believes that the international independent power
market holds the majority of new opportunities for financially attractive
private power development in the next several years, because the demand for new
generating capacity is growing more rapidly in foreign markets, especially
emerging nations, than in the United States. The World Bank estimates that
developing countries will need approximately 380,000 MW of new generating
capacity over the next decade. The need for such rapid expansion has forced
many countries to select private power development as their only practical
alternative and to restructure their legislative and regulatory schemes to
facilitate such development. The Company believes that this significant need
for power has created strong local support for private power projects in many
foreign countries and increased the availability of long-term multilateral
lending agency and foreign source financing and political risk insurance for
certain international private power projects, particularly those utilizing
indigenous fuel sources and renewable or otherwise environmentally responsible
generating facilities. The Company intends to focus its efforts on the
development, construction, ownership and operation of such projects.
In developing its international strategy, the Company intends to pursue
development opportunities in countries which it believes have an acceptable
risk profile and where the Company's geothermal resource development and
operating experience, project development expertise or strategic relationship
with Kiewit or local partners are expected to provide it with a competitive
advantage. The Company is currently pursuing a number of electric power project
opportunities in countries such as the Philippines and Indonesia, which have
initiated private power programs and have extensive geothermal resources. The
Company's development efforts include both so-called "green field" development,
in which the Company attempts to negotiate unsolicited power sales contracts
for new generation capacity or engages in competitive bids in response to
government agency or utility requests for proposals for new capacity, as well
as the acquisition of or participation in the joint development of projects
which are under development or already operating. To better position itself to
pursue international project development opportunities in the Asian market, the
Company recently established an office in Singapore to oversee its activities
in that region, including the Philippines and Indonesia. In pursuing
international projects, the Company intends to maintain a significant equity
interest in, and to operate, the projects that it develops or acquires.
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<PAGE>
[Map of Pacific Basin showing countries having geothermal resources.]
In order to compete more effectively internationally, the Company's strategy
is to diversify its project portfolio, reduce its future equity commitments and
leverage its capabilities in international projects by developing most
international projects on a joint venture basis. To that end, the Company has
recently entered into international joint venture agreements with Kiewit and
Distral (two firms with extensive power plant construction experience) in an
effort to augment and accelerate the Company's capabilities in foreign energy
markets. Joint venture activities with Distral will be conducted in South
America, Central America and the Caribbean and joint venture activities with
Kiewit will be conducted in Asia (in particular the Philippines and Indonesia)
and in other regions not covered by the Distral joint venture agreement. See
"--International Joint Venture Agreements."
FUNDING FOR INTERNATIONAL PROJECTS
The Company intends to utilize a substantial portion of the net proceeds of
the Offering to fund all or part of its equity investments in, and loans to,
certain of the Company's international private power projects and related
facilities. Such proceeds will give the Company the ability to bid projects
without a financing contingency, to provide accelerated funding for
construction and to guarantee its equity commitments, which will enhance the
Company's competitive position in developing international projects. It is the
Company's experience that the amount of time necessary to negotiate and
conclude a construction credit facility for an international project is
significantly longer than the amount of time necessary to finance an already
proven and operating project. By having the financing available to commence
construction as soon as the principal project contracts and permits are
completed, the Company believes that it will be able to shorten the time
required to bring an international power project to commercial operation.
The Company may use the proceeds of the Offering to provide a loan or other
financing for a project owned by a subsidiary or eligible joint venture to fund
construction of a domestic or international private power project and related
facilities. The Company does not intend to permit the drawdown of such loans or
other financing in any significant amount for the construction of such projects
until certain project milestones have been achieved, including signing power
sales contracts and financeable "turnkey" construction contracts and obtaining
permits and approvals that would be required for a traditional non-recourse
project financing. On or before the commencement of commercial operation of
such a project, the Company intends either to
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<PAGE>
retire its construction financing with the proceeds of a third-party non-
recourse project finance term loan or, if such a third-party loan is not then
available on terms acceptable to the Company or is otherwise disadvantageous,
to convert the construction loan into a medium or long-term facility provided
by the Company.
If the Company uses the proceeds of the Offering to provide a construction or
term loan to a subsidiary or joint venture project, payment of such loan will
generally be secured by substantially all the assets and cash flows of that
project, although the financing structure and collateral could also take other
forms such as preferred stock or partnership interests of the project entity.
To the extent the Company chooses to fund all or part of the construction costs
of a project on behalf of its joint venture partners, the Company intends to
negotiate appropriate terms and conditions, including equity transfer
restrictions and lending fees or other compensation for providing such
financing. The Company has no intention of advancing any equity funds on behalf
of its joint venture partners. Once construction financing made from the
proceeds of this Offering has been repaid, then the Company may use those
proceeds again for any of the permitted uses.
The proceeds of the Offering that are devoted to construction debt financing
for, and the equity contributions to, international power projects will be
subject to all of the usual risks that are inherent in project financing. In
addition, international projects may involve certain additional risks that are
not present to the same extent in domestic project financings, including
political, currency conversion and repatriation risks. In evaluating and
negotiating international projects, the Company intends to employ a strategy
whereby a substantial portion of the political and financial risks are, through
contract provisions or insurance coverage, borne by parties other than the
Company. However, there can be no assurance that such insurance coverage or
contract provisions will be available on commercially reasonable terms, or if
obtained, will be performed by the parties thereto. See "Investment
Considerations--Development Uncertainty" and "--Development Uncertainty Outside
the United States."
The following is a brief description of the international joint ventures and
project development activities that the Company has undertaken to date.
INTERNATIONAL JOINT VENTURE AGREEMENTS
As part of the Company's international development strategy, the Company
recently signed separate joint venture agreements with Kiewit and Distral.
These joint ventures provide the Company with strategic alliances with firms
possessing unique private power and construction expertise. The Company
believes these strategic joint venture relationships will augment and
accelerate its development capabilities in foreign energy markets and provide
it with a relative competitive advantage. In addition, the Company believes
that participation in these joint ventures will help the Company to diversify
its project risk profile, leverage its development capabilities and reduce
future requirements to raise additional equity for the Company's projects. The
Company also believes that it is important in foreign transactions to establish
strong relationships with local partners (such as Distral in South America and
P.T. Himpurna and P.T. ESA (each as defined below) in Indonesia) who are
knowledgeable of local cultural, political and commercial practices and who
provide a visible local presence and local project representation.
Kiewit Joint Venture
On December 14, 1993, the Company signed a joint venture agreement with
Kiewit. Kiewit is one of the largest construction companies in North America
and has been in the construction business since 1884. Kiewit is a diversified
industrial company with approximately $2.0 billion in revenues in 1993 from
operations in construction, mining and telecommunications. Kiewit has built a
number of power plants in the United States and large infrastructure projects
and industrial facilities worldwide, and owns a 36.6% beneficial interest in
the Company.
The Kiewit joint venture agreement, which has an initial term of three years,
provides each party a right of first refusal to pursue jointly all "build, own
and operate" or "build, own, operate and transfer" power
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projects identified by the other party or its affiliates outside of the United
States, except in locations covered by the Distral joint venture agreement
described below. The Kiewit joint venture agreement provides that, if both
parties agree to participate in a project, they will share all development
costs equally, each of the Company and Kiewit will provide 50% of the equity
required for financing a project developed by the joint venture and the Company
will operate and manage any such project. The agreement contemplates a joint
development structure under which, on a project by project basis, the Company
will be the development manager, managing partner and/or project operator, an
equal equity participant with Kiewit and a preferred participant in the
construction consortium and Kiewit will be an equal equity participant and the
preferred turnkey construction contractor, with the construction consortium
providing customary security to project lenders (including the Company) for
liquidated damages and completion guarantees. The joint venture agreement may
be terminated by either party on 15 days written notice, provided that such
termination cannot affect the pre-existing contractual obligations of either
party.
Distral Joint Venture
On December 14, 1993, the Company entered into a joint venture agreement with
Distral of the Lancaster Distral Group, a South American engineering and
manufacturing company. Distral, a turnkey construction contractor and
manufacturer of boilers, generators and heavy equipment, has constructed,
engineered or supplied equipment to numerous coal, gas and hydroelectric power
plants located in Central and South America. The Company believes that, in
addition to its extensive experience in energy-related business, Distral brings
substantial knowledge of the customs and commercial practices in Central and
South America, as well as knowledge of the general power markets and specific
power project opportunities in such regions.
The joint venture agreement, which has an initial term of three years,
provides that the joint venture will have the right of first refusal to jointly
pursue all power projects identified by the joint venture, the Company, Distral
or their affiliates (other than Kiewit) in the Caribbean, South America and
that part of Central America south of Mexico. The agreement provides that the
Company and Distral will share all development costs equally, if both parties
agree to participate in a project. The Company is required to provide at least
50% of the equity required to finance any project developed by the joint
venture; provided, however, that the Company may assign up to 50% of its equity
interest in any such project to Kiewit and its affiliates. The agreement
contemplates a joint development structure under which the Company and Distral
will jointly operate and maintain each joint venture project, with the Company
responsible for overall supervision and management. The Distral agreement may
be terminated at any time by the Company or Distral, provided that such
termination cannot affect the pre-existing contractual obligations of either
party.
THE PHILIPPINES
The Company believes that increasing industrialization, a rising standard of
living and an expanding power distribution network has significantly increased
demand for electrical power in the Philippines. Currently, according to the
1993 Power Development Program of the National Power Corporation of the
Philippines ("NAPOCOR"), demand for electricity exceeds supply. NAPOCOR has
also reported that its ability to sustain current levels of electric production
from existing facilities has been limited due to frequent breakdowns in many of
its older electric generating plants and an extended drought, which has limited
hydroelectric generation. As a result, the Philippines has experienced severe
power outages, with Manila suffering significant daily brownouts during much of
1993. Although the occurrence of brownouts has been recently reduced, NAPOCOR
has said that it still anticipates significant energy shortages in the future.
In 1993, the Philippine Congress, pursuant to Republic Act 7648, granted
President Ramos emergency powers to remedy the Philippines' energy crisis,
including authority to (i) exempt power projects from public bidding
requirements, (ii) increase power rates and (iii) reorganize NAPOCOR. Until
1987, NAPOCOR had a monopoly on power generation and transmission in the
Philippines. In 1987, then President Aquino issued
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Executive Order No. 215, which grants private companies the right to develop
certain power generation projects, such as those using indigenous energy
sources on a "build-operate-transfer" or "build-transfer" basis. In 1990, the
Philippine Congress enacted Republic Act No. 6957, which authorizes private
development of priority infra-structure projects on a "build-operate-transfer"
and a "build-transfer" basis. In addition, under that Act, such power projects
are eligible for certain tax benefits, including exemption from Philippine
national income taxes for at least six years and exemption from, or
reimbursement for, customs duties and value added taxes on capital equipment to
be incorporated into such projects.
In an effort to remedy the shortfall of electricity, the Republic of the
Philippines, NAPOCOR and the Philippine National Oil Company-Energy Development
Company ("PNOC-EDC") are jointly soliciting bids for private power projects.
The potential Philippine indigenous resources include geothermal, hydro and
coal, of which geothermal power has been identified as a preferred alternative.
The Philippine Government has elected to promote geothermal power development
due to the domestic availability and the minimal environmental effects of
geothermal power, in addition to other forms of power production. PNOC-EDC,
which is responsible for developing the Philippines' domestic energy sources,
has been successful in the exploration and development of geothermal resources.
[Map of the Philippines]
The Company has been awarded and signed power contracts with PNOC-EDC for two
geothermal projects, Upper Mahiao and Mahanagdong, aggregating 300 MW. The
following is a summary description of certain information concerning these and
other projects as it is currently known to the Company. Since these projects
are still in development, however, there can be no assurance that this
information will not change over time. In addition, there can be no assurance
that development efforts on any particular project, or the Company's efforts
generally, will be successful. These summaries also include brief descriptions
of certain of the agreements material to these projects. Such summaries are
qualified in their entirety by reference to such agreements.
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Upper Mahiao
The Company is negotiating the final terms of the construction and term
project financing for a 120 MW geothermal project to be located in the Greater
Tongonan area of the island of Leyte, Republic of the Philippines (the "Upper
Mahiao Project"). The Upper Mahiao Project will be built, owned and operated by
CE Cebu Geothermal Power Company, Inc. ("CE Cebu"), a Philippine corporation
that will be more than 95% indirectly owned by the Company. It will sell 100%
of its capacity on a "take-or-pay" basis (described below) to PNOC-EDC, which
will in turn sell the power to NAPOCOR for distribution to the island of Cebu,
located about 40 miles west of Leyte.
The Company estimates that Upper Mahiao will have a total project cost of
approximately $226 million, including interest during construction, project
contingency costs and a debt service reserve fund. A consortium of
international banks is expected to provide an approximately $170 million
project-financed, nonrecourse construction loan, supported by political risk
insurance from ExIm Bank. The Company expects that the term loan for the
project will also be provided by ExIm Bank, and that both the construction and
the term loan agreements will be executed in April 1994. Shortly thereafter,
the Company expects to issue a notice to proceed to the contractor under the
EPC Contract (as defined below), with commercial operations scheduled for mid-
year 1996. The Company expects that a portion of the proceeds of the Offering
would be used to fund all or part of its $56 million equity commitment to the
Project. The Company intends to arrange for political risk insurance on this
equity investment through OPIC or from governmental agencies or commercial
sources.
The Upper Mahiao Project will be constructed by Ormat, Inc. ("Ormat") and its
affiliates pursuant to supply and construction contracts (collectively the
"Mahiao EPC Contract"), which, taken together, provide for the construction of
the plant on a fixed-price, date-certain, turnkey basis. Ormat is an
international manufacturer and construction contractor that builds binary
geothermal turbines; it has provided its equipment to several geothermal power
projects throughout the United States and internationally. The Mahiao EPC
Contract provides liquidated damage protection of 30% of the Mahiao EPC
Contract price. Ormat's performance under the Mahiao EPC Contract will be
backed by a completion guaranty of Ormat, by letters of credit, and by a
guaranty of Ormat Industries, Ltd., an Israeli corporation and the parent of
Ormat, in each case for the benefit of, and satisfactory to, the Project
lenders.
Under the terms of the Energy Conversion Agreement, executed on September 6,
1993 (the "Upper Mahiao ECA"), CE Cebu will build, own and operate the Project
during the two-year construction period and the ten-year cooperation period,
after which ownership will be transferred to PNOC-EDC at no cost. The
effectiveness of the Upper Mahiao ECA is subject to the satisfaction or waiver
of certain conditions prior to March 8, 1994 (subject to extension by agreement
of the parties which is anticipated by the Company to be readily available
through April 8, 1994) including finalization of the principal project
documents (including, a power purchase agreement between PNOC-EDC and NAPOCOR),
posting by Ormat of a construction performance bond in favor of PNOC-EDC in the
amount of approximately $11.8 million, obtaining permits and approvals from
various Philippine governmental authorities and arranging financing
commitments. In the event the parties are unable to satisfy such conditions
before the agreed upon effectivity date, either party may terminate the Upper
Mahiao ECA and such party shall reimburse the other party for its costs and
expenses incurred in connection with such agreement.
The Project will be located on land to be provided by PNOC-EDC at no cost; it
will take geothermal steam and fluid, also provided by PNOC-EDC at no cost, and
convert its thermal energy into electrical energy to be sold to PNOC-EDC on a
"take-or-pay" basis. Specifically, PNOC-EDC will be obligated to pay for the
electric capacity that is nominated each year by CE Cebu, irrespective of
whether PNOC-EDC is willing or able to accept delivery of such capacity. PNOC-
EDC will pay to CE Cebu a fee (the "Capacity Fee") based on the plant capacity
nominated to PNOC-EDC in any year (which, at the plant's design capacity is
approximately 95% of total contract revenues) and a fee (the "Energy Fee")
based on the electricity actually delivered to PNOC-EDC (approximately 5% of
total contract revenues). The Capacity Fee consists of three
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separate components: a fee to recover the capital costs of the project, a fee
to recover fixed operating costs and a fee to cover return on investment. The
Energy Fee is designed to cover all variable operating and maintenance costs of
the power plant. Payments under the Upper Mahiao ECA will be denominated in
U.S. dollars, or computed in dollars and paid in Philippine pesos at the then-
current exchange rate, except for the Energy Fee, which will be used to pay
peso-denominated expenses. The ECA provides a mechanism to convert Philippine
pesos to dollars. Significant portions of the Capacity Fee and Energy Fee will
be indexed to U.S. and Philippine inflation rates, respectively. PNOC-EDC's
"take-or-pay" performance requirement, and its other obligations under the
Upper Mahiao ECA, are guaranteed by the Republic of the Philippines through a
performance undertaking.
The payment of Capacity Fees is not excused if PNOC-EDC fails to deliver or
remove the steam or fluids or fails to provide the transmission facilities,
even if its failure was caused by a force majeure event. In addition, PNOC-EDC
must continue to make Capacity Fee payments if there is a force majeure event
(e.g., war, nationalization, etc.) that affects the operation of the Project
and that is within the reasonable control of PNOC-EDC or the government of the
Republic of the Philippines or any agency or authority thereof. If CE Cebu
fails to meet certain construction milestones or the power plant fails to
achieve 70% of its design capacity by the date that is 120 days after the
scheduled completion date (as that date may be extended for force majeure and
other reasons under the Upper Mahiao ECA), the Project may, under certain
circumstances, be deemed "abandoned," in which case the Project must be
transferred to PNOC-EDC at no cost, subject to any liens existing thereon.
PNOC-EDC is obligated to purchase CE Cebu's interest in the facility under
certain circumstances, including (i) extended outages resulting from the
failure of PNOC-EDC to provide the required geothermal fluid, (ii) changes in
tax, environmental or other laws which would materially adversely affect CE
Cebu's interest in the project, (iii) transmission failure, (iv) failure of
PNOC-EDC to make timely payments of amounts due under the Upper Mahiao ECA, (v)
privatization of PNOC-EDC or NAPOCOR, and (vi) certain other events. Prior to
completion of the Project, the buy-out price will be equal to all costs
incurred through the date of the buy-out, including all Project debt, plus an
additional rate of return on equity of ten percent per annum. In a post-
completion buy-out, the price will be the net present value at a ten percent
discount rate of the total remaining amount of Capacity Fees over the remaining
term of the Upper Mahiao ECA.
Mahanagdong
The Mahanagdong project (the "Mahanagdong Project") is expected to be a 180
MW geothermal project, which will also be located on the island of Leyte. The
Mahanagdong Project will be built, owned and operated by CE Luzon Geothermal
Power Company, Inc. ("CE Luzon"), a Philippine corporation that is currently
expected to be indirectly owned as follows: 45% by the Company, 45% by Kiewit
and up to 10% by another industrial company. It will sell 100% of its capacity
on a take-or-pay basis (as described above for the Upper Mahiao Project) to
PNOC-EDC, which will in turn sell the power to NAPOCOR for distribution to the
island of Luzon.
The Company estimates that Mahanagdong will have a total project cost of
approximately $310 million, including interest during construction, project
contingency costs and a debt service reserve fund. The proposed capital
structure is 75% debt, with a construction and term loan of approximately $225
million, and 25% equity, or approximately $85 million in equity contributions.
The Company believes that political risk insurance from ExIm Bank for financing
of the procurement of U.S. goods and services and, if appropriate, will request
similar coverage from the Export-Import Bank of Japan for Japanese goods and
services is available. The Company is in the process of arranging construction
financing for the Project from a consortium of international banks, but may use
some of the proceeds of this Offering to provide all or part of the interim
construction debt financing of $225 million. Construction of the Project is
expected to commence in mid-year 1994, with commercial operation presently
scheduled for mid-year 1997. The Company also intends to provide some or all of
its approximately $40 million share of the $85 million equity
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contribution from these proceeds, and to arrange for political risk insurance
on this investment through OPIC or from governmental agencies or commercial
sources.
The Mahanagdong Project will be constructed by a consortium consisting of
Kiewit Construction Group, Inc. ("KCG") and The Ben Holt Co., Inc. ("BHCO")
(the "EPC Consortium") pursuant to fixed-price, date-certain, turnkey supply
and construction contracts (collectively the "Mahanagdong EPC Contract"). The
obligations of the EPC Consortium under the Mahanagdong EPC Contract will be
supported by letters of credit, bonds, guarantees or other acceptable security
in an aggregate amount equal to approximately 30% of the Mahanagdong EPC
Contract's price, plus a joint and several guaranty of each of the EPC
Consortium members. KCG, a wholly-owned subsidiary of Kiewit, will be the lead
member of the EPC Consortium, with an 80% interest. KCG performs construction
services for a wide range of public and private customers in the U.S. and
internationally. Construction projects undertaken by KCG during 1992 included:
transportation projects, including highways, bridges, airports and railroads;
power facilities; buildings and sewer and waste disposal systems; with the
balance consisting of water supply systems, utility facilities, dams and
reservoirs. KCG accounted for 80% of Kiewit's revenues, contributing $1.7
billion in revenues in 1993. KCG has an extensive background in power plant
construction.
BHCO will provide design and engineering services for the EPC Consortium,
holding a 20% interest. BHCO, wholly-owned by the Company, is a California
based engineering firm with over 25 years of geothermal experience,
specializing in feasibility studies, process design, detailed engineering,
procurement, construction and operation of geothermal power plants, gathering
systems and related facilities. The Company will provide a guarantee of BHCO's
obligations under the Mahanagdong EPC Contract.
The terms of the Energy Conversion Agreement (the "Mahanagdong ECA"),
executed on September 18, 1993, are substantially similar to those in the Upper
Mahiao ECA. The Mahanagdong ECA provides for a three-year construction period,
and its effectivity deadline date is in July 1994. All of PNOC-EDC's
obligations under the Mahanagdong ECA will be guaranteed by the Republic of the
Philippines through a performance undertaking. The Capacity Fees are expected
to be approximately 97% of total revenues at the expected capacity levels and
the Energy Fees are expected to be approximately 3% of such total revenues.
Casecnan
The Company has been granted exclusive rights to negotiate an energy sales
contract with NAPOCOR and a water sales contract with the National Philippine
Irrigation Administration in connection with a proposed 60 MW hydro-electric
generating facility to be located in the Casecnan area on the island of Luzon.
These contracts will be structured as take-or-pay capacity and energy
agreements, with capacity payments representing the bulk of the revenues.
Negotiations have only recently commenced on this potential project, and there
can be no assurance at this time that any agreement will be reached by the
parties.
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INDONESIA
The Republic of Indonesia is experiencing demand for electrical power that
exceeds current supply, and has a number of promising geothermal reservoirs.
Recent Indonesian legislation has facilitated foreign ownership and operation
of private electrical power generation and transmission facilities. The
Company's subsidiaries are currently negotiating several potential project
agreements for geothermal power facilities in Indonesia, and if one or more of
those projects proceeds, it intends to utilize a portion of the proceeds of
this Offering in connection with such projects.
[MAP OF INDONESIA]
The following is a summary description of certain information concerning
these projects as it is currently known to the Company. Since these projects
are still in development, however, there can be no assurance that this
information will not change materially over time. In addition, there can be no
assurance that development efforts on any particular project, or the Company's
efforts generally, will be successful.
Dieng
Through memoranda of understanding executed by Perusahaan Pertambangan Minyak
Dan Gas Bumi Negara ("Pertamina"), the Indonesian national oil company, and
assigned to the Company, the Company has been awarded the exclusive right to
develop geothermal resources in the Dieng region of central Java, Indonesia
(the "Dieng Project"). A subsidiary of the Company has entered into a Joint
Development Agreement with P.T. Himpurna Enersindo Abadi ("P.T. HEA"), its
Indonesian partner, which is a subsidiary of Himpurna, an association of
Indonesian military veterans, whereby the Company and P.T. HEA have agreed to
work together on an exclusive basis to develop the Dieng Project (the "Dieng
JV"). The Dieng JV is expected to be structured such that subsidiaries of the
Company will have a 45% interest, subsidiaries of Kiewit will have the option
to take a 45% interest and P.T. HEA will have a 10% interest in the Project.
The Dieng JV expects to conduct geothermal exploration and development in the
Dieng field, to build, own and operate power generating facilities and to sell
the power generated to Perusahaan Umum Listrik Negara ("PLN"), the Indonesian
national electric utility.
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The Dieng JV and Pertamina are currently negotiating a proposed Joint
Operation Contract (the "Dieng JOC") pursuant to which Pertamina would
contribute the geothermal field and the wells and other facilities presently
located thereon and the Dieng JV initially would build, own and operate four
power production units comprising an aggregate of 220 MW. The Dieng JV will
accept the field operation responsibilities and geothermal resource risk in
connection with the Dieng Project, and the Dieng JV will be responsible for
developing and supplying the geothermal steam and fluids required to operate
the plants. The current proposed Dieng JOC would expire (subject to extension
by mutual agreement) on the date which is the later of (i) 42 years following
completion of well testing and (ii) 30 years following the date of commencement
of commercial operation of the final unit completed. Upon the expiration of the
proposed Dieng JOC, all facilities would be transferred to Pertamina at no
cost. Under the proposed Dieng JOC, the Dieng JV would be required to pay
Pertamina a production allowance equal to three percent of the Dieng JV's net
operating income from the Dieng Project, plus a further percentage based upon
the negotiated value of existing Pertamina geothermal production facilities
that the Company expects will be contributed by Pertamina.
The Dieng JV and Pertamina are currently negotiating a proposed "take-or-pay"
Energy Sales Contract (the "Dieng ESC") with PLN whereby PLN would agree to
purchase and pay for all electricity delivered or capacity made available from
the Dieng Project for a term equal to that of the Dieng JOC. Under the current
draft, the price paid for electricity would equal a base energy price per kWh
multiplied by the number of kWh the plants deliver or are "capable of
delivering," whichever is greater. Electricity revenue payments would also be
adjusted for inflation and fluctuations in exchange rates.
Assuming execution of the Dieng JOC and the Dieng ESC, the Company presently
intends to begin well testing by the second quarter of 1994 and to commence
construction of an initial 55 MW unit in the fourth quarter of 1994, and then
to proceed on a modular basis with construction of three additional units to
follow shortly thereafter, resulting in an aggregate first phase at this site
of 220 MW. The Company estimates that the total project cost of these units
will be approximately $450 million. The Company anticipates that the Dieng
Project will be designed and constructed by a consortium consisting of KCG and
BHCO, and that the Company (through a subsidiary) will be responsible for
operating and managing the Dieng Project.
The Dieng field has been explored domestically for over 20 years and BHCO has
been active in the area for more than five years. The Company has a significant
amount of data, which it believes to be reliable as to the production capacity
of the field. However, a number of significant steps, both financial and
operational, must be completed before the Dieng Project can proceed. These
steps, none of which can be assured, include obtaining required regulatory
permits and approvals, entering into the Dieng JOC, undertaking and completing
the well testing contemplated by the Dieng JOC, entering into the Dieng ESC,
the construction agreement and other project contracts and arranging financing.
Patuha
The Company has also negotiated a memorandum of understanding and expects to
execute a definitive agreement with Pertamina for the exclusive geothermal
development rights with respect to the Patuha geothermal field in Java,
Indonesia (the "Patuha Project"). The Company has entered into an agreement to
establish a joint venture for Patuha with P.T. Enerindo Supra Abadi, an
Indonesian company ("P.T. ESA") (the "Patuha JV"). P.T. ESA is an affiliate of
the Bukaka Group, which has extensive experience in general construction,
fabrication and electrical transmission construction in Indonesia. In exchange
for project development services, P.T. ESA is expected to receive a 10% equity
interest in the Patuha Project with an option to acquire an additional 20%
interest for cash upon the satisfaction of certain conditions. Subject to the
exercise of that option, subsidiaries of the Company will have a 45% interest
and subsidiaries of Kiewit will have the option to take a 45% interest in the
Patuha Project.
The Patuha JV is currently negotiating both a joint operation contract
("JOC") and an energy sales contract ("ESC"), each of which currently contains
terms substantially similar to those described above for the Dieng Project. The
Patuha JV presently intends to proceed on a modular basis like the Dieng
Project,
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with an initial 55 MW unit to be built followed by three additional units, in
total aggregating 220 MW. The Company estimates that the total cost of these
four units will be approximately $450 million. Assuming execution of both a JOC
and an ESC, field development is expected to commence in the first quarter of
1995 with construction of the first unit expected to begin by mid-year 1996.
The Patuha Project remains subject to a number of significant uncertainties,
as described above in connection with the Dieng Project, and there can be no
assurance that the Patuha Project will proceed or reach commercial operation.
Lampung/South Sumatra
The Company and P.T. ESA have also formed a joint venture (the "Lampung JV")
to pursue development of geothermal resources in the Lampung/South Sumatra
regions (the "Lampung Project"). The Lampung JV is presently exploring several
geothermal fields in this region and is negotiating a memorandum of
understanding for a JOC and ESC for these prospects containing terms
substantially similar to those described above for the Dieng Project.
The Company presently intends to develop the Lampung Project and other
possible Indonesian projects using a structure similar to that contemplated for
the Dieng Project, with the same construction consortium, similar equipment and
similar financing arrangements.
The Lampung Project remains subject to a number of significant uncertainties,
as described above for the Dieng Project, and there can be no assurance that
the Company will pursue the Lampung Project or that it will proceed or reach
commercial operation.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The current directors and executive officers of the Company and their
positions with the Company as of March 1, 1994 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard R. Jaros.................. 42 Chairman of the Board, Director
David L. Sokol.................... 37 President and Chief Executive Officer,
Director
Gregory E. Abel................... 31 Assistant Vice President and
Controller
Edward F. Bazemore................ 57 Vice President, Human Resources
David W. Cox...................... 38 Vice President, Legislative and
Regulatory Affairs
Philip E. Essner.................. 51 Vice President, Land Management and
Insurance
Vincent R. Fesmire................ 53 Vice President, Development and
Implementation
Thomas R. Mason................... 50 Senior Vice President, Project
Development and Operations
Steven A. McArthur................ 36 Senior Vice President, General Counsel
and Secretary
Donald M. O'Shei, Sr. ............ 60 Vice President; President, California
Energy International Ltd.
John G. Sylvia.................... 36 Vice President, Chief Financial
Officer and Treasurer
Edgar D. Aronson.................. 59 Director
Judith E. Ayres................... 49 Director
Harvey F. Brush................... 73 Director
James Q. Crowe.................... 44 Director
Richard K. Davidson............... 52 Director
Ben M. Holt....................... 79 Director
Everett B. Laybourne.............. 82 Director
Daniel J. Murphy.................. 72 Director
Herbert L. Oakes, Jr. ............ 47 Director
Walter Scott, Jr. ................ 62 Director
Barton W. Shackelford............. 73 Director
David E. Wit...................... 31 Director
</TABLE>
Set forth below is certain information with respect to each director and
executive officer of the Company:
RICHARD R. JAROS, Chairman of the Board and Director. Mr. Jaros has been a
director of the Company since March 1991. Mr. Jaros has served as Chairman of
the Board since April 19, 1993 and served as President and Chief Operating
Officer of the Company from January 8, 1992 to April 5, 1993. From 1990 until
January 8, 1992, Mr. Jaros served as a Vice President of Kiewit and is
currently an Executive Vice President and a director of Kiewit. Mr. Jaros
serves as a director of MFS Communications Company, Inc., and C-Tec
Corporation, both of which are publicly traded companies in which Kiewit holds
a majority ownership interest. From 1986 to 1990, Mr. Jaros served as a Vice
President for Mergers and Acquisitions for Kiewit Holdings, a subsidiary of
Kiewit.
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DAVID L. SOKOL, President, Chief Executive Officer and Director. Mr. Sokol
has been a director of the Company since March 1991 and has served as President
and Chief Executive Officer of the Company since April 19, 1993. Mr. Sokol was
Chairman, President and Chief Executive Officer of the Company from February
1991 until January 1992. Mr. Sokol was the President and Chief Operating
Officer of, and a director of, JWP, Inc., from January 27, 1992 to October 1,
1992. From November 1990 until February 1991, Mr. Sokol was the President and
Chief Executive Officer of Kiewit Energy, a subsidiary of Kiewit and the
Company's largest shareholder. From 1983 to November 1990, Mr. Sokol was the
President and Chief Executive Officer of Ogden Projects, Inc.
GREGORY E. ABEL, Assistant Vice President and Controller. Mr. Abel joined the
Company in 1992. Mr. Abel is a Chartered Accountant and from 1984 to 1992 he
was employed by Price Waterhouse. As a Manager in the San Francisco office of
Price Waterhouse, he was responsible for clients in the energy industry.
EDWARD F. BAZEMORE, Vice President, Human Resources. Mr. Bazemore joined the
Company in July 1991. From 1989 to 1991, he was Vice President, Human
Resources, at Ogden Projects, Inc. in New Jersey. Prior to that, Mr. Bazemore
was Director of Human Resources for Ricoh Corporation, also in New Jersey.
Previously, he was Director of Industrial Relations for Scripto, Inc. in
Atlanta, Georgia.
DAVID W. COX, Vice President, Legislative and Regulatory Affairs. Mr. Cox
joined the Company in 1990. From 1987 to 1990, Mr. Cox was Vice President with
Bank of America N.T.& S.A. in the Consumer Technology and Finance Group. From
1984 to 1987, Mr. Cox held a variety of management positions at First
Interstate Bank.
PHILIP E. ESSNER, Vice President, Land Management and Insurance. Mr. Essner
administers the Company's geothermal lease acquisition and land position
programs, and obtains permits from regulatory agencies. He has been a Vice
President of the Company since 1983.
VINCENT R. FESMIRE, Vice President, Development and Implementation. Mr.
Fesmire joined the Company in October 1993. Prior to joining the Company, Mr.
Fesmire was employed for 19 years with Stone & Webster, an engineering firm
serving in various management level capacities, with an expertise in geothermal
design engineering.
THOMAS R. MASON, Senior Vice President, Project Development and Operations.
Mr. Mason joined the Company in March 1991. From October 1989 to March 1991,
Mr. Mason was Vice President and General Manager of Kiewit Energy. Mr. Mason
acted as a consultant in the energy field from June 1988 to October 1989. Prior
to that, Mr. Mason was Director of Marketing for Energy Factors, Inc., a non-
utility developer of power facilities.
STEVEN A. McARTHUR, Senior Vice President, General Counsel and Secretary. Mr.
McArthur joined the Company in February 1991. From 1988 to 1991, he was an
attorney in the Corporate Finance Group at Shearman & Sterling in San
Francisco. From 1984 to 1988 he was an attorney in the Corporate Finance Group
at Winthrop, Stimson, Putnam & Roberts in New York.
DONALD M. O'SHEI, SR., Vice President; President, California Energy
International, Ltd. General O'Shei was in charge of engineering and operations
for the Company from October 1988 until October 1991. He rejoined the Company
as a Vice President in August 1992. Previously he was President and Chief
Executive Officer of AWD Technologies, Inc., a hazardous waste remediation
firm, and President and General Manager of its predecessor company, Atkinson-
Woodward Clyde. He was a brigadier general in the U.S. Army prior to joining
the Guy F. Atkinson Co. in 1982 as Director of Corporate Planning and
Development.
46
<PAGE>
JOHN G. SYLVIA, Vice President, Chief Financial Officer and Treasurer. Mr.
Sylvia joined the Company in 1988. From 1985 to 1988, Mr. Sylvia was a Vice
President in the San Francisco office of the Royal Bank of Canada, with
responsibility for global corporate finance and capital markets banking. In
addition, from 1986 to 1990, Mr. Sylvia served as an Adjunct Professor of
Applied Economics at the University of San Francisco. From 1982 to 1985, Mr.
Sylvia was a Vice President with Bank of America.
EDGAR D. ARONSON. Mr. Aronson has been a director of the Company since April
1983. Mr. Aronson founded EDACO Inc., a private venture capital company, in
1981; and has been President of EDACO since that time. Mr. Aronson was Chairman
of Dillon, Read International from 1979 to 1981 and a General Partner in charge
of the International Department at Salomon Brothers Inc from 1973 to 1979.
JUDITH E. AYRES. Ms. Ayres has been a director of the Company since July
1990. Since 1989 Ms. Ayres has been Principal of The Environmental Group, an
environmental and management consulting firm in San Francisco, California. From
1988 to 1989, Ms. Ayres was Vice President/Principal of William D. Ruckelshaus
Associates, an environmental consulting firm. From 1983 to 1988 Ms. Ayres was
the Regional Administrator of Region 9 (Arizona, California, Hawaii, Nevada and
the Western Pacific Islands) of the United States Environmental Protection
Agency.
HARVEY F. BRUSH. Mr. Brush has been a director of the Company since July
1990. Mr. Brush served on an interim basis as President and Chief Operating
Officer of the Company from January 25, 1991 until February 19, 1991. Prior to
his retirement in 1986, Mr. Brush was for several years Executive Vice
President of Bechtel Group, Inc., a construction company.
JAMES Q. CROWE. Mr. Crowe has been a director of the Company since March
1991. Mr. Crowe is Chairman and Chief Executive Officer of MFS Communications
Company, Inc., a wholly-owned subsidiary of Kiewit. Prior to assuming his
current position in 1991, Mr. Crowe was President of Kiewit Industrial Company,
a major subsidiary of Kiewit. Before joining Kiewit in 1986, Mr. Crowe was
Group Vice President, Power Group at Morrison-Knudsen Corporation. Mr. Crowe is
a director of C-Tec Corporation, a publicly traded company in which Kiewit
holds a majority ownership interest.
RICHARD K. DAVIDSON. Mr. Davidson was appointed a Director of the Company in
March 1993. Mr. Davidson has been Chairman and Chief Executive Officer of Union
Pacific Railroad since 1991. From 1989 to 1991 he was Executive Vice
President--Operations of Union Pacific Railroad, and from 1986 to 1989 he was
Vice President--Operations of Union Pacific Railroad.
BEN M. HOLT. Mr. Holt was elected to the Board of Directors in September
1993. Mr. Holt is the founder, and was Chairman and Chief Executive Officer of
The Ben Holt Co., an engineering firm located in Pasadena, California, which
the Company acquired in September 1993. Mr. Holt retired as Chairman and CEO of
The Ben Holt Co. in December 1993 and is currently a consultant to the Company.
EVERETT B. LAYBOURNE. Mr. Laybourne has been a director of the Company since
May 1988. For many years he served as counsel for a number of major publicly-
held corporations. He also presently serves as Vice President and Trustee of
The Ralph M. Parsons Foundation and as National Board Chairman of WAIF, Inc.
From 1969 to 1988, Mr. Laybourne was a senior partner in the law firm of
MacDonald, Halsted & Laybourne in Los Angeles, California, whose successor firm
is Baker & McKenzie for which he served as of counsel for five years. He
continues to practice law in Los Angeles.
DANIEL J. MURPHY. Adm. Murphy, USN (RET.), has been a director of the Company
since January 1988. He is Chairman and President of Murphy and Associates,
consultants in domestic and foreign affairs. Prior to forming Murphy and
Associates in September 1992, Admiral Murphy was Chairman and co-owner of
Murphy & Demory, Ltd., a consulting firm in foreign and domestic affairs. Prior
to that, Adm. Murphy was the Vice Chairman of Hill & Knowlton Public Affairs
Worldwide, in charge of the International Division. Prior to that he was Vice
Chairman of Gray & Co., a public relations firm in Washington, D.C.
47
<PAGE>
HERBERT L. OAKES, JR. Mr. Oakes has been a director of the Company since
October 1987. In 1982, Mr. Oakes founded and became President of H.L. Oakes &
Co., Inc., a corporate advisor and dealer in securities. From 1988 to the
present, Mr. Oakes has served as Managing Director of Oakes, Fitzwilliams Co.,
Limited, a member of the Securities and Futures Authority Limited and The
London Stock Exchange. Mr. Oakes is a director of Shared Technologies, Inc.,
Harcor Energy Inc. and New World Power Corporation.
WALTER SCOTT, JR. Mr. Scott has been a director of the Company since June
1991, and served as Chairman and Chief Executive Officer of the Company from
January 8, 1992 to April 5, 1993. Mr. Scott is Chairman and President of
Kiewit, a position he has held since 1979. Mr. Scott is a director of Berkshire
Hathaway, Inc., Burlington Resources, Inc., Canadian Imperial Bank of Commerce,
ConAgra, Inc., FirsTier Financial Inc., and Valmont Industries, Inc. Mr. Scott
also serves as a director of MFS Communications Company, Inc. and C-Tec
Corporation, both subsidiaries of Kiewit.
BARTON W. SHACKELFORD. Mr. Shackelford has been a director of the Company
since June 1986. Mr. Shackelford served as President and a director of Pacific
Gas & Electric Company from 1979 until his retirement in 1985. He is a director
of Harding Associates, Inc.
DAVID E. WIT. Mr. Wit has been a director of the Company since April 1987. He
is a co-chief executive officer of LOGICAT, INC., a software publishing firm.
Prior to working at LOGICAT, Mr. Wit worked at E.M. Warburg, Pincus & Company,
where he analyzed seed-stage financing and technology investments.
48
<PAGE>
SECURITY OWNERSHIP OF SIGNIFICANT STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information with respect to all
stockholders known by the Company to beneficially own more than 5% of either of
the Company's common stock (the "Common Stock") or Series C redeemable
preferred stock, and certain information with respect to the beneficial
ownership of Common Stock of each director of the Company and certain executive
officers of the Company (and all directors and executive officers of the
Company, as a group). All information is as of December 31, 1993, unless
otherwise indicated.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS(1)
------------------------ --------------------- -----------
<S> <C> <C>
SERIES C REDEEMABLE PREFERRED STOCK:
Kiewit Energy Company........................ 1,180 100%
COMMON STOCK:
Kiewit Energy Company (2).................... 16,146,892 36.57%
Merrill Lynch & Co., Inc. (3)................ 2,249,210 6.35%
The Equitable Companies, Inc. (4)............ 2,027,182 5.72%
Forstmann-Leff Associates Inc.(5)............ 1,829,235 5.10%
Edgar D. Aronson............................. 47,000 0.13%
Judith E. Ayres.............................. 50,000 0.14%
Harvey F. Brush.............................. -- --
James Q. Crowe............................... 10,000 0.03%
Richard K. Davidson.......................... 30,000 0.08%
Ben Holt..................................... 89,372 0.25%
Richard R. Jaros............................. 252,891 0.71%
Everett B. Laybourne......................... 17,589 0.05%
Thomas R. Mason.............................. 50,086 0.14%
Steven A. McArthur........................... 65,920 0.19%
Daniel J. Murphy............................. -- --
Donald M. O'Shei, Sr. ....................... 36,985 0.10%
Herbert L. Oakes, Jr. (6).................... 61,365 0.17%
Walter Scott, Jr. ........................... 10,000 0.03%
Barton W. Shackelford........................ 2,660 0.01%
David L. Sokol............................... 362,142 1.01%
John G. Sylvia............................... 57,462 0.16%
David E. Wit (7)............................. 37,774 0.11%
All directors and executive officers as a
group (18 persons).......................... 1,181,246 3.24%
</TABLE>
- --------
(1) Includes shares of which the listed beneficial owner is deemed to have the
right to acquire beneficial ownership under Rule 13d-3(d) under the
Exchange Act, including, among other things, shares which the listed
beneficial owner has the right to acquire within 60 days.
(2) Includes the 7,436,112 shares of Common Stock held by Kiewit Energy on
October 29, 1992, the date of Amendment No. 6 to its Schedule 13D, and, as
of December 31, 1993, options to purchase an additional 5,500,000 shares of
Common Stock and 3,210,780 shares of Common Stock into which the 1,180
shares of Series C Redeemable Preferred Stock held by Kiewit Energy are
convertible.
(3) According to a Schedule 13G filed by such parties in February 1994,
includes shares registered in the names of Merrill Lynch & Co., Inc.,
Merrill Lynch Group, Inc., Princeton Services, Inc. and Merrill Asset
Management, L.P.
(4) According to a Schedule 13G filed by such parties in February 1994,
includes shares registered in the names of The Equitable Companies
Incorporated, Axa Assurances I.A.R.D. Mutuelle, Axa Assurances Vie
Mutuelle, Alpha Assurances I.A.R.D. Mutuelle, Alpha Assurances Vie
Mutuelle, Uni Europe Assurance Mutuelle and Axa.
(5) According to a Schedule 13G filed by such parties in February 1994,
includes shares registered in the name of Forstmann-Leff Associates Inc.,
FLA Asset Management, Inc. and Stamford Advisors Corp.
(6) Includes 9,093 shares registered in the name of H.L. Oakes & Co., Inc., a
company of which Mr. Oakes is a director and of which his wife is a
principal stockholder, 4,746 shares owned by Mr. Oakes' wife and 4,996
shares registered to H.L. Oakes, trustee for Harrison Oakes, Mr. Oakes'
minor son. Mr. Oakes disclaims beneficial ownership of all of such shares.
(7) Includes 3,748 shares held jointly with Mr. Wit's spouse.
49
<PAGE>
CERTAIN TRANSACTIONS AND RELATIONSHIPS
TRANSACTIONS AND RELATIONSHIPS WITH KIEWIT AND ITS AFFILIATES
Stock Purchase and Related Agreements
The Company and Kiewit Energy are parties to a stock purchase agreement and
related agreements, dated as of February 18, 1991, pursuant to which Kiewit
Energy purchased 4,000,000 shares of Common Stock at $7.25 per share and
received options to buy 3,000,000 shares of Common Stock at a price of $9.00
per share exercisable over three years, and an additional 3,000,000 shares of
Common Stock at a price of $12.00 per share exercisable over five years
(subject to customary adjustments).
In connection with such stock purchase, the Company and Kiewit Energy also
entered into certain other agreements pursuant to which, among other things,
(i) Kiewit Energy and its affiliates agreed, subject to certain conditions, not
to acquire more than 34% of the outstanding Common Stock (the "Standstill
Percentage") for a five-year period, (ii) Kiewit Energy became entitled to
nominate at least three of the Company's directors, (iii) Kiewit Energy agreed
that Kiewit and its affiliates would present to the Company any opportunity to
acquire, develop, operate or own a geothermal resource or geothermal power
plant, and (iv) the Company and Kiewit Energy agreed to use their best efforts
to negotiate and execute a definitive joint venture agreement relating to the
development of certain geothermal properties in Nevada and Utah. Messrs. Crowe,
Jaros and Scott are the current Board nominees of Kiewit Energy.
In June 19, 1991, the Board of Directors approved a number of amendments to
the stock purchase agreement and the related agreements. Pursuant to such
amendments, the Company reacquired from Kiewit Energy the rights to develop the
Nevada and Utah properties, and Kiewit Energy agreed to exercise options to
acquire 1,500,000 shares of Common Stock at $9.00 per share, providing the
Company with $13.5 million in cash. The Company also extended the term of the
$9.00 and $12.00 options to seven years, modified certain of the other terms of
these options, granted to Kiewit Energy an option to acquire an additional
1,000,000 shares of the outstanding Common Stock at a price of $11.625 per
share exercisable over ten years (the closing price for the shares on the
American Stock Exchange on June 18, 1991), and increased the Standstill
Percentage from 34% to 49%.
Joint Venture Agreements
The Company entered into a joint venture agreement with Kiewit on December
14, 1993. The agreement provides a framework for the joint development of power
projects located in the Philippines, Indonesia and countries outside the region
covered by the joint venture agreement between the Company and Distral. See
"Business--International Projects and Development Opportunities--International
Joint Venture Agreements."
Other Transactions
Gilbert Industrial. Commencing in 1991, Gilbert Industrial Corporation
("Gilbert"), a wholly-owned subsidiary of Kiewit, constructed modifications to
the geothermal power production facility owned by the BLM Joint Venture.
Through the year ended December 31, 1993, the Company's portion of amounts paid
by the BLM Joint Venture to Gilbert under this contract was approximately $2.5
million.
Aircraft Lease. The Company is subleasing to Midwest Aviation, a division of
a subsidiary of Kiewit, an airplane leased by the Company from an unaffiliated
third-party aircraft lessor (the "Lessor"). The Company pays monthly lease
payments of $38,669 to the Lessor. Midwest Aviation, in turn, pays monthly
sublease payments of $25,000 to the Company. Both the lease and the sublease
terminate on July 31, 1995. Upon termination of the lease, the Company has the
right to purchase the aircraft; Midwest Aviation, in turn, has the right to
purchase the aircraft from the Company for the price paid by the Company.
50
<PAGE>
The Company believes that the terms of the engineering and construction
contracts and sublease described above are comparable to available terms in
similar transactions with unaffiliated third parties.
CERTAIN RELATIONSHIPS
Mr. Scott, a director of the Company, is also the Chairman and President of
Kiewit, and owns Kiewit stock. Mr. Crowe, a director of the Company, is the
Chairman and President of MFS, a subsidiary of Kiewit, and owns shares of
Kiewit's common stock. Mr. Jaros, the Chairman and a Director of the Company,
is an officer and director of Kiewit and owns shares of Kiewit's common stock.
Ben Holt, a director of the Company, provides consulting and other services
to the Company for an annual fee of $75,000 pursuant to the terms of a
consulting agreement which expires in 1998. The Company believes the terms of
this agreement are comparable to those in similar transactions with
unaffiliated third parties.
CERTAIN TRANSACTIONS AND RELATIONSHIPS WITH OTHERS
The Company retained the law firm of Baker & McKenzie during the first half
of 1993. Everett B. Laybourne, a director of the Company, was of counsel to the
Los Angeles office of Baker & McKenzie. The Company paid to Baker & McKenzie a
total of approximately $615,636 in legal fees during 1993.
The Company believes that the fees payable to Baker & McKenzie are comparable
to fees that would be payable in similar transactions with unaffiliated third
parties.
DESCRIPTION OF THE NOTES
The Notes will be issued under an Indenture (hereinafter referred to as the
"Indenture") dated as of , 1994 between the Company and IBJ Schroder Bank &
Trust Company (hereinafter referred to as the "Trustee"). A copy of the form of
the Indenture will be filed as an exhibit to the Registration Statement of
which this Prospectus is a part. The following summary of certain provisions of
the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Indenture,
including the definitions of certain terms therein and those terms made a part
thereof by the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). Wherever particular Sections or defined terms of the Indenture are
referred to, such Sections or defined terms are incorporated herein by
reference. A summary of certain defined terms used in the Indenture and
referred to in the following summary description of the Notes is set forth
below under "Certain Definitions."
GENERAL
The Notes will be senior, unsecured obligations of the Company, will rank
pari passu with all other senior unsecured indebtedness of the Company, will be
limited to $ million aggregate principal amount and will mature on January
15, 2004.
The principal of, and premium, if any, on, the Notes will be payable, and the
Notes may be exchanged or transferred, at the office or agency of the Company
in the Borough of Manhattan, The City of New York (which initially will be the
corporate trust office of the Trustee).
The Notes will be issued at an original issue discount to their principal
amount to generate gross proceeds to the Company of approximately $ million.
Discount on the Notes will accrete at a rate of %, compounded semi-annually
on each January 15 and July 15, to an aggregate principal amount of $
million by January 15, 1997. Thereafter, cash interest on the Notes will accrue
at the rate of % per annum and will be payable semi-annually in arrears on
each January 15 and July 15, commencing July 15, 1997, to the Holders thereof
at the close of business on the preceding January 1 and July 1, respectively,
and, unless the Company agrees to make other arrangements, will be paid by
checks mailed to such Holders. Interest on overdue principal and (to the extent
permitted by applicable law) on overdue interest will accrue at a rate of 1% in
excess of the rate per annum borne by the Notes. Interest on the Notes will be
computed on the basis of a 360-day year of 12 30-day months.
51
<PAGE>
The Notes will be issued without coupons and in fully registered form only in
denominations of $1,000 and integral multiples thereof.
The Company is subject to the informational reporting requirements of
Sections 13 and 15(d) under the Exchange Act and, in accordance therewith,
files certain reports and other information with the Commission. See "Available
Information." In addition, if Sections 13 and 15(d) cease to apply to the
Company, the Company will covenant in the Indenture to file comparable reports
and information with the Trustee and the Commission, and mail such reports and
information to Noteholders at their registered addresses, for so long as any
Notes remain outstanding.
OPTIONAL REDEMPTION
The Notes may be redeemed at the Company's option, in whole or in part, at
any time on or after January 15, 1999 and prior to maturity, upon not less than
30 nor more than 60 days' prior notice, at the following redemption prices
(expressed in percentages of principal amount), plus accrued interest (if any)
to the date of redemption, if redeemed during the 12-month period commencing on
or after January 15 of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1999....................
2000....................
2001 and thereafter..... 100%
</TABLE>
If less than all the outstanding Notes are to be redeemed, the Notes or
portions of Notes to be redeemed will be selected by the Trustee pro rata or
otherwise in such manner as the Trustee deems to be fair and appropriate in the
circumstances.
The Notes will not be subject to any mandatory sinking fund.
RANKING
The Notes will be general, unsecured senior obligations of the Company and
will rank pari passu with all other unsecured senior indebtedness of the
Company. As of December 31, 1993, the Company's total consolidated indebtedness
was $382.6 million (excluding deferred income and redeemable preferred stock),
its total consolidated assets were $716.0 million and its stockholders' equity
was $211.5 million. At such date, on a pro forma basis, after giving effect to
the completion of this Offering and the Company's planned defeasance of its
Senior Notes, the Company's total consolidated indebtedness (excluding deferred
income and redeemable preferred stock) would have been $746.9 million, its
total consolidated assets would have been $1,077.0 million and its
stockholders' equity would have been $208.2 million. See "Capitalization" and
"Selected Historical Consolidated Financial and Operating Data." The Indenture
does not limit the amount of Non-Recourse Debt which may be incurred by the
Company or at the subsidiary or project level. As a result, the Notes are
effectively subordinated to any secured Non-Recourse Debt of the Company and to
indebtedness and other obligations of the Company's subsidiaries and the
partnerships and joint ventures in which the Company has direct or indirect
interests. See "Investment Considerations--High Leverage; Additional Debt
Permitted at Subsidiary or Project Level; Priority of Project Debt."
CERTAIN COVENANTS
The Indenture will contain certain covenants, including the ones summarized
below, which covenants will be applicable (unless they are waived or amended or
unless the Notes are defeased, see "Defeasance" below) so long as any of the
Notes are outstanding.
52
<PAGE>
Limitation on Debt
The Company will not Incur any Debt, including Acquisition Debt, unless,
after giving effect to the Incurrence of such Debt and the receipt and
application of the proceeds therefrom, the Fixed Charge Ratio of the Company
would be equal to or greater than 2.0 to 1.
Notwithstanding the foregoing, the Company may Incur each and all of the
following: (i) Company Refinancing Debt, (ii) Debt of the Company to any of its
Restricted Subsidiaries or any Eligible Joint Venture that is expressly
subordinated in right of payment to the Notes, provided that any transfer of
such Debt by a Restricted Subsidiary or an Eligible Joint Venture (other than
to another Restricted Subsidiary or another Eligible Joint Venture), or any
transfer of the Company's ownership interest, or a portion thereof, in such
Restricted Subsidiary or such Eligible Joint Venture or the interest, or a
portion thereof, of Kiewit in a Permitted Joint Venture or an Eligible Joint
Venture (which transfer has the effect of causing such Restricted Subsidiary or
such Eligible Joint Venture to cease to be a Restricted Subsidiary or an
Eligible Joint Venture, as the case may be), will be deemed to be an Incurrence
of Debt that is subject to the provisions of this covenant other than this
clause (ii), (iii) Debt in an aggregate principal amount not to exceed $50
million outstanding at any one time may be issued under or in respect of
Permitted Working Capital Facilities, (iv) Non-Recourse Debt Incurred in
respect of a Permitted Facility in which the Company has a direct interest, (v)
Debt in respect of Currency Protection Agreements or Interest Rate Protection
Agreements, (vi) Purchase Money Debt, provided that the amount of such Debt
(net of any original issue discount) does not exceed 90% of the fair market
value of the Property acquired, (vii) the Notes and other Debt outstanding as
of the date of original issuance of the Notes (other than Debt to the extent
that it is extinguished, retired, defeased or repaid in connection with the
original issuance of the Notes), including Debt that is Incurred in respect of
interest or discount on such Debt (or Redeemable Stock issued as dividends in
respect of Redeemable Stock) pursuant to the terms of the agreement or
instrument that governs such Debt (or such Redeemable Stock) as in effect on
the date of original issuance of the Notes and (viii) Debt in an aggregate
principal amount not to exceed $50 million outstanding at any one time.
Limitation on Subsidiary Debt
The Company will not permit any of its Restricted Subsidiaries or any
Eligible Joint Venture, to Incur any Debt.
Notwithstanding the foregoing, each and all of the following Debt may be
Incurred by a Restricted Subsidiary or an Eligible Joint Venture: (i) Debt
Outstanding as of the date of original issuance of the Notes, (ii) Debt owed by
a Restricted Subsidiary or an Eligible Joint Venture to the Company or another
Restricted Subsidiary of the Company or another Eligible Joint Venture that
either directly or indirectly owns all or a portion of the Company's interest
in, or directly or indirectly is owned by, such Restricted Subsidiary or such
Eligible Joint Venture, as the case may be, and that does not own any Permitted
Facility or a direct or indirect interest therein, other than the Permitted
Facility or any other Permitted Facility that is located on the same localized
geothermal reservoir or a direct or indirect interest therein owned by such
Restricted Subsidiary or Eligible Joint Venture, (iii) Non-Recourse Debt
Incurred in respect of a Permitted Facility in which such Restricted Subsidiary
or such Eligible Joint Venture has a direct or an indirect interest (which may
include Construction Financing provided by the Company pursuant to clause (ii)
of the definition of "Permitted Investment" below), (iv) Subsidiary Refinancing
Debt, (v) Acquired Debt, (vi) Debt in respect of Currency Protection Agreements
or Interest Rate Protection Agreements and (vii) Permitted Funding Company
Loans.
Limitation on Restricted Payments
The Company will not, and will not permit any of its Restricted Subsidiaries
or any Eligible Joint Venture to, directly or indirectly, make any Restricted
Payment unless at the time of such Restricted Payment and after giving effect
thereto (a) no Event of Default and no event that, after the giving of notice
or lapse of time or both, would become an Event of Default, has occurred and is
continuing, (b) the Company could Incur at least $1 of Debt under the provision
described in the first paragraph of "Limitation on Debt" above and (c) the
aggregate amount of all Restricted Payments made by the Company, its Restricted
Subsidiaries
53
<PAGE>
and the Eligible Joint Ventures (the amount so made, if other than in cash, to
be determined in good faith by the Chief Financial Officer, as evidenced by an
Officers' Certificate, or, if more than $15 million, by the Board of Directors,
as evidenced by a Board resolution) after the date of original issuance of the
Notes, is less than the sum (without duplication) of (i) 50% of the Adjusted
Consolidated Net Income of the Company for the period (taken as one accounting
period) beginning on the first day of the first fiscal quarter that begins
after the date of the original issuance of the Notes and ending on the last day
of the fiscal quarter immediately prior to the date of such calculation,
provided that if throughout any fiscal quarter within such period the Ratings
Categories applicable to the Notes are, rated Investment Grade by Standard &
Poor's Corporation, and Moody's Investors Service, Inc. (or if both do not make
a rating of the Notes publicly available, an equivalent Rating Category is made
publicly available by another Rating Agency), then 75% (instead of 50%) of the
Adjusted Consolidated Net Income (if more than zero) with respect to such
fiscal quarter will be included pursuant to this clause (i), and provided
further that if Adjusted Consolidated Net Income for such period is less than
zero, then minus 100% of the amount of such net loss, plus (ii) 100% of the
aggregate net cash proceeds received by the Company from and after the date of
original issuance of the Notes from (A) the issuance and sale (other than to a
Restricted Subsidiary or an Eligible Joint Venture) of its Capital Stock
(excluding Redeemable Stock, but including Capital Stock other than Redeemable
Stock issued upon conversion of, or in exchange for Redeemable Stock or
securities other than its Capital Stock), (B) the issuance and sale or the
exercise of warrants, options and rights to purchase its Capital Stock (other
than Redeemable Stock) and (C) the issuance and sale of convertible Debt upon
the conversion of such convertible Debt into Capital Stock (other than
Redeemable Stock), but excluding the net proceeds from the issuance, sale,
exchange, conversion or other disposition of its Capital Stock (I) that is
convertible (whether at the option of the Company or the holder thereof or upon
the happening of any event) into (x) any security other than its Capital Stock
or (y) its Redeemable Stock or (II) that is Capital Stock referred to in
clauses (ii) and (iii) of the definition of "Permitted Payment", plus (iii) the
net reduction in Investments of the types specified in clauses (iv) and (v) of
the definition of "Restricted Payment" that result from payments of interest on
Debt, dividends, or repayment of loans or advances, the proceeds of the sale or
disposition of the Investment or other return of the amount of the original
Investment to the Company, the Restricted Subsidiary or the Eligible Joint
Venture that made the original Investment from the Person in which such
Investment was made, provided that (x) the aggregate amount of such payments
will not exceed the amount of the original Investment by the Company or such
Restricted Subsidiary that reduced the amount available pursuant to this clause
(c) for making Restricted Payments and (y) such payments may be added pursuant
to this clause (iii) only to the extent such payments are not included in the
calculation of Adjusted Consolidated Net Income, provided further that if
Investments of the types specified in clauses (iv) and (v) of the Definition of
"Restricted Payment" have been made in any Person and such Person thereafter
becomes a Restricted Subsidiary, then the aggregate amount of such Investment
(to the extent that they have reduced the amount available pursuant to this
clause (c) for making Restricted Payments), net of the amounts previously added
pursuant to this clause (iii), may be added to the amount available for making
Restricted Payments. The foregoing clause (c) will not prevent the payment of
any dividend within 60 days after the date of its declaration if such dividend
could have been made on the date of its declaration without violation of the
provisions of this covenant.
None of the Company, any of its Restricted Subsidiaries or any Eligible Joint
Venture will be deemed to have made an Investment at the time that a Person
that is a Restricted Subsidiary of the Company or an Eligible Joint Venture
ceases to be a Restricted Subsidiary or an Eligible Joint Venture (other than
as a result of becoming an Unrestricted Subsidiary), although any subsequent
Investment made by the Company, its Restricted Subsidiaries and Eligible Joint
Ventures in such Person will be Investments that will be subject to the
foregoing paragraph unless and until such time as such Person becomes a
Restricted Subsidiary or an Eligible Joint Venture. Notwithstanding the
foregoing, the designation of a Restricted Subsidiary or an Eligible Joint
Venture as an Unrestricted Subsidiary, as provided in the definition of
"Unrestricted Subsidiary," will be an Investment that will be subject to the
foregoing paragraph.
Restricted Payments are defined in the Indenture to exclude Permitted
Payments, which include Permitted Investments. See "Certain Definitions" below.
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Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any of its Restricted Subsidiaries
or any Eligible Joint Venture to, create or cause to become, or as a result of
the acquisition of any Person or Property, or upon any Person becoming a
Restricted Subsidiary or an Eligible Joint Venture, remain subject to, any
consensual encumbrance or consensual restriction of any kind on the ability of
any Restricted Subsidiary or any Eligible Joint Venture to (a) pay dividends or
make any other distributions permitted by applicable law on any Capital Stock
of such Restricted Subsidiary or such Eligible Joint Venture owned by the
Company, any other Restricted Subsidiary or any other Eligible Joint Venture,
(b) make payments in respect of any Debt owed to the Company, any other
Restricted Subsidiary of the Company or any Eligible Joint Venture, (c) make
loans or advances to the Company or to any other Restricted Subsidiary of the
Company or any other Eligible Joint Venture that is directly or indirectly
owned by such Restricted Subsidiary or such Eligible Joint Venture or (d)
transfer any of its Property to the Company or to any other Restricted
Subsidiary or any other Eligible Joint Venture that directly or indirectly owns
or is owned by such Restricted Subsidiary or such Eligible Joint Venture, other
than those encumbrances and restrictions created or existing (i) on the date of
the original issuance of the Notes, (ii) pursuant to the Indenture, (iii) in
connection with the Incurrence of any Debt permitted under the provisions
described in clause (iii) of the second paragraph of "Limitation on Subsidiary
Debt" above, provided that, in the case of Debt owed to Persons other than the
Company, its Restricted Subsidiaries and any Eligible Joint Venture, the
President or the Chief Financial Officer of the Company determines in good
faith, as evidenced by an Officers' Certificate, that such encumbrances or
restrictions are required to effect such financing and are not materially more
restrictive, taken as a whole, on the ability of the applicable Restricted
Subsidiary or the applicable Eligible Joint Venture to make the payments,
distributions, loans, advances or transfers referred to in clauses (a) through
(d) above than encumbrances and restrictions, taken as a whole, customarily
accepted (or, in the absence of any industry custom, reasonably acceptable) in
comparable financings or comparable transactions in applicable jurisdictions,
(iv) in connection with the execution and delivery of an electric power or
thermal energy purchase contract, or other contract related to the output or
product of, or services rendered by a Permitted Facility, to which such
Restricted Subsidiary or such Eligible Joint Venture is the supplying party or
other contracts with customers, suppliers and contractors to which such
Restricted Subsidiary or such Eligible Joint Venture is a party and where such
Restricted Subsidiary or such Eligible Joint Venture is engaged, directly or
indirectly, in the development, design, engineering, procurement, construction,
acquisition, ownership, management or operation of such Permitted Facility,
provided that the President or the Chief Financial Officer of the Company
determines in good faith, as evidenced by an Officers' Certificate, that such
encumbrances or restrictions are required to effect such contracts and are not
materially more restrictive, taken as a whole, on the ability of the applicable
Restricted Subsidiary or the applicable Eligible Joint Venture to make the
payments, distributions, loans, advances or transfers referred to in clauses
(a) through (d) above than encumbrances and restrictions, taken as a whole,
customarily accepted (or, in the absence of any industry custom, reasonably
acceptable) in comparable financings or comparable transactions in the
applicable jurisdiction, (v) in connection with any Acquired Debt, provided
that such encumbrance or restriction was not incurred in contemplation of such
Person becoming a Restricted Subsidiary or an Eligible Joint Venture and
provided further that such encumbrance or restriction does not extend to any
other Property of such Person at the time it became a Restricted Subsidiary or
an Eligible Joint Venture, (vi) in connection with the Incurrence of any Debt
permitted under clause (iv) of the provision described in the second paragraph
of "Limitation on Subsidiary Debt" above, provided that, in the case of Debt
owed to Persons other than the Company and its Restricted Subsidiaries, the
President or the Chief Financial Officer of the Company determines in good
faith, as evidenced by an Officers' Certificate, that such encumbrances or
restrictions taken as a whole are not materially more restrictive than the
encumbrances and restrictions applicable to the Debt and/or equity being
exchanged or refinanced, (vii) customary non-assignment provisions in leases or
other contracts entered into in the ordinary course of business of the Company,
any Restricted Subsidiary or any Eligible Joint Venture, (viii) any
restrictions imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all of the Capital Stock or Property of any
Restricted Subsidiary or Joint Venture that apply pending the closing of such
sale or disposition, (ix) in connection with Liens on the
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Property of such Restricted Subsidiary or such Eligible Joint Venture that are
permitted by the covenant described under "Limitation on Liens" below but only
with respect to transfers referred to in clause (d) above or (x) in connection
with the Incurrence of any Debt permitted under clause (ii) of the provisions
described in the second paragraph of "Limitation on Subsidiary Debt" above.
Limitation on Dispositions
Subject to the covenant described under "Mergers, Consolidations and Sales of
Assets" below, the Company will not make, and will not permit any of its
Restricted Subsidiaries or any Eligible Joint Venture to make, any Asset
Disposition unless (i) the Company, the Restricted Subsidiary or the Eligible
Joint Venture, as the case may be, receives consideration at the time of each
such Asset Disposition at least equal to the fair market value of the Property
or securities sold or otherwise disposed of (to be determined in good faith by
the Chief Financial Officer, as evidenced by an Officers' Certificate, or, if
more than $15 million, by the Board of Directors, as evidenced by a Board
resolution), (ii) at least 85% of such consideration is received in cash or
Cash Equivalents or, if less than 85%, the remainder of such consideration
consists of Property related to the business of the Company as described in the
first sentence of the covenant described under "Limitation on Business" below,
and (iii) unless otherwise required under the terms of Senior Debt, at the
Company's election, the Net Cash Proceeds are either (A) invested in the
business of the Company, any of its Restricted Subsidiaries or any Eligible
Joint Venture or (B) applied to the payment of any Debt of the Company, such
Restricted Subsidiary or such Eligible Joint Venture (or as otherwise required
under the terms of such Debt) (other than Debt owed to the Company, another
Restricted Subsidiary or another Eligible Joint Venture by such Restricted
Subsidiary or such Eligible Joint Venture), provided that, no such payment of
Debt under Permitted Working Capital Facilities or any other revolving credit
agreement will count for this purpose unless the related loan commitment,
standby facility or the like will be permanently reduced by an amount equal to
the principal amount so repaid, provided further that such investment or such
payment, as the case may be, must be made within 365 days from the later of the
date of such Asset Disposition or the receipt by the Company, such Restricted
Subsidiary or such Eligible Joint Venture of the Net Cash Proceeds related
thereto. Any Net Cash Proceeds from Asset Dispositions that are not applied as
provided in clause (A) or (B) of the preceding sentence will constitute "Excess
Proceeds." Excess Proceeds will be applied, as described below, to make an
offer (an "Offer") to purchase Notes at a purchase price equal to 100% of
Accreted Value thereof, plus accrued interest, if any, to the date of purchase.
Notwithstanding anything in the foregoing to the contrary, the Company, its
Restricted Subsidiaries and the Eligible Joint Ventures may exchange with other
Persons (i) Property that constitutes a Restricted Subsidiary or an Eligible
Joint Venture for Property that constitutes a Restricted Subsidiary or an
Eligible Joint Venture, (ii) Property that constitutes a Restricted Subsidiary
or an Eligible Joint Venture for Property that does not constitute a Restricted
Subsidiary or an Eligible Joint Venture, (iii) Property that does not
constitute a Restricted Subsidiary or an Eligible Joint Venture for Property
that does not constitute a Restricted Subsidiary or an Eligible Joint Venture
and (iv) Property that does not constitute a Restricted Subsidiary or an
Eligible Joint Venture for Property that constitutes a Restricted Subsidiary or
an Eligible Joint Venture, provided that in each case the fair market value of
the Property received is at least equal to the fair market value of the
Property exchanged as determined in good faith by the Chief Financial Officer,
as evidenced by an Officers' Certificate, or, if more than $25 million, by the
Board of Directors, as evidenced by a Board resolution, provided that the
Investment in the Property received in the exchanges described in clauses (ii)
and (iii) of the prior sentence will be subject to the covenant described under
"Limitation on Restricted Payments" above. Notwithstanding anything in the
foregoing to the contrary, the Company may not, and will not permit any of its
Restricted Subsidiaries or any Eligible Joint Venture to, make an Asset
Disposition of any of their interest in, or Property of, any of the Coso
Project other than for consideration consisting solely of cash.
To the extent that any or all of the Net Cash Proceeds of any Foreign Asset
Disposition are prohibited from (or delayed in) being repatriated to the United
States by applicable local law, the portion of such Net Cash Proceeds so
affected will not be required to be applied at the time provided above but may
be retained
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by any Restricted Subsidiary or any Eligible Joint Venture so long, but only so
long, as the applicable local law does not permit (or delays) repatriation to
the United States. If such Net Cash Proceeds are transferred by the Restricted
Subsidiary or Eligible Joint Venture that conducted the Foreign Asset
Disposition to another Restricted Subsidiary or Eligible Joint Venture, the
Restricted Subsidiary or Eligible Joint Venture receiving such Net Cash
Proceeds must not be directly or indirectly obligated on any Debt owed to any
Person other than the Company. The Company will take or cause such Restricted
Subsidiary or such Eligible Joint Venture to take all actions required by the
applicable local law to permit such repatriation promptly. Once repatriation of
any of such Net Cash Proceeds is permitted under the applicable local law,
repatriation will be effected immediately and the repatriated Net Cash Proceeds
will be applied in the manner set forth in this covenant as if such Asset
Disposition had occurred on the date of such repatriation. In addition, if the
Chief Financial Officer determines, in good faith, as evidenced by an Officers'
Certificate, that repatriation of any or all of the Net Cash Proceeds of any
Foreign Asset Disposition would have a material adverse tax consequence to the
Company, the Net Cash Proceeds so affected may be retained outside of the
United States by the applicable Restricted Subsidiary or the applicable
Eligible Joint Venture for so long as such material adverse tax consequence
would continue. Notwithstanding the foregoing provisions of this paragraph to
the contrary, if applicable local law prohibits (or delays) the repatriation of
Net Cash Proceeds of a Foreign Asset Disposition but such local law does not
prohibit the application of such Net Cash Proceeds pursuant to the first
sentence of the first paragraph of this covenant, the Company may apply by such
Net Cash Proceeds pursuant to such provision.
If the Notes tendered pursuant to an Offer have an aggregate purchase price
that is less than the Excess Proceeds available for the purchase of the Notes,
the Company may use the remaining Excess Proceeds for general corporate
purposes without regard to the provisions of this covenant. The Company will
not be required to make an Offer for Notes if the Excess Proceeds available
therefor are less than $10 million, provided, that the lesser amounts of such
Excess Proceeds will be carried forward and cumulated for each 36 consecutive
month period for purposes of determining whether an Offer is required with
respect to any Excess Proceeds of any subsequent Asset Dispositions. Any such
lesser amounts so carried forward and cumulated need not be segregated or
reserved and may be used for general corporate purposes, provided that such use
will not reduce the amount of cumulated Excess Proceeds or relieve the Company
of its obligation hereunder to make an Offer with respect thereto.
The Company will make an Offer by mailing to each Holder, within 30 days from
the receipt of Excess Proceeds that cause the cumulated Excess Proceeds to
exceed $10 million, a written notice that will specify the purchase date, which
will not be less than 30 days nor more than 60 days after the date of such
notice (the "Purchase Date"), and that will contain certain information
concerning the business of the Company that the Company believes in good faith
will enable the Holders to make an informed decision. Holders that elect to
have their Notes purchased will be required to surrender such Notes at least
one Business Day prior to the Purchase Date. If at the expiration of the Offer
period the aggregate purchase price of the Notes tendered by Holders and
purchased pursuant to the Offer exceeds the amount of such Excess Proceeds, the
Notes or portions of Notes to be accepted will be selected by the Trustee in
such manner as the Trustee deems to be fair and appropriate in the
circumstances.
If the Company is prohibited by applicable law from making the Offer or
purchasing Notes thereunder, the Company need not make an Offer for so long as
such prohibition is in effect.
The Company will comply with all applicable tender offer rules, including,
without limitation, Rule 14e-1 under the Exchange Act, in connection with an
Offer.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries
or any Eligible Joint Venture to, directly or indirectly, conduct any business
or enter into or permit to exist any transaction or series of related
transactions (including, but not limited to, the purchase, sale or exchange of
Property, the
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making of any Investment, the giving of any Guarantee or the rendering of any
service) with any Affiliate of the Company, such Restricted Subsidiary or such
Eligible Joint Venture, as the case may be, unless (i) such business,
transaction or series of related transactions is in the best interest of the
Company, such Restricted Subsidiary or such Eligible Joint Venture, (ii) such
business, transaction or series of related transactions is on terms no less
favorable to the Company or such Restricted Subsidiary, or such Eligible Joint
Venture than those that could be obtained in a comparable arm's length
transaction with a Person that is not such an Affiliate and (iii) (a) with
respect to such business, transaction or series of related transactions that
has a fair market value or involves aggregate payments equal to, or in excess
of, $10 million but less than $25 million, the Company delivers to the Trustee
an Officers' Certificate certifying that, in good faith, it is such officer's
belief that such business, transaction or series of related transactions
complies with clauses (i) and (ii) above, and (b) with respect to such
business, transaction or series of related transactions that has a fair market
value or involves aggregate payments equal to, or in excess of, $25 million
such business, transaction or series of transactions is approved by a majority
of the Board of Directors (including a majority of the disinterested
directors), which approval is set forth in a Board resolution delivered to the
Trustee certifying that, in good faith, the Board of Directors believes that
such business, transaction or series of transactions complies with clauses (i)
and (ii) above.
Limitation on Liens
The Company may not Incur any Debt that is secured, directly or indirectly,
with, and the Company will not, and will not permit any of its Restricted
Subsidiaries or any Eligible Joint Venture to, grant a Lien on the Property of
the Company, its Restricted Subsidiaries or any Eligible Joint Venture now
owned or hereafter acquired unless contemporaneous therewith or prior thereto
the Notes are equally and ratably secured except for (i) any such Debt secured
by Liens existing on the Property of any entity at the time such Property is
acquired by the Company, any of its Restricted Subsidiaries or any Eligible
Joint Venture, whether by merger, consolidation, purchase of such Property or
otherwise, provided that such Liens (x) are not created, incurred or assumed in
contemplation of such Property being acquired by the Company, any of its
Restricted Subsidiaries or any Eligible Joint Venture and (y) do not extend to
any other Property of the Company, any of its Restricted Subsidiaries or any
Eligible Joint Venture, (ii) any other Debt that is required by the terms
thereof to be equally and ratably secured as a result of the Incurrence of Debt
that is permitted to be secured pursuant to another clause of this covenant,
(iii) Liens that are granted in good faith to secure Debt (A) contemplated by
clause (iv) of the covenant described under "Limitation on Debt" above or (B)
contemplated by clauses (ii), (iii) and (vi) of the covenant described under
"Limitation on Subsidiary Debt" above, provided that, in the case of Debt owed
to a Person other than the Company or a Restricted Subsidiary, the President or
Chief Financial Officer of the Company determines in good faith, as evidenced
by an Officers' Certificate, that such Liens are required in order to effect
such financing and are not materially more restrictive, taken as a whole, than
Liens, taken as a whole, customarily accepted (or in the absence of industry
custom, reasonably acceptable) in comparable financings or comparable
transactions in the applicable jurisdiction, (iv) Liens existing on the date of
the original issuance of the Notes, (v) Liens incurred to secure Debt incurred
by the Company as permitted by clause (vi) of the covenant described under
"Limitation on Debt" above, provided that such Liens may not cover any Property
other than that being purchased, (vi) Liens on any Property of the Company
securing Permitted Working Capital Facilities, Guarantees thereof and any
Interest Rate Protection Agreements or Currency Protection Agreements, provided
that such Liens may not extend to the Capital Stock owned by the Company in any
Subsidiary of the Company or any Joint Venture, (vii) Liens in respect of
extensions, renewals, refundings or refinancings of any Debt secured by the
Liens referred to in the foregoing clauses, provided that the Liens in
connection with such renewal, extension, refunding or refinancing will be
limited to all or part of the specific property that was subject to the
original Lien, (viii) Liens incurred to secure obligations in respect of
letters of credit, bankers' acceptances, surety, bid, operating and performance
bonds, performance guarantees or other similar instruments or obligations (or
reimbursement obligations with respect thereto) (in each case, to the extent
incurred in the ordinary course of business), (ix) any Lien arising by reason
of (A) any judgment, decree or order of any court, so long as such Lien is
being contested in good faith and is appropriately bonded, and any appropriate
legal
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proceedings that may have been duly initiated for the review of such judgment,
decree or order have not been finally terminated or the period within which
such proceedings may be initiated has not expired, (B) taxes, duties,
assessments, imposts or other governmental charges that are not yet delinquent
or are being contested in good faith, (C) security for payment of worker's
compensation or other insurance, (D) security for the performance of tenders,
contracts (other than contracts for the payment of money) or leases, (E)
deposits to secure public or statutory obligations, or to secure permitted
contracts for the purchase or sale of any currency entered into in the ordinary
course of business, (F) the operation of law in favor of carriers,
warehousemen, landlords, mechanics, materialmen, laborers, employees or
suppliers, incurred in the ordinary course of business for sums that are not
yet delinquent or are being contested in good faith by negotiations or by
appropriate proceedings that suspend the collection thereof, (G) easements,
rights-of-way, zoning and similar covenants and restrictions and other similar
encumbrances or title defects that do not in the aggregate materially interfere
with the ordinary conduct of the business of the Company, any of its Restricted
Subsidiaries or any Eligible Joint Venture or (H) leases and subleases of real
property that do not interfere with the ordinary conduct of the business of the
Company, any of its Restricted Subsidiaries or any Eligible Joint Venture and
that are made on customary and usual terms applicable to similar properties, or
(x) Liens, in addition to the foregoing, that secure obligations not in excess
of $5 million in the aggregate.
Purchase of Notes Upon a Change of Control
Upon the occurrence of a Change of Control, each Holder of the Notes will
have the right to require that the Company repurchase such Holder's Notes at a
purchase price in cash equal to 101% of the Accreted Value thereof on the date
of purchase plus accrued interest, if any, to the date of purchase.
The Change of Control provisions may not be waived by the Trustee or by the
Board of Directors, and any modification thereof must be approved by each
Holder. Nevertheless, the Change of Control provisions will not necessarily
afford protection to Holders, including protection against an adverse effect on
the value of the Notes, in the event that the Company or its Subsidiaries Incur
additional Debt, whether through recapitalizations or otherwise.
Within 30 days following a Change of Control, the Company will mail a notice
to each Holder, with a copy to the Trustee, stating (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at the purchase price described above (the
"Change of Control Offer"), (2) the circumstances and relevant facts regarding
such Change of Control (including information with respect to pro forma
historical income, cash flow and capitalization after giving effect to such
Change of Control), (3) the purchase date (which will be not earlier than 30
days nor later than 60 days from the date such notice is mailed) (the "Purchase
Date"), (4) that original issue discount on any Note not tendered or purchased
will continue to accrete until January 15, 1997, and thereafter interest on any
such Note will continue to accrue, (5) any Note properly tendered pursuant to
the Change of Control Offer will cease to accrete original issue discount or
accrue interest, as the case may be, after the Purchase Date (assuming
sufficient moneys for the purchase thereof are deposited with the Trustee), (6)
that Holders electing to have a Note purchased pursuant to a Change of Control
Offer will be required to surrender the Note, with the form entitled "Option of
Holder To Elect Purchase" on the reverse of the Note completed, to the paying
agent at the address specified in the notice prior to the close of business on
the Purchase Date, (7) that a Holder will be entitled to withdraw such Holder's
election if the paying agent receives, not later than the close of business on
the third Business Day (or such shorter periods as may be required by
applicable law) preceding the Repurchase Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes the Holder delivered for purchase, and a statement that such
Holder is withdrawing his election to have such Notes purchased and (8) that
Holders that elect to have their Notes purchased only in part will be issued
new Notes having a principal amount equal to the portion of the Notes that were
surrendered but not tendered and purchased.
On the Purchase Date, the Company will (i) accept for payment all Notes or
portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit
with the Trustee money sufficient to pay the purchase
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price of all Notes or portions thereof so tendered for purchase and (iii)
deliver or cause to be delivered to the Trustee the Notes properly tendered
together with an Officers' Certificate identifying the Notes or portions
thereof tendered to the Company for purchase. The Trustee will promptly mail to
the Holders of the Notes properly tendered payment in an amount equal to the
purchase price, and promptly authenticate and mail to each Holder a new Note
having a principal amount equal to any portion of such Holder's Notes that were
surrendered but not tendered and purchased, the Company will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Purchase Date.
If the Company is prohibited by applicable law from making the Change of
Control Offer or purchasing Notes thereunder, the Company need not make a
Change of Control Offer for so long as such prohibition is in effect.
The Company will comply with all applicable tender offer rules, including,
without limitation, Rule 14e-1 under the Exchange Act, in connection with a
Change of Control Offer.
Limitation on Business
The Company will, and will cause its Restricted Subsidiaries and the Eligible
Joint Ventures to, engage only in (i) the ownership, design, engineering,
procurement, construction, development, acquisition, operation, servicing,
management or disposition of Permitted Facilities, (ii) the ownership,
creation, development, acquisition, servicing, management or disposition of
Restricted Subsidiaries and Joint Ventures that own, construct, develop,
design, engineer, procure, acquire, operate, service, manage or dispose of
Permitted Facilities, (iii) obtaining, arranging or providing financing
incident to any of the foregoing and (iv) other related activities incident to
any of the foregoing. The Company will not, and will not permit any of its
Restricted Subsidiaries or any Eligible Joint Venture to, make any Investment
or otherwise acquire any Property that is not directly related to the business
of the Company as described in the preceding sentence (collectively, the
"Ineligible Investments") other than as a part of an Investment or an
acquisition of Property that is predominantly directly related to the business
of the Company as described above, and if the aggregate fair market value of
such Ineligible Investments in the aggregate exceeds 10% (the "10% Limit") of
the total assets of the Company and its consolidated Restricted Subsidiaries
(as determined in accordance with GAAP) as determined in good faith by the
Chief Financial Officer, as evidenced by an Officers' Certificate, the Company,
its Restricted Subsidiaries and the Eligible Joint Ventures must cease
acquiring any additional Ineligible Investments and, within 18 months of the
acquisition that caused the Ineligible Assets to exceed the 10% Limit, must
return to compliance with the 10% Limit by disposing of Ineligible Assets or
otherwise, provided that such 18-month period may be extended up to an
additional six months if, despite the Company's active efforts during such 18-
month period to dispose of such Ineligible Investments or to otherwise come
into compliance with such 10% Limit, the Company is unable to do so because of
regulatory restrictions or delays or adverse market conditions.
Limitation on Certain Sale-Leasebacks
The Company will not, and will not permit any of its Restricted Subsidiaries
or any Eligible Joint Venture to, Incur or otherwise become obligated with
respect to any sale-leaseback (other than a sale-leaseback with respect to a
Permitted Facility that is Non-Recourse) unless, (i) (a) if effected by the
Company, the Company would be permitted to Incur such obligation under the
covenant described under "Limitation on Debt" above or, (b) if effected by a
Restricted Subsidiary or an Eligible Joint Venture, such Restricted Subsidiary
or such Eligible Joint Venture would be permitted to Incur such obligation
under the covenant described under "Limitation on Subsidiary Debt" above,
assuming for the purpose of this covenant and the covenants described under
"Limitation on Debt" and "Limitation on Subsidiary Debt" that (x) the
obligation created by such sale-leaseback is a Capitalized Lease and (y) the
Capitalized Lease Obligation with respect thereto is the Attributable Value
thereof, (ii) the Company, such Restricted Subsidiary or such Eligible Joint
Venture is permitted to grant a Lien with respect to the property that is the
subject of such sale-leaseback under the covenant described under "Limitation
on Liens" above, (iii) the proceeds of such sale-leaseback
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are at least equal to the fair market value of the property sold (determined in
good faith by the Board of Directors, as evidenced by a Board resolution) and
(iv) the Net Cash Proceeds of the sale-leaseback are applied pursuant to the
covenants described under "Limitation on Dispositions" above.
Limitation on Sale of Subsidiary Preferred Stock
The Company will not permit any of its Restricted Subsidiaries or any
Eligible Joint Venture to create, assume or otherwise cause or suffer to exist
any Preferred Stock except: (i) Preferred Stock outstanding on the date of the
Indenture, including Preferred Stock issued as dividends in respect of such
Preferred Stock pursuant to the terms of the agreement or instrument that
governs such Preferred Stock as in effect on the date of original issuance of
the Notes, (ii) Preferred Stock held by the Company, a Restricted Subsidiary of
the Company or an Eligible Joint Venture, (iii) Preferred Stock issued by a
Person prior to the time (a) such Person becomes a Restricted Subsidiary or an
Eligible Joint Venture, (b) such Person merges with or into another Restricted
Subsidiary or another Eligible Joint Venture or (c) a Restricted Subsidiary or
an Eligible Joint Venture merges with or into such Person (in a transaction in
which such Person becomes a Restricted Subsidiary or an Eligible Joint
Venture), provided that such Preferred Stock was not issued in anticipation of
such Person becoming a Restricted Subsidiary or an Eligible Joint Venture or of
such merger, (iv) Preferred Stock issued or agreed to be issued by a Restricted
Subsidiary or an Eligible Joint Venture in connection with the financing of the
construction, design, engineering, procurement, equipping, developing,
operation, ownership, management, servicing or acquisition of a Permitted
Facility or the retirement of Debt or Preferred Stock secured by such Permitted
Facility or in order to enhance the repatriation of equity, advances or income
or the increase of after-tax funds available for distribution to the owners of
such Permitted Facility, (v) Preferred Stock issued or agreed to be issued by a
Restricted Subsidiary or an Eligible Joint Venture in satisfaction of legal
requirements applicable to a Permitted Facility or to maintain the ordinary
course conduct of such Restricted Subsidiary's or such Eligible Joint Venture's
business in the applicable jurisdiction and (vi) Preferred Stock that is
exchanged for, or the proceeds of which are used to refinance, any Preferred
Stock permitted to be outstanding pursuant to clauses (i) through (v) hereof
(or any extension, renewal or refinancing thereof), having a liquidation
preference not to exceed the liquidation preference of the Preferred Stock so
exchanged or refinanced and having a redemption period no shorter than the
redemption period of the Preferred Stock so exchanged or refinanced.
MERGERS, CONSOLIDATIONS AND SALES OF ASSETS
The Company may not consolidate with, merge with or into, or transfer all or
substantially all its Property (as an entirety or substantially an entirety in
one transaction or a series of related transactions), to any Person unless: (i)
the Company will be the continuing Person, or the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or to
which the Property of the Company is transferred will be a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia and will expressly assume in writing all the
obligations of the Company under the Indenture and the Notes, (ii) immediately
after giving effect to such transaction, no Event of Default and no event or
condition that through the giving of notice or lapse of time or both would
become an Event of Default will have occurred and be continuing and (iii)
immediately after giving effect to such transaction on a pro forma basis, the
Company or the surviving entity would be able to Incur at least $1 of Debt
under the provision described in the first paragraph of "Limitation on Debt"
above.
None of the Company, any of its Restricted Subsidiaries or any Eligible Joint
Ventures may merge with or into, or be consolidated with, an Unrestricted
Subsidiary of the Company, except to the extent that such Unrestricted
Subsidiary has been designated a Restricted Subsidiary as provided in the
Indenture in advance of or in connection with such merger.
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MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of not less than a majority in principal amount
of the Notes at the time outstanding, to modify the Indenture or any
supplemental indenture or the rights of the Holders of the Notes, except that
no such modification may (i) extend the final maturity of any of the Notes,
reduce the principal amount, thereof, reduce the rate or extend the time of
accretion of original issue discount thereon beyond January 15, 1997 or the
time of payment of any cash interest thereon, reduce any amount payable on
redemption or purchase thereof or impair the right of any Holder to institute
suit for the payment thereof or make any change in the covenants regarding a
Change of Control or an Asset Disposition or the related definitions without
the consent of the Holder of each of the Notes so affected or (ii) reduce the
percentage of Notes, the consent of the Holders of which is required for any
such modification, without the consent of the Holders of all Notes then
outstanding.
EVENTS OF DEFAULT
An Event of Default is defined in the Indenture as being: (i) default as to
the payment of principal, or premium, if any, on any Note or as to any payment
required in connection with a Change of Control or an Asset Disposition, (ii)
default as to the payment of interest on any Note for 30 days after payment is
due, (iii) default on any other Debt of the Company or any Significant
Subsidiary (other than Non-Recourse Debt of Significant Subsidiaries) if either
(x) such default results from failure to pay principal of such Debt in excess
of $25 million when due after any applicable grace period or (y) as a result of
such default, the maturity of such Debt has been accelerated prior to its
scheduled maturity and such default has not been cured within the applicable
grace period, and such acceleration has not been rescinded, and the principal
amount of such Debt, together with the principal amount of any other Debt of
the Company and its Significant Subsidiaries (not including Non-Recourse Debt
of the Significant Subsidiaries) that is in default as to principal, or the
maturity of which has been accelerated, aggregates $25 million or more, (iv)
default in the performance, or breach, of any covenant, agreement or warranty
contained in the Indenture and the Notes and such failure continues for 30 days
after written notice is given to the Company by the Trustee or the Holders of
at least 25% in principal amount of the outstanding Notes, as provided in the
Indenture, (v) the entry by a court of one or more judgments or orders against
the Company or any Significant Subsidiary for the payment of money that in the
aggregate exceeds $25 million (excluding the amount thereof covered by
insurance or by a bond written by a Person other than an Affiliate of the
Company), which judgments or orders have not been vacated, discharged or
satisfied or stayed pending appeal within 60 days from the entry thereof,
provided, that such a judgment or order will not be an Event of Default if such
judgment or order does not require any payment by the Company or any
Significant Subsidiary, except to the extent that such judgment is only against
Property that secures Non-Recourse Debt that was permitted under the Indenture,
and the Company could, at the expiration of the applicable 60 day period, after
giving effect to such judgment or order and the consequences thereof, Incur at
least $1 of Debt under the provision described in the first paragraph of
"Limitation on Debt" above, and (vi) certain events involving bankruptcy,
insolvency or reorganization of the Company or any of its Significant
Subsidiaries.
The Indenture provides that the Trustee may withhold notice to the Holders of
any default (except in payment of principal of, premium, if any, on the Notes
and any payment required in connection with a Change of Control or an Asset
Disposition) if the Trustee considers it in the interest of Holders to do so.
The Indenture provides that if an Event of Default (other than an event of
bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary) has occurred and is continuing, either the Trustee or the Holders
of not less than 25% in principal amount of the Notes then outstanding may
declare the Default Amount of all Notes to be due and payable immediately, but
upon certain conditions such declaration may be annulled and past defaults
(except, unless theretofore cured, a default in payment of principal of,
premium, if any, or interest on the Notes or any payment required in connection
with a Change of Control or an Asset Disposition, as the case may be) may be
waived by the Holders of a majority in principal amount
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of the Notes then outstanding. If an Event of Default due to the bankruptcy,
insolvency or reorganization of the Company or a Significant Subsidiary occurs,
the Indenture provides that the Default Amount of all Notes will become
immediately due and payable.
The Holders of a majority in principal amount of the Notes then outstanding
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee under the Indenture, subject
to certain limitations specified in the Indenture, provided that the Holders of
Notes must have offered to the Trustee reasonable indemnity against expenses
and liabilities. The Indenture requires the annual filing by the Company with
the Trustee of a written statement as to compliance with the principal
covenants contained in the Indenture.
DEFEASANCE
Legal Defeasance
The Indenture provides that the Company will be deemed to have paid and will
be discharged from any and all obligations in respect of the Notes, on the
123rd day after the deposit referred to below has been made (or immediately if
an Opinion of Counsel is delivered to the effect described in clause (B)(ii)(y)
below), and the provisions of the Indenture will cease to be applicable with
respect to the Notes (except for, among other matters, certain obligations to
register the transfer or exchange of the Notes, to replace stolen, lost or
mutilated Notes, to maintain paying agencies and to hold monies for payment in
trust) if, among other things, (A) the Company has deposited with the Trustee,
in trust, money and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if any,
and accrued interest on the Notes, on the Stated Maturity of the Notes or, if
the Company makes arrangements satisfactory to the Trustee for the redemption
of the Notes prior to their Stated Maturity, on any earlier redemption date in
accordance with the terms of the Indenture and the Notes, (B) the Company has
delivered to the Trustee (i) either (x) an Opinion of Counsel to the effect
that Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit, defeasance and
discharge had not occurred and the Company had paid or redeemed such Notes on
the applicable dates, which Opinion of Counsel must be based upon a ruling of
the Internal Revenue Service to the same effect or a change in applicable
federal income tax law or related Treasury regulations after the date of the
Indenture or (y) a ruling directed to the Trustee received from the Internal
Revenue Service to the same effect as the aforementioned Opinion of Counsel,
(ii) an Opinion of Counsel to the effect that the creation of the defeasance
trust does not violate the Investment Company Act of 1940 and (iii) an Opinion
of Counsel to the effect that either (x) after the passage of 123 days
following the deposit, the trust fund will not be subject to the effect of
Section 547 or 548 of the U.S. Bankruptcy Code or Section 15 of the New York
Debtor and Creditor Law or (y) based upon existing precedents, if the matter
were properly briefed, a court should hold that the deposit of moneys and/or
U.S. Government Obligations as provided in clause (A) would not constitute a
preference voidable under Section 547 or 548 of the U.S. Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law, (C) immediately after
giving effect to such deposit on a pro forma basis, no Event of Default, or
event that after the giving of notice or lapse of time or both would become an
Event of Default, will have occurred and be continuing on the date of such
deposit or (unless an Opinion of Counsel is delivered to the effect described
in clause (B)(ii)(y) above) during the period ending on the 123rd day after the
date of such deposit, and the deposit will not result in a breach or violation
of, or constitute a default under, any other agreement or instrument to which
the Company is a party or by which the Company is bound and (D) if at such time
the Notes are listed on a national securities exchange, the Company has
delivered to the Trustee an Opinion of Counsel to the effect that the Notes
will not be delisted as a result of such deposit, defeasance and discharge.
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Covenant Defeasance
The Indenture further provides that the provisions of clause (iii) under
"Mergers, Consolidations and Sales of Assets" and all the covenants described
herein under "Certain Covenants," clause (iv) under "Events of Default" with
respect to such covenants and with respect to clause (iii) under "Mergers,
Consolidations and Sales of Assets," and clauses (iii) and (v) under "Events of
Default" will cease to be applicable to the Company and its Subsidiaries upon
the satisfaction of the provisions described in clauses (A), (B)(ii) and (iii),
(C) and (D) of the preceding paragraph and the delivery by the Company to the
Trustee of an Opinion of Counsel to the effect that, among other things, the
Holders of the Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit and the defeasance of certain
covenants and Events of Default and will be subject to federal income tax on
the same amount and in the same manner and at the same times as would have been
the case if such deposit and defeasance had not occurred and the Company had
paid or redeemed such Notes on the applicable dates.
Defeasance and Certain Other Events of Default
If the Company exercises its option to omit compliance with certain covenants
and provisions of the Indenture with respect to the Notes as described in the
immediately preceding paragraph and the Notes are declared due and payable
because of the occurrence of an Event of Default that remains applicable, the
amount of money and/or U.S. Government Obligations on deposit with the Trustee
will be sufficient to pay amounts due on the Notes at the time of their Stated
Maturity or scheduled redemption, but may not be sufficient to pay amounts due
on the Notes at the time of acceleration resulting from such Event of Default.
The Company will remain liable for such payments.
THE TRUSTEE
IBJ Schroder Bank & Trust Company is the Trustee under the Indenture.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in accordance
with, the law of the State of New York, including Section 5-1401 of the New
York General Obligations Law, but otherwise without regard to conflict of laws
rules.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definitions of all such terms as well as any other
capitalized terms used herein for which no definition is provided.
"Accreted Value" is defined to mean, with respect to each Note of a minimum
denomination, the lesser of (i) $1,000 and (ii) an amount per $1,000 of
principal amount that is equal to the sum of (i) the issue price of such Note
as determined in accordance with Section 1273 of the Internal Revenue Code or
any successor provision plus (ii) the aggregate of the portions of the original
issue discount (the excess of the amounts considered as part of the "stated
redemption price at maturity" of such Note within the meaning of Section
1273(a)(2) of the Internal Revenue Code or any successor provision, whether
denominated as principal or interest, over the issue price of such Note) that
will theretofore have accrued pursuant to Section 1272 of the Internal Revenue
Code or any successor provision (without regard to Section 1272(a)(7) of the
Internal Revenue Code or any successor provision) from the date of issue of
such Note (a) for each six months or shorter period ending January 15 and July
15 (to January 15, 1997) prior to the date of determination and (b) for the
shorter period, if any, from the end of the immediately preceding six month
period, as the case
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may be, to the date of determination, minus (iii) all amounts theretofore paid
in respect of such Note, which amounts are considered as part of the "stated
redemption price at maturity" of such Note within the meaning of Section
1273(a)(2) of the Internal Revenue Code or any successor provision (whether
such amounts were denominated principal or interest).
"Acquired Debt" is defined to mean Debt Incurred by a Person prior to the
time (i) such Person becomes a Restricted Subsidiary of the Company or an
Eligible Joint Venture, (ii) such Person merges with or into a Restricted
Subsidiary of the Company or an Eligible Joint Venture, or (iii) a Restricted
Subsidiary of the Company or an Eligible Joint Venture merges with or into such
Person (in a transaction in which such Person becomes a Restricted Subsidiary
of the Company or an Eligible Joint Venture), provided that, after giving
effect to such transaction, the Non-Recourse Debt of such Person could have
been Incurred pursuant to clause (iii) of the provision described under
"Limitation on Subsidiary Debt" and all the other Debt of such Person could
have been Incurred by the Company at the time of such merger or acquisition
pursuant to the provision described in the first paragraph of "Limitation on
Debt" above, and provided further that such Debt was not Incurred in connection
with, or in contemplation of, such merger or such Person becoming a Restricted
Subsidiary of the Company or an Eligible Joint Venture.
"Acquisition Debt" is defined to mean Debt of any Person existing at the time
such Person is merged into the Company or assumed in connection with the
acquisition of Property from any such Person (other than Property acquired in
the ordinary course of business), including Debt Incurred in connection with,
or in contemplation of, such Person being merged into the Company (but
excluding Debt of such Person that is extinguished, retired or repaid in
connection with such merger or acquisition).
"Adjusted Consolidated Net Income" is defined to mean for any period, for any
Person (the "Referenced Person") the aggregate Net Income (or loss) of the
Referenced Person and its consolidated Subsidiaries for such period determined
in conformity with GAAP, provided that the following items will be excluded in
computing Adjusted Consolidated Net Income (without duplication): (i) the Net
Income (or loss) of any other Person (other than a Subsidiary of the Referenced
Person) in which any third Person has an interest, except to the extent of the
amount of dividends or other distributions actually paid in cash to the
Referenced Person during such period, or after such period and on or before the
date of determination, by such Person in which the interest is held, which
dividends and distributions will be included in such computation, (ii) solely
for the purposes of calculating the amount of Restricted Payments that may be
made pursuant to the provision described in clause (c) of the first paragraph
of "Limitation on Restricted Payments" above (and in such case, except to the
extent includable pursuant to clause (i) above), the Net Income (if positive)
of any other Person accrued prior to the date it becomes a Subsidiary of the
Referenced Person or is merged into or consolidated with the Referenced Person
or any of its Subsidiaries or all or substantially all the Property of such
other Person are acquired by the Referenced Person or any of its Subsidiaries,
(iii) the Net Income (if positive) of any Subsidiary of the Referenced Person
to the extent that the declaration or payment of dividends or similar
distributions by that Subsidiary to such Person or to any other Subsidiary of
such Net Income is not at the time permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary, (iv) any gains or losses
(on an after-tax basis) attributable to Asset Sales (except, solely for the
purposes of calculating the amount of Restricted Payments that may be made
pursuant to the provision described in clause (c) of the first paragraph of
"Limitation on Restricted Payments" above, any gains or losses of the Company
and any of its Restricted Subsidiaries from Asset Sales of Capital Stock of
Unrestricted Subsidiaries), (v) the cumulative effect of a change in accounting
principles and (vi) any amounts paid or accrued as dividends on Preferred Stock
of any Subsidiary of the Referenced Person that is not held by the Referenced
Person or another Subsidiary thereof. When the "Referenced Person" is the
Company, the foregoing references to "Subsidiaries" will be deemed to refer to
"Restricted Subsidiaries."
"Affiliate" of any Person is defined to mean any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and
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"under common control with") when used with respect to any Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise. For the purpose of
the covenant described under "Limitation on Transactions with Affiliates"
above, the term "Affiliate" will be deemed to include only Kiewit, any entity
owning beneficially 10% or more of the Voting Stock of the Company and their
respective Affiliates other than the Restricted Subsidiaries and the Eligible
Joint Ventures and the other equity investors in the Restricted Subsidiaries
and the Eligible Joint Ventures (solely on account of their investments in the
Restricted Subsidiaries and the Eligible Joint Ventures), and for such purpose
such term also will be deemed to include the Unrestricted Subsidiaries.
"Asset Acquisition" is defined to mean (i) an investment by the Company, any
of its Subsidiaries or any Joint Venture in any other Person pursuant to which
such Person will become a direct or indirect Subsidiary of the Company or a
Joint Venture or will be merged into or consolidated with the Company, any of
its Subsidiaries or any Joint Venture or (ii) an acquisition by the Company,
any of its Subsidiaries or any Joint Venture of the Property of any Person
other than the Company, any of its Subsidiaries or any Joint Venture that
constitutes substantially all of an operating unit or business of such Person.
"Asset Disposition" is defined to mean any sale, transfer, conveyance, lease
or other disposition (including by way of merger, consolidation or sale-
leaseback) by the Company, any of its Restricted Subsidiaries or any Eligible
Joint Venture to any Person (other than to the Company, a Restricted Subsidiary
of the Company or an Eligible Joint Venture and other than in the ordinary
course of business) of any Property of the Company, any of its Restricted
Subsidiaries or any Eligible Joint Venture other than any shares of Capital
Stock of the Unrestricted Subsidiaries. Notwithstanding the foregoing to the
contrary, the term "Asset Disposition" will include the sale, transfer,
conveyance or other disposition of any shares of Capital Stock of any
Unrestricted Subsidiary to the extent that the Company or any of its Restricted
Subsidiaries or Eligible Joint Ventures made an Investment in such Unrestricted
Subsidiary pursuant to clause (vii) of the definition of "Permitted Payment,"
and the Company will, and will cause each of its Restricted Subsidiaries and
Eligible Joint Ventures to, apply pursuant to the covenant described under
"Limitation on Dispositions" that portion of the Net Cash Proceeds from the
sale, transfer, conveyance or other disposition of such Unrestricted Subsidiary
that is equal to the portion of the total Investment in such Unrestricted
Subsidiary that is represented by the Investment that was made pursuant to
clause (vii) of the definition of "Permitted Payment." For purposes of this
definition, any disposition in connection with directors' qualifying shares or
investments by foreign nationals mandated by applicable law will not constitute
an Asset Disposition. In addition, the term "Asset Disposition" will not
include (i) any sale, transfer, conveyance, lease or other disposition of the
Capital Stock or Property of Restricted Subsidiaries or Eligible Joint Ventures
pursuant to the terms of any power sales agreements or steam sales agreements
to which such Restricted Subsidiaries or such Eligible Joint Ventures are
parties on the date of the original issuance of the Notes or pursuant to the
terms of any power sales agreements or steam sales agreements, or other
agreements or contracts that are related to the output or product of, or
services rendered by, a Permitted Facility as to which such Restricted
Subsidiary or such Eligible Joint Venture is the supplying party, to which such
Restricted Subsidiaries or such Eligible Joint Ventures become a party after
such date if the President or Chief Financial Officer of the Company determines
in good faith (evidenced by a Officers' Certificate) that such provisions are
customary (or, in the absence of any industry custom, reasonably necessary) in
order to effect such agreements and are reasonable in light of comparable
transactions in the applicable jurisdiction, (ii) any sale, transfer,
conveyance, lease or other disposition of Property governed by the covenant
described under "Mergers, Consolidations and Sales of Assets" above, (iii) any
sale, transfer, conveyance, lease or other disposition of any Cash Equivalents,
(iv) any transaction or series of related transactions consisting of the sale,
transfer, conveyance, lease or other disposition of Capital Stock or Property
with a fair market value aggregating less than $5 million and (v) any
Restricted Payment that is permitted to be made pursuant to the covenant
described under "Limitation on Restricted Payments" above. The term "Asset
Disposition" also will not include (i) the grant of or realization upon a Lien
permitted under the covenant described under "Limitation on Liens" above or the
exercise of remedies thereunder, (ii) a sale-leaseback transaction involving
substantially all the Property constituting a Permitted Facility pursuant to
which a Restricted Subsidiary of
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the Company or an Eligible Joint Venture sells the Permitted Facility to a
Person in exchange for the assumption by that Person of the Debt financing the
Permitted Facility and the Restricted Subsidiary or the Eligible Joint Venture
leases the Permitted Facility from such Person, (iii) dispositions of Capital
Stock, contract rights, development rights and resource data made in connection
with the initial development of Permitted Facilities, or the formation or
capitalization of Restricted Subsidiaries or Eligible Joint Ventures in respect
of the initial development of Permitted Facilities, in respect of which only an
insubstantial portion of the prospective Construction Financing that would be
required to commence commercial operation has been funded or (iv) transactions
determined in good faith by the Chief Financial Officer, as evidenced by an
Officers' Certificate, made in order to enhance the repatriation of Net Cash
Proceeds for a Foreign Asset Disposition or in order to increase the after-tax
proceeds thereof available for immediate distribution to the Company. Any Asset
Disposition that results from the bona fide exercise by any governmental
authority of its claimed or actual power of eminent domain need not comply with
the provisions of clauses (i) and (ii) of the covenant described under
"Limitation on Dispositions" above.
"Asset Sale" is defined to mean the sale or other disposition by the Company,
any of its Subsidiaries or any Joint Venture (other than to the Company,
another Subsidiary of the Company or another Joint Venture) of (i) all or
substantially all of the Capital Stock of any Subsidiary of the Company or any
Joint Venture or (ii) all or substantially all of the Property that constitutes
an operating unit or business of the Company, any of its Subsidiaries or any
Joint Venture.
"Attributable Value" means, as to a Capitalized Lease Obligation under which
any Person is at the time liable and at any date as of which the amount thereof
is to be determined, the capitalized amount thereof that would appear on the
face of a balance sheet of such Person in accordance with GAAP.
"Average Life" is defined to mean, at any date of determination with respect
to any Debt security or Preferred Stock, the quotient obtained by dividing (i)
the sum of the product of (A) the number of years from such date of
determination to the dates of each successive scheduled principal or
involuntary liquidation value payment of such Debt security or Preferred Stock,
respectively, multiplied by (B) the amount of such principal or involuntary
liquidation value payment by (ii) the sum of all such principal or involuntary
liquidation value payments.
"Board of Directors" is defined to mean either the Board of Directors of the
Company or any duly authorized committee of such Board.
"Business Day" is defined to mean a day that, in the city (or in any of the
cities, if more than one) where amounts are payable in respect of the Notes, is
neither a legal holiday nor a day on which banking institutions are authorized
or required by law or regulation to close.
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"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in, or interests (however designated) in, the
equity of such Person that is outstanding or issued on or after the date of
Indenture, including, without limitation, all Common Stock and Preferred Stock
and partnership and joint venture interests in such Person.
"Capitalized Lease" is defined to mean, as applied to any Person, any lease
of any Property of which the discounted present value of the rental obligations
of such Person as lessee, in conformity with GAAP, is required to be
capitalized on the balance sheet of such Person, and "Capitalized Lease
Obligation" means the rental obligations, as aforesaid, under such lease.
"Cash Equivalent" is defined to mean any of the following: (i) securities
issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that the full faith
and credit of the United States of America is pledged in support thereof), (ii)
time deposits and certificates of deposit of any commercial bank organized in
the United States having capital and surplus in excess of $500,000,000 or a
commercial bank under the laws of any other country having total assets in
excess of $500,000,000 with a maturity date not more than two years from the
date of acquisition, provided that at no time will the weighted Average Life of
all such Investments be more than two year from the respective dates of
acquisition, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clauses (i) or (v) that was
entered into with any bank meeting the qualifications set forth in clause (ii)
or another financial institution of national reputation, (iv) direct
obligations issued by any state or other jurisdiction of the United States of
America or any other country or any political subdivision or public
instrumentality thereof maturing, or subject to tender at the option of the
holder thereof, within 90 days after the date of acquisition thereof and, at
the time of acquisition, having a rating of A from Standards & Poor's
Corporation ("S&P") or A-2 from Moody's Investors Service, Inc. ("Moody's")
(or, if at any time neither S&P nor Moody's may be rating such obligations,
then from such other nationally recognized rating services acceptable to the
Trustee), (v) commercial paper issued by the parent corporation of any
commercial bank organized in the United States having capital and surplus in
excess of $500,000,000 or a commercial bank organized under the laws of any
other country having total assets in excess of $500,000,000, and commercial
paper issued by others having one of the two highest ratings obtainable from
either S&P or Moody's (or, if at any time neither S&P nor Moody's may be rating
such obligations, then from such other nationally recognized rating services
acceptable to the Trustee) and in each case maturing within one year after the
date of acquisition, (vi) overnight bank deposits and bankers' acceptances at
any commercial bank organized in the United States having capital and surplus
in excess of $500,000,000 or a commercial bank organized under the laws of any
other country having total assets in excess of $500,000,000, (vii) deposits
available for withdrawal on demand with a commercial bank organized in the
United States having capital and surplus in excess of $500,000,000 or a
commercial bank organized under the laws of any other country having total
assets in excess of $500,000,000, (viii) investments in money market funds
substantially all of whose assets comprise securities of the types described in
clauses (i) through (vi) and (ix), and (ix) auction rate securities or money
market preferred stock having one of the two highest ratings obtainable from
either S&P or Moody's (or, if at any time neither S&P nor Moody's may be rating
such obligations, then from such other nationally recognized rating services
acceptable to the Trustee).
"Change of Control" is defined to mean the occurrence of one or more of the
following events:
(i) for so long as at least $25 million principal amount of the Company's
5% Convertible Subordinated Debentures due July 1, 2000 remain outstanding
and are not defeased, (x) a report is filed on Schedule 13D or 14D-1 (or
any successor schedule, form or report) pursuant to the Exchange Act,
disclosing that any person (for the purposes of this provision only, as the
term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act or any successor provision to either of the foregoing) has
become the beneficial owner (as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act) of 50% or more of the then outstanding shares of the Voting
Stock of the Company and (y) such beneficial ownership is acquired by
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means of a tender offer in which cash is the sole consideration paid and
the purchase price for each share tendered is less than the conversion
price then in effect under the Company's 5% Convertible Subordinated
Debentures due July 1, 2000; provided that a person will not be deemed to
be the beneficial owner of, or to own beneficially, any securities tendered
until such tendered securities are accepted for purchase under the tender
offer;
(ii) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than Kiewit, is or becomes the beneficial owner
(as defined in clause (i) above), directly or indirectly, of more than 35%
of the total voting power of the Voting Stock of the Company (for the
purposes of this clause (ii), any person will be deemed to beneficially own
any Voting Stock of any corporation (the "specified corporation") held by
any other corporation (the "parent corporation"), if such person
"beneficially owns" (as so defined), directly or indirectly, more than 35%
of the voting power of the Voting Stock of such parent corporation and
Kiewit "beneficially owns" (as so defined), directly or indirectly, in the
aggregate a lesser percentage of the voting power of the Voting Stock of
such parent corporation and does not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the board of directors of such parent corporation);
(iii) during any one-year period, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together
with any new directors elected by such Board of Directors or nominated for
election by the shareholders of the Company by a vote of at least a
majority of the directors of the Company then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office, unless a
majority of such new directors were elected or appointed by Kiewit; or
(iv) the Company or its Restricted Subsidiaries sell, convey, assign,
transfer, lease or otherwise dispose of all or substantially all the
Property of the Company and the Restricted Subsidiaries taken as a whole;
provided that with respect to the foregoing subparagraphs (ii), (iii) and (iv),
a Change of Control will not be deemed to have occurred unless and until a
Rating Decline has occurred as well.
"Common Stock" is defined to mean with respect to any Person, Capital Stock
of such Person that does not rank prior, as to the payment of dividends or as
to the distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Company Refinancing Debt" is defined to mean Debt issued in exchange for, or
the proceeds of which are used to refinance (including to purchase),
outstanding Notes or other Debt of the Company Incurred pursuant to clauses
(i), (iv), and (vii) of "Limitation on Debt" and Debt Incurred pursuant to the
first paragraph under "Limitation on Debt" in an amount (or, if such new Debt
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, with an original issue
price) not to exceed the amount so exchanged or refinanced (plus accrued
interest and all fees, premiums (in excess of the accreted value) and expenses
related to such exchange or refinancing), for which purpose the amount so
exchanged or refinanced will be deemed to equal the lesser of (x) the principal
amount of the Debt so exchanged or refinanced and (y) if the Debt being
exchanged or refinanced was issued with an original issue discount, the
accreted value thereof (as determined in accordance with GAAP) at the time of
such exchange or refinancing, provided that (A) such Debt will be subordinated
in right of payment to the Notes at least to the same extent, if any, as the
Debt so exchanged or refinanced is subordinated to the Notes, (B) such Debt
will be Non-Recourse if the Debt so exchanged or refinanced is Non-Recourse,
(C) the Average Life of the new Debt will be equal to or greater than the
Average Life of the Debt to be exchanged or refinanced and (D) the final Stated
Maturity of the new Debt will not be sooner than the earlier of the final
Stated Maturity of the Debt to be exchanged or refinanced or six months after
the final Stated Maturity of
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the Notes, provided that if such new Debt refinances the Notes in part only,
the final Stated Maturity of such new Debt must be at least six months after
the final Stated Maturity of the Notes.
"Consolidated EBITDA" of any Person for any period is defined to mean the
Adjusted Consolidated Net Income of such Person, plus, only to the extent
deducted in computing Adjusted Consolidated Net Income and without duplication,
(i) income taxes, excluding income taxes (either positive or negative)
attributable to extraordinary and non-recurring gains or losses or Asset Sales,
all determined on a consolidated basis for such Person and its consolidated
Subsidiaries in accordance with GAAP, (ii) Consolidated Fixed Charges, (iii)
depreciation and amortization expense, all determined on a consolidated basis
for such Person and its consolidated Subsidiaries in accordance with GAAP and
(iv) all other non-cash items reducing Adjusted Consolidated Net Income for
such period, all determined on a consolidated basis for such Person and its
consolidated Subsidiaries in accordance with GAAP, and less all non-cash items
increasing Adjusted Consolidated Net Income during such period, provided that
depreciation and amortization expense of any Subsidiary of such Person and any
other non-cash item of any Subsidiary of such Person that reduces Adjusted
Consolidated Net Income will be excluded (without duplication) in computing
Consolidated EBITDA, except to the extent that the positive cash flow
associated with such depreciation and amortization expense and other non-cash
items is actually distributed in cash to such Person during such period,
provided further that as applied to the Company, cash in respect of
depreciation and amortization and other non-cash items of Restricted
Subsidiaries and Eligible Joint Ventures may be deemed to have been distributed
or paid to the Company to the extent that such cash (I) is or was under the
exclusive dominion and control of such Restricted Subsidiary or such Eligible
Joint Venture and is or was free and clear of the Lien of any other Person,
(II) is or was immediately available for distribution and (III) could be or
could have been repatriated to the United States by means that are both lawful
and commercially reasonable, provided that the amount of the cash deemed by
this sentence to have been distributed or paid will be reduced by the amount of
tax that would have been payable with respect to the repatriation thereof,
provided further that any cash that enables the recognition of depreciation and
amortization and other non-cash items pursuant to this sentence may not be used
to enable the recognition of depreciation and amortization and other non-cash
items with respect to any prior or subsequent period, regardless of whether
such cash is distributed to the Company, and provided further that the
recognition of any depreciation and amortization and other non-cash items as a
result of this sentence will be determined in good faith by the Chief Financial
Officer, as evidenced by an Officers' Certificate that will set forth in
reasonable detail the relevant facts and assumptions supporting such
recognition. When the "Person" referred to above is the Company, the foregoing
references to "Subsidiaries" will be deemed to refer to "Restricted
Subsidiaries."
"Consolidated Fixed Charges" of any Person is defined to mean, for any
period, the aggregate of (i) Consolidated Interest Expense, (ii) the interest
component of Capitalized Leases, determined on a consolidated basis for such
Person and its consolidated Subsidiaries in accordance with GAAP, excluding any
interest component of Capitalized Leases in respect of that portion of a
Capitalized Lease Obligation of a Subsidiary that is Non-Recourse to such
Person, and (iii) cash and non-cash dividends due (whether or not declared) on
the Preferred Stock of any Subsidiary of such Person held by any Person other
than such Person and any Redeemable Stock of such Person or any Subsidiary of
such Person. When the "Person" referred to above is the Company, the foregoing
references to "Subsidiaries" will be deemed to refer to "Restricted
Subsidiaries."
"Consolidated Interest Expense" of any Person is defined to mean, for any
period, the aggregate interest expense in respect of Debt (including
amortization of original issue discount and non-cash interest payments or
accruals) of such Person and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, including all commissions,
discounts, other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and net costs associated with Interest Rate
Protection Agreements and Currency Protection Agreements and any amounts paid
during such period in respect of such interest expense, commissions, discounts,
other fees and charges that have been capitalized, provided that Consolidated
Interest Expense of the Company will not include any interest expense
(including all
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commissions, discounts, other fees and charges owed with respect to letters of
credit and bankers' acceptance financing and net costs associated with Interest
Rate Protection Agreements or Currency Protection Agreements) in respect of
that portion of any Debt that is Non-Recourse, and provided further that
Consolidated Interest Expense of the Company in respect of a Guarantee by the
Company of Debt of another Person will be equal to the commissions, discounts,
other fees and charges that would be due with respect to a hypothetical letter
of credit issued under a bank credit agreement that can be drawn by the
beneficiary thereof in the amount of the Debt so guaranteed if (i) the Company
is not actually making directly or indirectly interest payments on such Debt
and (ii) GAAP does not require the Company on an unconsolidated basis to record
such Debt as a liability of the Company. When the "Person" referred to above is
the Company, the foregoing references to "Subsidiaries" will be deemed to refer
to "Restricted Subsidiaries."
"Construction Financing" is defined to mean the debt and/or equity financing
provided (over and above the owners' equity investment) to permit the
acquisition, development, design, engineering, procurement, construction and
equipping of a Permitted Facility and to enable it to commence commercial
operations, provided that Construction Financing may remain outstanding after
the commencement of commercial operations of a Permitted Facility, without any
increase in the amount of such financing, and such Construction Financing will
not cease to be Construction Financing.
"Currency Protection Agreement" is defined to mean, with respect to any
Person, any foreign exchange contract, currency swap agreement or other similar
agreement or arrangement intended to protect such Person against fluctuations
in currency values to or under which such Person is a party or a beneficiary on
the date of the Indenture or becomes a party or a beneficiary thereafter.
"Debt" is defined to mean, with respect to any Person, at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit, bankers' acceptances, surety, bid,
operating and performance bonds, performance guarantees or other similar
instruments or obligations (or reimbursement obligations with respect thereto)
(except, in each case, to the extent incurred in the ordinary course of
business), (iv) all obligations of such Person to pay the deferred purchase
price of property or services, except Trade Payables, (v) the Attributable
Value of all obligations of such Person as lessee under Capitalized Leases,
(vi) all Debt of others secured by a Lien on any Property of such Person,
whether or not such Debt is assumed by such Person, provided that, for purposes
of determining the amount of any Debt of the type described in this clause, if
recourse with respect to such Debt is limited to such Property, the amount of
such Debt will be limited to the lesser of the fair market value of such
Property or the amount of such Debt, (vii) all Debt of others Guaranteed by
such Person to the extent such Debt is Guaranteed by such Person, (viii) all
Redeemable Stock valued at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends and (ix) to the extent
not otherwise included in this definition, all net obligations of such Person
under Currency Protection Agreements and Interest Rate Protection Agreements.
For purposes of determining any particular amount of Debt that is or would be
outstanding, Guarantees of, or obligations with respect to letters of credit or
similar instruments supporting (to the extent the foregoing constitutes Debt),
Debt otherwise included in the determination of such particular amount will not
be included. For purposes of determining compliance with the Indenture, in the
event that an item of Debt meets the criteria of more than one of the types of
Debt described in the above clauses, the Company, in its sole discretion, will
classify such item of Debt and only be required to include the amount and type
of such Debt in one of such clauses.
"Default Amount" is defined to mean, prior to January 15, 1997, the Accreted
Value, and from and including January 15, 1997 the principal amount plus
accrued interest.
"Eligible Joint Venture" is defined to mean a Joint Venture (other than a
Subsidiary) (i) that is or will be formed with respect to the construction,
development, acquisition, servicing, ownership, operation or
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management of one or more Permitted Facilities and (ii) in which the Company
and Kiewit together, directly or indirectly, own at least 50% of the Capital
Stock therein (of which the Company must own at least half (in any event not
less than 25% of the total outstanding Capital Stock)) and (iii) in respect of
which the Company alone or in combination with Kiewit, directly or indirectly,
(a) controls, by voting power, board or management committee membership, or
through the provisions of any applicable partnership, shareholder or other
similar agreement or under an operating, maintenance or management agreement or
otherwise, the management and operation of the Joint Venture or any Permitted
Facilities of the Joint Venture or (b) otherwise has significant influence over
the management or operation of the Joint Venture or any Permitted Facility of
the Joint Venture in all material respects (significant influence includes,
without limitation, the right to control or veto any material act or decision)
in connection with such management or operation. Any Joint Venture that is an
Eligible Joint Venture pursuant to this definition because of the ownership of
Capital Stock therein by Kiewit will cease to be an Eligible Joint Venture if
(x) Kiewit disposes of any securities issued by the Company and, as a result of
such disposition, Kiewit becomes the beneficial owner (as such term is defined
under Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act) of less than 25% of the outstanding shares of Voting Stock of the
Company or (y) (I) as a result of any action other than a disposition of
securities by Kiewit, Kiewit becomes the beneficial owner of less than 25% of
the outstanding shares of Voting Stock of the Company and (II) thereafter
Kiewit disposes of any securities issued by the Company as a result of which
the beneficial ownership by Kiewit of the outstanding Voting Stock of the
Company is further reduced, provided that thereafter such Joint Venture may
become an Eligible Joint Venture if Kiewit becomes the beneficial owner of at
least 25% of the outstanding shares of Voting Stock of the Company and the
other conditions set forth in this definition are fulfilled.
"Fixed Charge Ratio" is defined to mean the ratio, on a pro forma basis, of
(i) the aggregate amount of Consolidated EBITDA of any Person for the Reference
Period immediately prior to the date of the transaction giving rise to the need
to calculate the Fixed Charge Ratio (the "Transaction Date") to (ii) the
aggregate Consolidated Fixed Charges of such Person during such Reference
Period, provided that for purposes of such computation, in calculating
Consolidated EBITDA and Consolidated Fixed Charges, (1) the Incurrence of the
Debt giving rise to the need to calculate the Fixed Charge Ratio and the
application of the proceeds therefrom (including the retirement or defeasance
of Debt) will be assumed to have occurred on the first day of the Reference
Period, (2) Asset Sales and Asset Acquisitions that occur during the Reference
Period or subsequent to the Reference Period and prior to the Transaction Date
(but including any Asset Acquisition to be made with the Debt Incurred pursuant
to (1) above) and any related retirement of Debt pursuant to an Offer (in the
amount of the Excess Proceeds with respect to which such Offer has been made or
would be made on the Transaction Date if the purchase of Notes pursuant to such
Offer has not occurred on or before the Transaction Date) will be assumed to
have occurred on the first day of the Reference Period, (3) the Incurrence of
any Debt during the Reference Period or subsequent to the Reference Period and
prior to the Transaction Date and the application of the proceeds therefrom
(including the retirement or defeasance of other Debt) will be assumed to have
occurred on the first day of such Reference Period, (4) Consolidated Interest
Expense attributable to any Debt (whether existing or being Incurred) computed
on a pro forma basis and bearing a floating interest rate will be computed as
if the rate in effect on the date of computation had been the applicable rate
for the entire period unless the obligor on such Debt is a party to an Interest
Rate Protection Agreement (that will remain in effect for the twelve month
period after the Transaction Date) that has the effect of fixing the interest
rate on the date of computation, in which case such rate (whether higher or
lower) will be used and (5) there will be excluded from Consolidated Fixed
Charges any Consolidated Fixed Charges related to any amount of Debt that was
outstanding during or subsequent to the Reference Period but is not outstanding
on the Transaction Date, except for Consolidated Fixed Charges actually
incurred with respect to Debt borrowed (as adjusted pursuant to clause (4)) (x)
under a revolving credit or similar arrangement to the extent the commitment
thereunder remains in effect on the Transaction Date or (y) pursuant to the
provision described in clause (iii) in the second paragraph of "Limitation on
Debt" above. For the purpose of making this computation, Asset Sales and Asset
Acquisitions that have been made by any Person that has become a Restricted
Subsidiary of the Company or an Eligible Joint Venture or been
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merged with or into the Company or any Restricted Subsidiary of the Company or
an Eligible Joint Venture during the Reference Period, or subsequent to the
Reference Period and prior to the Transaction Date, will be calculated on a pro
forma basis, as will be all the transactions contemplated by the calculations
referred to in clauses (1) through (5) above with respect to the Persons or
businesses that were the subject of such Asset Sales and Asset Dispositions,
assuming such Asset Sales or Asset Acquisitions occurred on the first day of
the Reference Period.
"Foreign Asset Disposition" means an Asset Disposition in respect of the
Capital Stock or Property of a Restricted Subsidiary of the Company or an
Eligible Joint Venture to the extent that the proceeds of such Asset
Disposition are received by a Person subject in respect of such proceeds to the
tax laws of a jurisdiction other than the United States of America or any State
thereof or the District of Columbia.
"GAAP" is defined to mean generally accepted accounting principles in the
U.S. as in effect as of the date of the Indenture applied on a basis consistent
with the principles, methods, procedures and practices employed in the
preparation of the Company's audited financial statements, including, without
limitation, those 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 approved by
a significant segment of the accounting profession.
"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Debt of any other Person
and, without limiting the generality of the foregoing, any Debt obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt of
such other Person (whether arising by virtue of partnership arrangements (other
than solely by reason of being a general partner of a partnership), or by
agreement to keep-well, to purchase assets, goods, securities or services, or
to take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for purposes of assuring in any other manner the obligee of
such Debt of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part), provided that the term "Guarantee" will
not include endorsements for collection or deposit in the ordinary course of
business or the grant of a Lien in connection with any Non-Recourse Debt. The
term "Guarantee" used as a verb has a corresponding meaning.
"Holder", "holder of Notes", "Noteholder" and other similar terms are defined
to mean the registered holder of any Note.
"Incur" is defined to mean with respect to any Debt, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Debt, provided
that neither the accrual of interest (whether such interest is payable in cash
or kind) nor the accretion of original issue discount will be considered an
Incurrence of Debt. The term "Incurrence" has a corresponding meaning.
"Interest Rate Protection Agreement" is defined to mean, with respect to any
Person, any interest rate protection agreement, interest rate future agreement,
interest rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement intended to protect such Person against
fluctuations in interest rates to or under which such Person or any of its
Subsidiaries is a party or a beneficiary on the date of the Indenture or
becomes a party or a beneficiary thereafter.
"Investment" in a Person is defined to mean any investment in, loan or
advance to, Guarantee on behalf of, directly or indirectly, or other transfer
of assets to such Person (other than sales of products and services in the
ordinary course of business).
"Investment Grade" is defined to mean with respect to the Notes, (i) in the
case of S&P, a rating of at least BBB--, (ii) in the case of Moody's, a rating
of at least Baa3, and (iii) in the case of a Rating Agency
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other than S&P or Moody's, the equivalent rating, or in each case, any
successor, replacement or equivalent definition as promulgated by S&P, Moody's
or other Rating Agency as the case may be.
"Joint Venture" is defined to mean a joint venture, partnership or other
similar arrangement, whether in corporate, partnership or other legal form.
"Kiewit" is defined to mean and include Kiewit Energy Company and any other
Subsidiary of Peter Kiewit Sons', Inc., Kiewit Construction Group Inc. or
Kiewit Diversified Group, Inc.
"Lien" is defined to mean, with respect to any Property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
Property, but will not include any partnership, joint venture, shareholder,
voting trust or other similar governance agreement with respect to Capital
Stock in a Subsidiary or Joint Venture. For purposes of the Indenture, the
Company will be deemed to own subject to a Lien any Property that it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such Property.
"Net Cash Proceeds" from an Asset Disposition is defined to mean cash
payments received (including any cash payments received by way of a payment of
principal pursuant to a note or installment receivable or otherwise, but only
as and when received (including any cash received upon sale or disposition of
any such note or receivable), excluding any other consideration received in the
form of assumption by the acquiring Person of Debt or other obligations
relating to the Property disposed of in such Asset Disposition or received in
any form other than cash) therefrom, in each case, net of (i) all legal, title
and recording tax expenses, commissions and other fees and expenses of any kind
(including consent and waiver fees and any applicable premiums, earn-out or
working interest payments or payments in lieu or in termination thereof)
incurred, (ii) all federal, state, provincial, foreign and local taxes and
other governmental charges required to be accrued as a liability under GAAP (a)
as a consequence of such Asset Disposition, (b) as a result of the repayment of
any Debt in any jurisdiction other than the jurisdiction where the Property
disposed of was located or (c) as a result of any repatriation of any proceeds
of such Asset Disposition, (iii) a reasonable reserve for the after-tax-cost of
any indemnification payments (fixed and contingent) attributable to seller's
indemnities to the purchaser undertaken by the Company, any of its Restricted
Subsidiaries or any Eligible Joint Venture in connection with such Asset
Disposition (but excluding any payments that by the terms of the indemnities
will not, under any circumstances, be made during the term of the Notes), (iv)
all payments made on any Debt that is secured by such Property, in accordance
with the terms of any Lien upon or with respect to such Property or that must
by its terms or by applicable law or in order to obtain a required consent or
waiver be repaid out of the proceeds from or in connection with such Asset
Disposition, and (v) all distributions and other payments made to holders of
Capital Stock of Restricted Subsidiaries or Eligible Joint Ventures (other than
the Company or its Restricted Subsidiaries) as a result of such Asset
Disposition.
"Net Income" of any Person for any period is defined to mean the net income
(loss) of such Person for such period, determined in accordance with GAAP,
except that extraordinary and non-recurring gains and losses as determined in
accordance with GAAP will be excluded.
"Non-Recourse", as applied to any Debt or any sale-leaseback, is defined to
mean any project financing that is or was Incurred with respect to the
development, acquisition, design, engineering, procurement, construction,
operation, ownership, servicing or management of one Permitted Facility (or two
or more Permitted Facilities that are operated in the form of a single business
and as one technological unit), provided that such financing is without
recourse to the Company, any Restricted Subsidiary or any Eligible Joint
Venture other than any Restricted Subsidiary or any Eligible Joint Venture that
does not own any Property other than such Permitted Facility or a direct or
indirect interest therein, provided further that such financing may be secured
by a Lien on only (i) the Property that constitutes such Permitted Facility,
(ii) the income from and proceeds of such Permitted Facility, (iii) the Capital
Stock of the Person that owns the Property that constitutes such Permitted
Facility and (iv) the Capital Stock of the Person obligated with respect to
such financing and of any Subsidiary or Joint Venture (that is a Restricted
Subsidiary or an Eligible Joint
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Venture) of such Person that owns a direct or indirect interest in the
Permitted Facility, and provided further that an increase in the amount of Debt
with respect to a Permitted Facility pursuant to the financing provided
pursuant to the terms of this definition (except for the first refinancing of
Construction Financing) may not be Incurred to fund or enable the funding of
any dividend or other distribution in respect of Capital Stock. The fact that a
portion of financing with respect to a Permitted Facility is not Non-Recourse
will not prevent other portions of the financing with respect to such Permitted
Facility from constituting Non-Recourse Debt if the foregoing requirements of
this definition are fulfilled with respect to such other portions.
Notwithstanding anything in this definition to the contrary, (i) Non-Recourse
Debt in respect of any Permitted Facility that uses thermal energy drawn from a
single localized geothermal reservoir may be cross-collateralized with the
Property, income, proceeds and Capital Stock in respect of any other Permitted
Facility that uses thermal energy drawn from the same localized geothermal
reservoir, (ii) Acquired Debt of a Person that was Incurred with respect to,
and that is jointly secured by, two or more Permitted Facilities (all of which
need not use thermal energy drawn from the same localized geothermal reservoir)
(and other Property related to such Permitted Facilities) will be deemed to be
Non-Recourse if, upon such Person, becoming a Restricted Subsidiary or an
Eligible Joint Venture, such Acquired Debt would fulfill the requirements of
the first sentence of this definition if such Permitted Facilities constituted
a single Permitted Facility and (iii) for the purpose of the Indenture, (a) the
Permitted Facilities that jointly secure a single Non-Recourse Debt pursuant to
clause (i) of this sentence will be deemed to be a single Permitted Facility
and (b) the Permitted Facilities that jointly secure a single Acquired Debt
will be deemed to be a single Permitted Facility.
"Officers' Certificate" is defined to mean a certificate signed by the
Chairman of the Board of Directors, the President or any Vice President and by
the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the
Controller, the Assistant Controller, the Secretary or any Assistant Secretary
of the Company and delivered to the Trustee. Each such certificate will comply
with Section 314 of the Trust Indenture Act and include the statements provided
for in the Indenture if and to the extent required thereby.
"Opinion of Counsel" is defined to mean an opinion in writing signed by legal
counsel who may be an employee of or counsel to the Company or who may be other
counsel satisfactory to the Trustee. Each such opinion will comply with Section
314 of the Trust Indenture Act and include the statements provided for in the
Indenture, if and to the extent required thereby.
"Permitted Facility" is defined to mean (i) an electric power or thermal
energy generation or cogeneration facility or related facilities (including
residual waste management and facilities that use thermal energy from a
cogeneration facility), and it or their related electric power transmission,
fuel supply and fuel transportation facilities, together with its or their
related power supply, thermal energy and fuel contracts and other facilities,
services or goods that are ancillary, incidental, necessary or reasonably
related to the marketing, development, construction, management, servicing,
ownership or operation of the foregoing, owned by a utility or otherwise, as
well as other contractual arrangements with customers, suppliers and
contractors or (ii) any infrastructure facilities related to (A) the treatment
of water for municipal and other uses, (B) the treatment and/or management of
waste water, (C) the treatment, management and/or remediation of waste,
pollution and/or potential pollutants and (D) any other process or
environmental purpose.
"Permitted Funding Company Loans" is defined to mean (a) Debt of a Restricted
Subsidiary, all the Capital Stock of which is owned, directly or indirectly, by
the Company and that (x) does not own any direct or indirect interest in a
Permitted Facility and (y) is not directly or indirectly obligated on any Debt
owed to any Person other than the Company, a Restricted Subsidiary or an
Eligible Joint Venture (a "Funding Company"), owed to a Restricted Subsidiary
or an Eligible Joint Venture that is not directly or indirectly obligated on
any Debt owed to any Person other than the Company, a Restricted Subsidiary or
an Eligible Joint Venture (except to the extent that it has pledged the Capital
Stock of its Subsidiaries and Joint Ventures to secure Non-Recourse Debt) (a
"Holding Company"), provided that such Debt (i) does not require that interest
be paid in cash at any time sooner than six months after the final Stated
Maturity of the Notes, (ii)
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does not require any payment of principal at any time sooner than six months
after the final Stated Maturity of the Notes, (iii) is subordinated in right of
payment to all other Debt of such Restricted Subsidiary or Eligible Joint
Venture, except for Debt of such Restricted Subsidiary or Eligible Joint
Venture Incurred pursuant to clause (vii) of the covenant described under
"Limitation on Subsidiary Debt," all of which will be pari passu and (iv) is
evidenced by a subordinated note in the form attached to the Indenture, and (b)
Debt of a Holding Company to a Funding Company.
"Permitted Investment" is defined to mean any Investment that is made
directly or indirectly by the Company and its Restricted Subsidiaries in (i) a
Restricted Subsidiary or Eligible Joint Venture (excluding for the purpose of
this clause (i) any Construction Financing) that, directly or indirectly, is or
will be engaged in the construction, development, acquisition, operation,
servicing, ownership or management of a Permitted Facility or in any other
Person as a result of which such other Person becomes such a Restricted
Subsidiary or an Eligible Joint Venture, provided that at the time that any of
the foregoing Investments is proposed to be made, no Event of Default or event
that, after giving notice or lapse of time or both, would become an Event of
Default, will have occurred and be continuing, (ii) Construction Financing
provided by the Company (A) to any of its Restricted Subsidiaries (other than
an Eligible Joint Venture) up to 100% of the Construction Financing required by
such Restricted Subsidiary and (B) to any Eligible Joint Venture a portion of
the Construction Financing required by such Eligible Joint Venture that does
not exceed the ratio of the Capital Stock in such Permitted Joint Venture that
is owned directly or indirectly by the Company to the total amount of the
Capital Stock in such Eligible Joint Venture that is owned directly and
indirectly by the Company and Kiewit together (provided that the Company may
provide such Construction Financing to such Eligible Joint Venture only if
Kiewit provides the balance of such Construction Financing or otherwise causes
it to be provided), if, in either case, (x) the aggregate proceeds of all the
Construction Financing provided is not more than 85% of the sum of the
aggregate proceeds of such Construction Financing and the aggregate owners'
equity investment in such Restricted Subsidiary or such Eligible Joint Venture,
as the case may be, (y) the Company receives a pledge or assignment of all the
Capital Stock of such Restricted Subsidiary or such Eligible Joint Venture, as
the case may be, that is owned by non-governmental Person (other than the
Company, its Subsidiaries or the Eligible Joint Ventures) that is permitted to
be pledged for such purpose under applicable law and (z) neither the Company
nor Kiewit reduces its beneficial ownership in such Restricted Subsidiary or
such Eligible Joint Venture, as the case may be, prior to the repayment in full
of the Company's portion of the Construction Financing, (iii) any Cash
Equivalents, (iv) prepaid expenses, negotiable instruments held for collection
and lease, utility and workers' compensation, performance and other similar
deposits in the ordinary course of business consistent with past practice, (v)
loans and advances to employees made in the ordinary course of business and
consistent with past practice, (vi) Debt incurred pursuant to Currency
Protection Agreements and Interest Rate Protection Agreements as otherwise
permitted by the Indenture, (vii) bonds, notes, debentures or other debt
securities and instruments received as a result of Asset Dispositions to the
extent permitted by the covenants described under "Limitation on Dispositions"
above and "Limitation on Business" above, (viii) any Lien permitted under the
provisions described under "Limitation on Liens" above and (ix) bank deposits
and other Investments (to the extent they do not constitute Cash Equivalents)
required by lenders in connection with any Non-Recourse Debt, provided that the
President or the Chief Financial Officer of the Company determines in good
faith, as evidenced by an Officers' Certificate, that such bank deposits or
Investments are required to effect such financings and are not materially more
restrictive, taken as a whole, than comparable requirements in comparable
financings.
"Permitted Joint Venture" is defined to mean a Joint Venture (i) that is or
will be formed with respect to the construction, development, acquisition,
servicing, ownership, operation or management of one or more Permitted
Facilities and (ii) in which (A) the Company or (B) the Company and Kiewit
together, directly or indirectly, own at least 70% of the Capital Stock therein
(of which the Company must own at least half (in any event not less than 35% of
the total outstanding Capital Stock)), provided that if applicable non-U.S. law
restricts the amount of Capital Stock that the Company may own, the Company
must own at least 70% of the amount of Capital Stock that it may own pursuant
to such law, which in any event must be not less than
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35% of the total outstanding Capital Stock therein and (iii) in respect of
which the Company alone or in combination with Kiewit, directly or indirectly,
(a) controls, by voting power, board or management committee membership, or
through the provisions of any applicable partnership, shareholder or other
similar agreement or under an operating, maintenance or management agreement or
otherwise, the management and operation of the Joint Venture or any Permitted
Facilities of the Joint Venture or (b) otherwise has significant influence over
the management or operation of the Joint Venture or any Permitted Facility of
the Joint Venture in all material respects (significant influence includes,
without limitation, the right to control or veto any material act or decision)
in connection with such management or operation. Any Joint Venture that is a
Permitted Joint Venture pursuant to this definition because of the ownership of
Capital Stock therein by Kiewit will cease to be a Permitted Joint Venture if
(x) Kiewit disposes of any securities issued by the Company and, as a result of
such disposition, Kiewit becomes the beneficial owner (as such term is defined
under Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act) of less than 25% of the outstanding shares of Voting Stock of the
Company or (y) (I) as a result of any action other than a disposition of
securities by Kiewit, Kiewit becomes the beneficial owner of less than 25% of
the outstanding shares of Voting Stock of the Company and (II) thereafter
Kiewit disposes of any securities issued by the Company as a result of which
the beneficial ownership by Kiewit of the outstanding Voting Stock of the
Company is further reduced, provided that thereafter such Joint Venture may
become a Permitted Joint Venture if Kiewit becomes the beneficial owner of at
least 25% of the outstanding shares of Voting Stock of the Company and the
other conditions set forth in this definition are fulfilled.
"Permitted Payments" is defined to mean, with respect to the Company, any of
its Restricted Subsidiaries or any Eligible Joint Venture, (i) any dividend on
shares of Capital Stock of the Company payable (or to the extent paid) solely
in Capital Stock (other than Redeemable Stock) or in options, warrants or other
rights to purchase Capital Stock (other than Redeemable Stock) of the Company
and any distribution of Capital Stock (other than Redeemable Capital Stock) of
the Company in respect of the exercise of any right to convert or exchange any
instrument (whether Debt or equity and including Redeemable Capital Stock) into
Capital Stock (other than Redeemable Capital Stock) of the Company, (ii) the
purchase or other acquisition or retirement for value of any shares of the
Company's Capital Stock, or any option, warrant or other right to purchase
shares of the Company's Capital Stock with additional shares of, or out of the
proceeds of a substantially contemporaneous issuance of, Capital Stock other
than Redeemable Stock, (iii) any defeasance, redemption, purchase or other
acquisition for value of any Debt that by its terms ranks subordinate in right
of payment to the Notes with the proceeds from the issuance of (x) Debt that is
subordinate to the Notes a least to the extent and in the manner as the Debt to
be defeased, redeemed, purchased or otherwise acquired is subordinate in right
of payment to the Notes, provided that such subordinated Debt provides for no
mandatory payments of principal by way of sinking fund, mandatory redemption or
otherwise (including defeasance) by the Company (including, without limitation,
at the option of the holder thereof other than an option given to a holder
pursuant to a "change of control" or an "asset disposition" covenant that is no
more favorable to the holders of such Debt than comparable covenants for the
Debt being defeased, redeemed, purchased or acquired or, if none, the covenants
described under "Limitation on Dispositions" and "Purchase of Notes Upon a
Change of Control" above and such Debt is not in an amount (net of any original
issue discount) greater than, any Stated Maturity of the Debt being replaced
and the proceeds of such subordinated Debt are utilized for such purpose within
45 days of issuance or (y) Capital Stock (other than Redeemable Stock), (iv)
Restricted Payments in an amount not to exceed $50 million in the aggregate
provided that no payment may be made pursuant to this clause (iv) if an Event
of Default, or an event that, after giving notice or lapse of time or both,
would become an Event of Default, has occurred and is continuing, (v) any
payment or Investment required by applicable law in order to conduct business
operations in the ordinary course, (vi) a Permitted Investment and (vii)
Investments in Unrestricted Subsidiaries and other Persons that are not
Restricted Subsidiaries or Eligible Joint Ventures in an amount not to exceed
$50 million in the aggregate, provided that no payment or Investment may be
made pursuant to this clause (vii) if an Event of Default, or an event that,
after giving notice or lapse of time or both, would become an Event of Default,
has occurred and is continuing. Notwithstanding the foregoing, the amount of
Investments that may be made pursuant to clauses (iv) or (vii), as the case may
be, may be increased by the
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net reduction in Investments of the type made previously pursuant to clauses
(iv) or (vii), as the case may be, that result from payments of interest on
Debt, dividends, or repayment of loans or advances, the proceeds of the sale or
disposition of the Investment or other return of the amount of the original
Investment to the Company, the Restricted Subsidiary or the Eligible Joint
Venture that made the original Investment from the Person in which such
Investment was made or any distribution or payment of such Investment to the
extent that such distribution or payment constituted either a Restricted
Payment or a Permitted Payment, provided that (x) the aggregate amount of such
payments will not exceed the amount of the original Investment by the Company,
such Restricted Subsidiary or Eligible Joint Venture that reduced the amount
available pursuant to clause (iv) or clause (vii), as the case may be, for
making Restricted Payments and (y) such payments may be added pursuant to this
proviso only to the extent such payments are not included in the calculation of
Adjusted Consolidated Net Income.
"Permitted Working Capital Facilities" is defined to mean one or more loan or
credit agreements providing for the extension of credit to the Company for the
Company's working capital purposes, which credit agreements will be ranked pari
passu with or subordinate to the Notes in right of payment and may be secured
or unsecured.
"Person" is defined to mean an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Preferred Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) or preferred or preference stock of such Person
that is outstanding or issued on or after the date of original issuance of the
Notes.
"Property" of any Person is defined to mean all types of real, personal,
tangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person under GAAP.
"Purchase Money Debt" means Debt representing, or Incurred to finance, the
cost of acquiring any Property, provided that (i) any Lien securing such Debt
does not extend to or cover any other Property other than the Property being
acquired and (ii) such Debt is Incurred, and any Lien with respect thereto is
granted, within 180 days of the acquisition of such Property.
"Rating Agencies" is defined to mean (i) S&P and (ii) Moody's or (iii) if S&P
or Moody's or both do not make a rating of the Notes publicly available, a
nationally recognized securities rating agency or agencies, as the case may be,
selected by the Company, which will be substituted for S&P, Moody's or both, as
the case may be.
"Rating Category" is defined to mean (i) with respect to S&P, any of the
following categories: BB, B, CCC, CC, C and D (or equivalent successor
categories), (ii) with respect to Moody's, any of the following categories: Ba,
B, Caa, Ca, C and D (or equivalent successor categories) and (iii) the
equivalent of any such category of S&P or Moody's used by another Rating
Agency. In determining whether the rating of the Notes has decreased by one or
more gradations, gradations within Rating Categories (+ and - for S&P, 1, 2 and
3 for Moody's or the equivalent gradations for another Rating Agency) will be
taken into account (e.g., with respect to S&P, a decline in a rating from BB+
to BB, as well as from BB- to B+, will constitute a decrease of one gradation).
"Rating Decline" is defined to mean the occurrence of the following on, or
within 90 days after, the earlier of (i) the occurrence of a Change of Control
and (ii) the date of public notice of the occurrence of a Change of Control or
of the public notice of the intention of the Company to effect a Change of
Control (the "Rating Date") which period will be extended so long as the rating
of the Notes is under publicly announced
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consideration for possible downgrading by any of the Rating Agencies: (a) in
the event that the Notes are rated by either Rating Agency on the Rating Date
as Investment Grade, the rating of the Notes by both such Rating Agencies will
be reduced below Investment Grade, or (b) in the event the Notes are rated
below Investment Grade by both such Rating Agencies on the Rating Date, the
rating of the Notes by either Rating Agency will be decreased by one or more
gradations (including gradations within Rating Categories as well as between
Rating Categories).
"Redeemable Stock" is defined to mean any class or series of Capital Stock of
any Person that by its terms or otherwise is (i) required to be redeemed prior
to the Stated Maturity of the Notes, (ii) redeemable at the option of the
holder of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Notes or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Debt having a scheduled
maturity prior to the Stated Maturity of the Notes, provided that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require the Company to purchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or a "change of
control" occurring prior to the Stated Maturity of the Notes will not
constitute Redeemable Stock if the "asset sale" or "change of control"
provision applicable to such Capital Stock is no more favorable to the holders
of such Capital Stock than the provisions contained in the covenants described
under "Limitation on Dispositions" and "Purchase of Notes Upon a Change of
Control" above and such Capital Stock specifically provides that the Company
will not purchase or redeem any such Capital Stock pursuant to such covenants
prior to the Company's purchase of Notes required to be purchased by the
Company under the covenants described under "Limitation on Dispositions" and
"Purchase of Notes Upon a Change of Control" above.
"Reference Period" is defined to mean the four most recently completed fiscal
quarters for which financial information is available preceding the date of a
transaction giving rise to the need to make a financial calculation.
"Restricted Payment" is defined to mean (i) any dividend or other
distribution on any shares of the Company's Capital Stock, provided that a
dividend or other distribution consisting of the Capital Stock of an
Unrestricted Subsidiary will not constitute a Restricted Payment except to the
extent of the portion thereof that is equal to the portion of the total
Investment in such Unrestricted Subsidiary that is represented by the
Investment that was made pursuant to clause (vii) of the definition of
"Permitted Payment," (ii) any payment on account of the purchase, redemption,
retirement or acquisition for value of the Company's Capital Stock, (iii) any
defeasance, redemption, purchase or other acquisition or retirement for value
prior to the scheduled maturity of any Debt ranked subordinate in right of
payment to the Notes other than repayment of Debt of the Company to a
Restricted Subsidiary or an Eligible Joint Venture, (iv) any Investment made in
a Person (other than the Company or any Restricted Subsidiary) and (v)
designating a Restricted Subsidiary as an Unrestricted Subsidiary (the
Restricted Payment made upon such a designation to be determined as the fair
market value of the Capital Stock of such Restricted Subsidiary owned directly
or indirectly by the Company at the time of the designation, but in no event
less than the amount of the Investment made in such Restricted Subsidiary
directly or indirectly by the Company). Notwithstanding the foregoing,
"Restricted Payment" will not include any Permitted Payment, except that any
payment made pursuant to clauses (iv) and (v) of the definition of "Permitted
Payment" will be counted in the calculation set forth in clause (c) of the
covenant described under "Limitation on Restricted Payments."
"Restricted Subsidiary" is defined to mean any Subsidiary of the Company that
is not an Unrestricted Subsidiary.
"Senior Debt" is defined to mean the principal of and interest on all Debt of
the Company whether created, Incurred or assumed before, on or after the date
of original issuance of the Notes (other than the Notes), provided that Senior
Debt will not include (i) Debt that, when Incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, was without
recourse to the Company, (ii) Debt of the Company to any Affiliate and (iii)
any Debt of the Company that, by the terms of the instrument creating or
evidencing the same, is specifically designated as not being senior in right of
payment to the Notes.
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"Significant Subsidiary" is defined to mean a Restricted Subsidiary that is a
"significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the
Securities Act and the Exchange Act.
"Stated Maturity" is defined to mean, with respect to any debt security or
any installment of interest thereon, the date specified in such debt security
as the fixed date on which any principal of such debt security or any such
installment of interest is due and payable.
"Subsidiary" is defined to mean, with respect to any Person including,
without limitation, the Company and its Subsidiaries, (i) any corporation or
other entity of which such Person owns, directly or indirectly, a majority of
the Capital Stock or other ownership interests and has ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions, and (ii) with respect to the Company and, as appropriate, its
Subsidiaries, any Permitted Joint Venture, including, without limitation, Coso
Land Company Joint Venture, Coso Finance Partners, Coso Energy Developers and
Coso Power Developers, provided that in respect of any Subsidiary that is not a
Permitted Joint Venture, the Company must exercise control over such Subsidiary
and its Property to the same extent as a Permitted Joint Venture.
"Subsidiary Refinancing Debt" is defined to mean Debt issued in exchange for,
or the proceeds of which are used to refinance (including to purchase),
outstanding Debt of a Restricted Subsidiary or an Eligible Joint Venture,
including, without limitation, Construction Financing, in an amount (or, if
such new Debt provides for an amount less than the principal amount thereof to
be due and payable upon a declaration of acceleration thereof, with an original
issue price) not to exceed the amount so exchanged or refinanced (plus accrued
interest or dividends and all fees, premiums (in excess of accreted value) and
expenses related to such exchange or refinancing), for which purpose the amount
so exchanged or refinanced will not exceed, in the case of Debt, to the lesser
of (x) the principal amount of the Debt so exchanged or refinanced and (y) if
the Debt being exchanged or refinanced was issued with an original issue
discount, the accreted value thereof (as determined in accordance with GAAP) at
the time of such exchange or refinancing, and, in the case of an equity
investment made in lieu or as part of Construction Financing, Debt, in an
amount not to exceed the capital and surplus shown on the balance sheet of such
Restricted Subsidiary or Eligible Joint Venture, provided that (A) such Debt
will be Non-Recourse if the Debt so exchanged or refinanced is Non-Recourse and
(B) the Average Life of the new Debt will be equal to or greater than the
Average Life of the Debt to be exchanged or refinanced, provided further that
upon the first refinancing of any Construction Financing of a Restricted
Subsidiary or an Eligible Joint Venture, (i) the amount of the Subsidiary
Refinancing Debt issued in exchange for or to refinance such Construction
Financing will not be limited by this provision and (ii) the Subsidiary
Refinancing Debt issued in exchange for or to refinance such Construction
Financing will not be subject to the provisions of the foregoing clause (B) of
this provision.
"Trade Payables" is defined to mean, with respect to any Person, any accounts
payable or any other indebtedness or monetary obligation to trade creditors
Incurred, created, assumed or Guaranteed by such Person or any of its
Subsidiary arising in the ordinary course of business.
"Unrestricted Subsidiary" is defined to mean any Subsidiary of the Company
that becomes an Unrestricted Subsidiary in accordance with the requirements set
forth in the next sentence. The Company may designate any Restricted Subsidiary
as an Unrestricted Subsidiary if (a) such designation is in compliance with the
first paragraph of the covenant described under "Limitation on Restricted
Payments" above and (b) after giving effect to such designation, such
Subsidiary does not own, directly or indirectly, a majority of the Capital
Stock or the Voting Shares of any other Restricted Subsidiary unless such other
Restricted Subsidiary is designated as an Unrestricted Subsidiary at the same
time. Any such designation will be effected by filing with the Trustee an
Officers' Certificate certifying that such designation complies with the
requirements of the immediately preceding sentence. No Debt or other obligation
of an Unrestricted Subsidiary may be with recourse to the Company, any of its
Restricted Subsidiaries, any Eligible Joint Venture or any of their respective
Property. An Unrestricted Subsidiary may be designated as a Restricted
Subsidiary if, (i) all the Debt of such Unrestricted Subsidiary could be
Incurred under the provision described under "Limitation on Subsidiary Debt"
above and (ii) any portion of such Debt could not be Incurred under such
provision, if the
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Company could borrow all such remaining Debt under the provision described in
the first paragraph under "Limitation on Debt" above.
"U.S. Government Obligations" is defined to mean securities that are (i)
direct obligations of the U.S. for the payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the U.S., the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the U.S.,
that, in either case are not callable or redeemable at the option of the issuer
thereof, and will also include a depository receipt issued by a bank or trust
company as custodian with respect to any such U.S. Government Obligations or a
specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a depository
receipt, provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of interest on or principal
of the U.S. Government Obligation evidenced by such depository receipt.
"Voting Stock" is defined to mean, with respect to any Person, Capital Stock
of any class or kind ordinarily having the power to vote for the election of
directors (or person fulfilling similar responsibilities) of such Person.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary, based on the opinion of Willkie Farr & Gallagher,
counsel to the Company, of the anticipated material United States federal
income tax consequences of the purchase, ownership and disposition of the
Notes. This summary is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), its legislative history, existing and proposed regulations
thereunder, published rulings and court decisions, all as in effect and
existing on the date of this Prospectus and all of which are subject to change
at any time, which change may be retroactive. In particular, the discussion
below of "Original Issue Discount" is based in part on proposed regulations
released on December 22, 1992, but not yet effective (the "Proposed OID
Regulations"). While the 1992 Proposed OID Regulations are proposed to be
effective for debt instruments issued sixty or more days after final
regulations are issued and therefore may not be applicable to the Notes, the
1992 Proposed OID Regulations are the most current indication of the views of
the Internal Revenue Service (the "Service") with respect to the federal income
tax treatment of debt instruments having original issue discount ("OID").
Unless otherwise specified, the discussion below assumes that the rules set
forth in the Proposed OID Regulations will control the tax treatment of the
Notes. However, changes may be made to the Proposed OID Regulations or final
OID regulations may be adopted that would apply to the Notes and that may be
contrary to the interpretations of the Proposed OID Regulations discussed
below. Because of the lack of definitive regulatory authority, no assurance can
be given that the Service will agree with the interpretations of the Proposed
OID Regulations discussed below or that the final OID regulations will not
differ materially from the Proposed OID Regulations or subsequent versions
thereof.
This summary applies only to those persons who are the initial Holders of the
Notes and who hold Notes as capital assets and does not address the tax
consequences to taxpayers who are subject to special rules (such as financial
institutions, tax-exempt organizations and insurance companies) or aspects of
federal income taxation that may be relevant to a prospective investor based
upon such investor's particular tax situation. Accordingly, purchasers of Notes
should consult their own tax advisors with respect to the particular
consequences to them of the purchase, ownership and disposition of the Notes,
including the applicability of any state, local or foreign tax laws to which
they may be subject as well as with respect to the possible effects of changes
in federal and other tax laws.
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ORIGINAL ISSUE DISCOUNT
General. Because the Notes are being issued at a discount from their "stated
redemption price at maturity," the Notes will have OID for federal income tax
purposes. For federal income tax purposes, OID on a Note will be the excess of
the stated redemption price at maturity of the Note over its issue price.
Because the Notes will be treated as being publicly offered under the Proposed
OID Regulations, the issue price of the Notes will be the first price to the
public (excluding bond houses and brokers) at which a substantial amount of
Notes is sold.
The stated redemption price at maturity of a Note will be the sum of all
payments to be made on such Note other than "qualified stated interest"
payments. Qualified stated interest is stated interest that is unconditionally
payable at least annually at a single fixed rate that appropriately takes into
account the length of the interval between payments. As cash interest payments
on the Notes will not commence prior to July 15, 1997, the interest payments on
the Notes will not constitute qualified stated interest and thus will be
included along with principal in the stated redemption price at maturity of the
Notes. As a result, each Note will bear OID in an amount equal to the excess of
(i) the sum of its principal amount and all stated interest payments over (ii)
its issue price.
A Holder will be required to include OID in income periodically over the term
of a Note before receipt of the cash or other payment attributable to such
income. In general, a Holder must include in gross income for federal income
tax purposes the sum of the daily portions of OID with respect to the Note for
each day during the taxable year or portion of a taxable year on which such
Holder holds the Note ("Accrued OID"). The daily portion is determined by
allocating to each day of any accrual period within a taxable year a pro rata
portion of an amount equal to the adjusted issue price of the Note at the
beginning of the accrual period multiplied by the yield to maturity of the
Note. For purposes of computing OID, the Company will use six-month accrual
periods that end on the days in the calendar year corresponding to the maturity
date of the Notes and the date six months prior to such maturity date, with the
exception of an initial short accrual period. The adjusted issue price of a
Note at the beginning of any accrual period is the issue price of the Note
increased by the Accrued OID for all prior accrual periods (less any cash
payments on the Notes). Under these rules, Holders may have to include in gross
income increasingly greater amounts of OID in each successive accrual period.
Optional Redemption. If the Company exercises its rights to redeem the Notes
(See "Description of the Notes--Optional Redemption"), the tax treatment of the
redemption would be governed by the rules for dispositions generally. See
"Disposition of the Notes." However, if the Company were found to have an
intention at the time the Notes were issued to redeem them before maturity, any
taxable income arising from such redemption would be treated as ordinary income
to the extent of any unamortized OID.
If a Holder tenders Notes for redemption as a result of a Change of Control
(See "Description of the Notes--Certain Covenants--Repurchase of Notes Upon a
Change of Control"), the Holder may be required to include as ordinary income
any amount the Holder is entitled to receive in excess of the Accreted Value of
a Note on the date of the redemption. Holders should consult their own tax
advisors regarding the treatment of payments upon optional redemptions.
DISPOSITION OF THE NOTES
Generally, any sale or redemption of the Notes will result in taxable gain or
loss equal to the difference between the amount of cash or other property
received and the Holder's adjusted tax basis in the Note. A Holder's adjusted
tax basis for determining gain or loss on the sale or other disposition of a
Note will initially equal the cost of the Note to such Holder and will be
increased by any Accrued OID (and, as described below, any market discount)
includible in such Holder's gross income and decreased by the amount of any
cash payments received by such Holder regardless of whether such payments are
denominated as principal or interest. Except to the extent that the market
discount rules described below apply, any gain or loss upon a sale or other
disposition of a Note will generally be capital gain or loss, which will be
long term if the Note has been held by the Holder for more than one year.
82
<PAGE>
Market Discount. Generally, market discount will exist to the extent the
purchase price paid by a Holder for a Note is less than the issue price of the
Note at the time of purchase, subject to a statutory de minimis exception.
Generally, a Holder of a Note who acquires the Note with market discount will
be required to treat any gain realized upon the disposition of such Note as
ordinary income to the extent of the market discount that accrued (but was not
previously included in income) during the period such Holder held the Note.
Furthermore, the Code requires that partial principal payments on a market
discount bond be included in gross income to the extent that such payments do
not exceed the accrued market discount on such bond. Thus, if a cash payment is
received by a Holder, such Holder will be required to include in income at the
time such cash payment is received the portion of the unrecognized market
discount that accrued prior to the receipt of such cash payment (up to the
amount of such payment). A Holder of a Note who has acquired the Note with
market discount may also be required to defer deduction of a portion of
interest on debt incurred or continued to purchase or carry the Note until
disposition of the Note in a taxable transaction.
A Holder may elect to include market discount in income as such discount
accrues with a corresponding increase in the Holder's tax basis in the Note. If
a Holder so elects, the rules in the preceding paragraph regarding the
treatment of income or gain upon the disposition of a Note and upon receipt of
certain cash payments as ordinary income or gain, and regarding the deferral of
interest deductions on indebtedness related to a Note, would not apply. Once
made, such an election applies to all debt obligations that are purchased by
the Holder at a market discount during the taxable year for which the election
is made, and all subsequent taxable years of the Holder, unless the Service
consents to a revocation of the election.
Acquisition Premium. A Holder of a Note who acquires such Note at a cost in
excess of its issue price will be considered to have purchased such Note at an
"acquisition premium." Under the acquisition premium rules contained in the
Code, generally, such Holder would be entitled to a reduction in the amount of
OID otherwise includible in income with respect to such Note.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND TO CORPORATE HOLDERS
The Notes will constitute "applicable high yield discount obligations"
("AHYDOs") if the yield to maturity of such Notes is equal to or greater than
the sum of the relevant applicable federal rate (the "AFR"), plus five
percentage points. The AFR applicable to the Notes is %, compounded
semiannually. Accordingly, if the yield to maturity of the Notes is equal to or
greater than %, the Notes will constitute AHYDOs. If the Notes are AHYDOs, as
described below, a portion of the tax deductions that would otherwise be
available to the Company in respect of the Notes will be deferred or
disallowed, which, in turn, might reduce the after-tax cash flows of the
Company. More particularly, if the Notes constitute AHYDOs, the Company will
not be entitled to deduct OID that accrues with respect to such Notes until
amounts attributable to OID are paid in cash. In addition, if the yield to
maturity of the Notes exceeds the sum of the relevant AFR plus six percentage
points (the "Excess Yield"), the "disqualified portion" of the OID accruing on
the Note will be characterized as a non-deductible dividend with respect to the
Company and also may be treated as a dividend distribution solely for purposes
of the dividends received deduction of Sections 243, 246 and 246A of the Code
with respect to Holders that are U.S. corporations.
In general, the "disqualified portion" of OID for any accrual period will be
equal to the product of (i) a percentage determined by dividing the Excess
Yield by the yield to maturity and (ii) the OID for the accrual period. Subject
to otherwise applicable limitations, such a corporate Holder will be entitled
to a dividends received deduction (generally at a 70% rate) with respect to the
disqualified portion of the Accrued OID if the Company has sufficient current
or accumulated "earnings and profits." To the extent that the Company's
earnings and profits are insufficient, any portion of the OID that otherwise
would have been recharacterized as a dividend for purposes of the dividends
received deduction will continue to be taxed as ordinary OID income in
accordance with the rules described above in "Original Issue Discount."
Treatment of the Notes as AHYDOs will not disqualify interest or OID with
respect to the Notes from the portfolio interest exception described below
under "Foreign Holders," provided all applicable requirements for the exception
are otherwise satisfied.
83
<PAGE>
BACKUP WITHHOLDING
A Holder may be subject, under certain circumstances, to backup withholding
at a 31 percent rate with respect to payments received with respect to the
Notes. This withholding generally applies only if the Holder (i) fails to
furnish his or her social security or other taxpayer identification number
("TIN"), (ii) furnishes an incorrect TIN, (iii) is notified by the Service that
he or she has failed to report properly payments of interest or dividends and
the Service has notified the Company that he or she is subject to backup
withholding, or (iv) fails, under certain circumstances, to provide a certified
statement, signed under penalty of perjury, that the TIN provided is his or her
correct number and that he or she is not subject to backup withholding. Any
amount withheld from a payment to a Holder under the backup withholding rules
is allowable as a credit against such Holder's Federal income tax liability,
provided that the required information is furnished to the Service. Certain
Holders (including, among others, corporations and foreign individuals who
comply with certain certification requirements described below under "Foreign
Holders") are not subject to backup withholding. Holders should consult their
tax advisors as to their qualification for exemption from backup withholding
and the procedure for obtaining such an exemption.
FOREIGN HOLDERS
The following discussion is a summary of certain United States federal income
tax consequences to a Foreign Person that holds a Note. The term "Foreign
Person" means a Holder that is not (i) an individual who is a citizen or
resident of the United States, (ii) a corporation or partnership created or
organized in the United States or under the law of the United States or any
state or (iii) an estate or trust, the income of which is includable in gross
income for United States federal income tax purposes regardless of its source,
but only if the income or gain on the Note is not effectively connected with
the conduct of a trade or business within the United States by such Holder. If
the income or gain on the Note is effectively connected with the conduct of a
trade or business within the United States, then the nonresident alien
individual or foreign corporation will be subject to tax on such income or gain
in essentially the same manner as a U.S. citizen or resident or a domestic
corporation, as discussed above, and in the case of a foreign corporation, may
also be subject to the branch profits tax (unless such branch profits tax is
reduced or eliminated under an applicable treaty).
Under the "portfolio interest" exception to the general rules for the
withholding of tax on interest and OID paid to a Foreign Person, a Foreign
Person will not be subject to U.S. tax (or to withholding) on interest or OID
on a Note, provided that (i) the Foreign Person does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote and is not a controlled
foreign corporation with respect to the United States that is related to the
Company through stock ownership, and (ii) the Company, its paying agent or the
person who would otherwise be required to withhold tax receives either (A) a
statement (an "Owner's Statement") signed under penalties of perjury by the
beneficial owner of the Note in which the owner certifies that the owner is not
a U.S. person and which provides the owner's name and address, or (B) a
statement signed under penalties of perjury by the Financial Institution
holding the Note on behalf of the beneficial owner, together with a copy of the
Owner's Statement. The term "Financial Institution" means a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business and that holds a
Note on behalf of the owner of the Note. A Foreign Person who does not qualify
for the "portfolio interest" exception would, under current law, generally be
subject to U.S. withholding tax at a flat rate of 30% (or a lower applicable
treaty rate) on interest payments and payments (including redemption proceeds)
attributable to OID on the Notes.
In general, gain recognized by a Foreign Person upon the redemption, sale or
exchange of a Note (including any gain representing accrued market discount)
will not be subject to U.S. tax. However, a Foreign Person may be subject to
U.S. tax at a flat rate of 30% (unless exempt by an applicable treaty) on any
such gain if the Foreign Person is an individual present in the United States
for 183 days or more during the taxable year in which the Note is redeemed,
sold or exchanged, and certain other requirements are met.
84
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions of the Underwriting Agreement (the form of
which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part), to purchase from the Company, and the Company has agreed
to sell to the Underwriters, the principal amount of the Notes set forth
opposite their respective names below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITERS NOTES
------------ ---------
<S> <C>
Lehman Brothers Inc. ............................................... $
Salomon Brothers Inc. .............................................. $
Donaldson, Lufkin & Jenrette Securities Corporation................ $
Bear, Stearns & Co. Inc. ........................................... $
------
Total............................................................ $
======
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the Notes are subject to the approval of certain legal matters by
their counsel and certain other conditions, and that if any of the Notes are
purchased by the Underwriters pursuant to the Underwriting Agreement, all of
the Notes agreed to be purchased by the Underwriters pursuant to the
Underwriting Agreement must be so purchased.
The Company has been advised that the Underwriters propose to offer the Notes
initially at the public offering price set forth on the cover page of this
Prospectus plus accrued original issue discount, if any, to the date of
delivery and to certain selected dealers (who may include Underwriters) at such
public offering price less a selling concession not to exceed % of the
principal amount of the Notes. The selected dealers may reallow a concession to
certain other dealers not to exceed % of the principal amount of the Notes.
After the initial public offering of the Notes, the public offering price, the
concession to selected dealers and the reallowance to other dealers may be
changed by the Underwriters.
The Company intends to apply to list the Notes for trading on the New York
Stock Exchange. There can be no assurance that the Notes will be approved for
listing on such exchange or, if listed, that an active trading market for the
Notes will develop or be sustained. The Company has been advised by each
Underwriter that it presently intends to make a market in the Notes; however,
the Underwriters are not obliged to do so. Any such market-making activity may
be discontinued at any time, for any reason, without notice. If each
Underwriter ceases to act as a market maker for the Notes for any reason, there
can be no assurance that another firm or person will make a market in the
Notes. There can be no assurance that an active market for the Notes will
develop or, if a market does develop, at what price the Notes will trade.
Certain of the Underwriters have provided from time to time, and expect to
provide in the future, investment banking services to the Company and its
affiliates, for which such Underwriters have received and will receive
customary fees.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities and expenses, including liabilities
under the Securities Act or contribute to payments the Underwriters may be
required to make in respect thereof.
LEGAL MATTERS
The validity of the Notes offered hereby and certain other legal matters in
connection with the Offering are being passed upon for the Company by Steven A.
McArthur, Senior Vice President and General Counsel of the Company, and by
Willkie Farr & Gallagher, New York, New York. Certain legal matters in
connection with the Offering are being passed upon for the Underwriters by
Skadden, Arps, Slate, Meagher & Flom, New York, New York.
85
<PAGE>
EXPERTS
The financial statements as of December 31, 1992 and 1993 and for each of the
three years in the period ended December 31, 1993 included in this Prospectus
and the related financial statement schedules included elsewhere in the
Registration Statement have been audited by Deloitte & Touche, independent
auditors, as stated in their reports appearing herein and elsewhere in the
Registration Statement, and have been so included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information for the periods
ended March 31, 1992 and 1993, and June 30, 1992 and 1993, and September 30,
1992 and 1993 which is incorporated herein by reference, Deloitte & Touche have
applied limited procedures in accordance with professional standards for a
review of such information. However, as stated in their reports included in the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1993,
June 30, 1993 and September 30, 1993 and incorporated by reference herein, they
did not audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their reports on such
information should be restricted in light of the limited nature of the review
procedures applied. Deloitte & Touche are not subject to the liability
provisions of Section 11 of the Securities Act for their reports on the
unaudited interim financial information because those reports are not "reports"
or a "part" of the Registration Statement prepared or certified by an
accountant within the meaning of Sections 7 and 11 of the Securities Act.
86
<PAGE>
CALIFORNIA ENERGY COMPANY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of December 31, 1993 and 1992.............. F-3
Consolidated Statements of Operations for the Years Ended December 31,
1993, 1992 and 1991...................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1993, 1992 and 1991......................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, 1992 and 1991...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
California Energy Company, Inc.
Omaha, Nebraska
We have audited the accompanying consolidated balance sheets of California
Energy Company, Inc. and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of California Energy Company, Inc.
and subsidiaries at December 31, 1993 and 1992 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Note 8, the consolidated financial statements give effect to
the Company's adoption, effective January 1, 1993, of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
Deloitte & Touche
Omaha, Nebraska
February 24, 1994
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND DECEMBER 31, 1992
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
ASSETS
Cash and investments........................................ $127,756 $ 54,671
Joint venture cash and investments (Note 5)................. 14,943 8,848
Restricted cash (Notes 4 and 5)............................. 48,105 62,514
Accounts receivable......................................... 21,658 16,172
Transmission line deposit (Note 13)......................... -- 7,684
Due from Joint Ventures..................................... 1,394 --
Geothermal power plant and development costs, net (Notes 4
and 5)..................................................... 458,974 389,646
Equipment, net of accumulated depreciation of $4,773 and
$3,996..................................................... 4,540 4,312
Notes receivable--Joint Ventures (Note 13).................. 11,280 9,997
Deferred charges and other assets........................... 27,334 26,706
-------- --------
Total assets............................................ $715,984 $580,550
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 607 $ 3,146
Other accrued liabilities................................. 19,866 18,111
Income taxes payable (Note 8)............................. 4,000 --
Project finance loans (Note 5)............................ 246,880 263,604
Due to Joint Ventures..................................... -- 469
Senior notes (Note 6)..................................... 35,730 35,730
Convertible subordinated debentures (Note 7).............. 100,000 --
Deferred income taxes..................................... 18,310 15,212
-------- --------
Total liabilities....................................... 425,393 336,272
-------- --------
Deferred income (Note 4).................................... 20,288 21,164
-------- --------
Commitments and contingencies (Notes 3, 6,9, 13 and 16)
Redeemable preferred stock (Note 10)........................ 58,800 54,350
-------- --------
Stockholders' equity (Notes 11 and 12):
Preferred stock--authorized 2,000 shares, no par value
(Note 10)................................................ -- --
Common stock--authorized 60,000 shares, par value $0.0675
per share issued and outstanding 35,446 and 35,258
shares................................................... 2,404 2,380
Additional paid in capital................................ 100,965 97,977
Retained earnings......................................... 111,031 68,407
Treasury stock--157 common shares at cost................. (2,897) --
-------- --------
Total stockholders' equity.............................. 211,503 168,764
-------- --------
Total liabilities and stockholders' equity.............. $715,984 $580,550
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Sales of electricity and steam................. $132,059 $117,342 $106,184
Interest and other income...................... 17,194 10,187 9,379
-------- -------- --------
Total revenues............................... 149,253 127,529 115,563
-------- -------- --------
Cost and expenses:
Plant operations............................... 25,362 24,440 23,525
General and administration..................... 13,158 13,033 12,476
Royalties...................................... 8,274 7,710 5,505
Depreciation and amortization.................. 17,812 16,754 14,752
Interest....................................... 30,205 20,459 29,814
Less interest capitalized...................... (6,816) (5,599) (5,375)
-------- -------- --------
Total expenses............................... 87,995 76,797 80,697
-------- -------- --------
Income before provision for income taxes......... 61,258 50,732 34,866
Provision for income taxes (Note 8).............. 18,184 11,922 8,284
-------- -------- --------
Income before change in accounting principle and
extraordinary item.............................. 43,074 38,810 26,582
Cumulative effect of change in accounting
principle (Note 8).............................. 4,100 -- --
Extraordinary item (Note 15)..................... -- (4,991) --
-------- -------- --------
Net income....................................... 47,174 33,819 26,582
Preferred dividends.............................. 4,630 4,275 --
-------- -------- --------
Net income available to common stockholders...... $ 42,544 $ 29,544 $ 26,582
Income per share before change in accounting
principle and extraordinary item................ $ 1.00 $ .92 $ .75
-------- -------- --------
Cumulative effect of change in accounting
principle (Note 8).............................. .11 -- --
Extraordinary item (Note 15)..................... -- (0.13) --
-------- -------- --------
Net income per share............................. $ 1.11 $ 0.79 $ 0.75
-------- -------- --------
Average number of shares outstanding............. 38,485 37,495 35,471
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
OUTSTANDING ADDITIONAL
COMMON COMMON PAID-IN RETAINED TREASURY
SHARES STOCK CAPITAL EARNINGS STOCK TOTAL
----------- ------ ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1991. 23,218 $1,567 $ 39,353 $ 14,168 $ -- $ 55,088
Exercise of stock
options.............. 2,329 157 14,959 -- -- 15,116
Sale and private
placement of common
stock (Note 12)...... 6,505 439 43,237 -- -- 43,676
Exercise of warrants.. 660 45 2,897 -- -- 2,942
Issue costs of sale of
preferred stock...... -- -- (276) -- -- (276)
Net income............ -- -- -- 26,582 -- 26,582
Balance December 31,
1991................... 32,712 2,208 100,170 40,750 -- 143,128
Exercise of stock
options.............. 1,544 67 2,764 -- -- 2,831
Exercise of warrants.. 612 41 1,206 -- -- 1,247
Issue costs on stock.. -- -- (96) -- -- (96)
Purchases/issuances of
treasury stock for
exercise of options
and warrants, net of
proceeds of $797..... (565) -- (4,090) -- -- (4,090)
Preferred stock
dividends, Series B &
C, including cash
distributions of
$134................. -- -- -- (6,162) -- (6,162)
Retirement of
warrants............. -- -- (11,716) -- -- (11,716)
Tax benefit from stock
plan................. -- -- 3,420 -- -- 3,420
Net income before
preferred dividends.. -- -- -- 33,819 -- 33,819
Conversion of
preferred stock to
common stock......... 955 64 6,319 -- -- 6,383
Balance December 31,
1992................... 35,258 2,380 97,977 68,407 -- 168,764
Exercise of stock
options.............. 258 18 937 -- -- 955
Issuance of stock for
purchase of Ben Holt
Co................... 87 6 1,551 -- -- 1,557
Purchase of treasury
stock................ (157) -- -- -- (2,897) (2,897)
Preferred stock
dividends, Series C,
including cash
distributions of
$100................. -- -- -- (4,550) -- (4,550)
Tax benefit from stock
plan................. -- -- 500 -- -- 500
Net income before
preferred dividends.. -- -- -- 47,174 -- 47,174
------ ------ -------- -------- ------- --------
Balance December 31,
1993................... 35,446 $2,404 $100,965 $111,031 $(2,897) $211,503
====== ====== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 47,174 $ 33,819 $ 26,582
Adjustments to reconcile net cash flow from op-
erating activities:
Depreciation and amortization.................. 17,812 16,754 14,752
Amortization of deferred financing costs....... 1,013 967 1,054
Expense of previously deferred financing costs. -- 3,895 --
Provision for deferred income taxes............ 3,098 3,645 5,889
Other.......................................... -- -- (639)
Changes in other items:
Accounts receivable.......................... (5,486) 1,279 (3,701)
Accounts payable and other accrued liabili-
ties........................................ (784) (7,082) (10,890)
Deferred income.............................. (876) (851) (589)
Income tax payable........................... 4,000 (1,202) 713
Other assets................................. (177) 814 (2,157)
-------- -------- --------
Net cash flows from operating activities... 65,774 52,038 31,014
-------- -------- --------
Cash flows from investing activities:
Capital expenditures relating to power plants.. (10,295) (6,711) (112)
Well and resource development expenditures for
existing projects............................. (16,565) (19,203) (20,564)
Acquisition of equipment....................... (1,104) (1,093) (773)
Acquisition of Nevada, Utah properties......... -- -- (43,062)
Pacific Northwest, Nevada, and Utah exploration
costs......................................... (19,060) (4,145) (3,866)
Yuma--construction in progress................. (40,167) (1,294) --
Transmission line deposit...................... 7,684 (118) (1,404)
Decrease (increase) in restricted cash......... 14,409 9,882 (2,217)
Decrease (increase) in other investments....... 941 (14,503) --
-------- -------- --------
Net cash flows from investing activities... (64,157) (37,185) (71,998)
-------- -------- --------
Cash flows from financing activities:
Proceeds from sale of common, treasury and pre-
ferred
stocks and exercise of warrants and options.... 2,912 8,065 111,458
Repayment of project finance loans............. -- (17,098) (10,100)
Repayment of project loans..................... (16,724) (6,277) --
Retirement of project finance loans............ -- (204,210) --
Payment of other senior notes.................. -- -- (6,000)
Proceeds from refinancing...................... -- 269,881 2,400
Proceeds from issue of convertible subordinated
debentures.................................... 100,000 -- --
Increase in restricted cash related to the re-
financing..................................... -- (65,670) --
Net change in short-term bank loan............. -- -- (15,000)
Deferred charges relating to debt financing.... (2,582) (2,937) (58)
Decrease (increase) in amounts due from Joint
Ventures...................................... (3,146) 6,198 (6,180)
Purchase of warrants........................... -- (11,716) --
Proceeds from pre-sale of steam................ -- -- 20,317
Purchase of treasury stock..................... (2,897) (4,887) --
-------- -------- --------
Net cash flows from financing activities... 77,563 (28,651) 96,837
-------- -------- --------
Net increase (decrease) in cash and investments.. 79,180 (13,798) 55,853
Cash and investments at beginning of period...... 63,519 77,317 21,464
-------- -------- --------
Cash and investments at end of period............ $142,699 $ 63,519 $ 77,317
-------- -------- --------
Interest paid (net of amounts capitalized)....... $ 20,136 $ 19,237 $ 24,435
-------- -------- --------
Income taxes paid................................ $ 6,819 $ 4,129 $ 1,682
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS
California Energy Company, Inc. (the Company) was formed in 1971. It is
primarily engaged in the exploration for and development of geothermal
resources and conversion of such resources into electrical power and steam for
sale to electric utilities, and the development of other environmentally
responsible forms of power generation.
The Company has organized several partnerships and joint ventures (herein
referred to as Coso Joint Ventures) in order to develop geothermal energy at
the China Lake Naval Air Weapons Station, Coso Hot Springs, China Lake,
California. Collectively, the projects undertaken by the Coso Joint Ventures
are referred to as the Coso Project. The Company is the operator and holds
interests between 46.4% and 50.0% in the Coso Joint Ventures after payout.
Payout is achieved when a Coso Joint Venture has returned the initial capital
to the Coso Joint Venturers. In addition, the Company is exploring geothermal
resources in Northern California, Washington and Oregon (collectively the
Pacific Northwest). In January 1991, the Company acquired a power plant and an
interest in steam fields in Nevada and Utah (See Note 4--Nevada and Utah
Properties). In 1992, the Company entered into the natural gas-fired electrical
generation market through the purchase of a development opportunity in Yuma,
Arizona. Commercial operation of the Yuma project will commence in 1994. In
1993, the Company started developing a number of international power project
opportunities where private power generating programs have been initiated,
including the Philippines and Indonesia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, and its proportionate share of the Coso Joint
Ventures in which it has invested. All significant inter-enterprise
transactions and accounts have been eliminated.
Investments and Restricted Cash
Investments other than restricted cash are primarily commercial paper and
money market securities. The restricted cash balance includes such securities
and mortgage backed securities, and is mainly composed of the Coso Joint
Ventures' debt service reserve funds. The debt service reserve funds are
legally restricted to their use and require the maintenance of specific minimum
balances. The carrying amount of the investments approximates the fair value
based on quoted market prices as provided by the financial institution which
holds the investments.
Well, Resource Development and Exploration Costs
The Company follows the full cost method of accounting for costs incurred in
connection with the exploration and development of geothermal resources. All
such costs, which include dry hole costs and the cost of drilling and equipping
production wells, as well as directly attributable administrative and interest
costs, are capitalized and amortized over their estimated useful lives when
production commences. The estimated useful lives of production wells are ten
years each; exploration costs and development costs, other than production
wells, are generally amortized over the weighted average remaining term of the
Company's power and steam purchase contracts. For purposes of current period
visibility and disclosure, all such costs are identified in the Consolidated
Statements of Cash Flows as they are incurred.
Deferred Well and Rework Costs
Well rework costs are deferred and amortized over the estimated period
between reworks. These deferred costs of $1,305 and $1,592 at December 31, 1993
and 1992, respectively are included in other assets. Currently, both production
and injection well reworks are amortized over twelve months.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Fixed Assets and Depreciation
The cost of major additions and betterments are capitalized, while
replacements, maintenance and repairs that do not improve or extend the lives
of the respective assets are expensed.
Depreciation of the operating power plants is computed on the straight-line
method over the estimated useful lives resulting in a composite rate of
depreciation of approximately 2.67% per annum. Depreciation of furniture,
fixtures and equipment, which are recorded at cost, is computed on the
straight-line method over the estimated useful lives of the related assets,
which range from three to ten years.
Capitalization of Interest and Deferred Financing Costs
Prior to the commencement of operations, interest is capitalized on the costs
of the plants and geothermal resource development to the extent incurred.
Capitalized interest and other deferred charges are amortized over the lives of
the related assets.
Deferred financing costs are amortized over the term of the related
financing. Loan fees are amortized using the implicit interest method; other
deferred financing costs are amortized using the straight-line method.
Accumulated amortization at December 31, 1993 and 1992 was approximately $1,954
and $950, respectively.
Revenue Recognition
Revenues are recorded based upon service rendered and electricity and steam
delivered to the end of the month.
Management Fee and Interest Revenue Recognition
The Company charges the Coso Joint Ventures management fees, operator fees
and interest on outstanding advances. Recognition of fees and interest relating
to power plants and resource development of the Coso Joint Ventures in which
the Company has invested is deferred until each Coso Joint Venture commences
operations. Revenue previously deferred is amortized over the lives of the
related assets of the Coso Joint Ventures as each Coso Joint Venture becomes
operational.
Deferred Income Taxes
On January 1, 1993, the Company adopted Statement of Financial Accounting
Standard No. 109 (FAS 109), "Accounting for Income Taxes". The adoption of FAS
109 changes the Company's method of accounting for income taxes from the
deferred method as required by Accounting Principles Board Opinion No. 11 to an
asset and liability approach.
Net Income Per Common Share
Earnings per common share are based on the weighted average number of common
and dilutive common equivalent shares outstanding during the period computed
using the treasury stock method.
Cash Flows
The statement of cash flows classifies changes in cash according to
operating, investing or financing activities. Investing activities include
capital expenditures incurred in connection with the power plants, wells,
resource development and exploration costs. The Company considers all
investment instruments purchased
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
with a maturity of three months or less to be cash equivalents. Restricted cash
is not considered a cash equivalent.
Reclassification
Certain amounts in the fiscal 1992 and 1991 financial statements and
supporting footnote disclosures have been reclassified to conform to the fiscal
1993 presentation. Such reclassification did not impact previously reported net
income or retained earnings.
3. INTEREST RATE SWAP AGREEMENTS
In January 1993, the Coso Joint Ventures entered into five year deposit
interest rate swap agreements which effectively convert a notional deposit, the
Company's portion of the balance is $20,300 (restricted cash and investments),
from a variable rate to a fixed rate. The Company's proportion of the deposit
amount accretes annually to a maximum amount of approximately $29,300 in 1996.
Under the agreements, which mature on January 11, 1998, the Coso Joint Ventures
make semi-annual payments to the counter party at variable rates based on
LIBOR, reset and compounded every three months, and in return receive payments
based on a fixed rate of 6.34%. The effective LIBOR rate ranged from 3.25% to
3.375% during 1993 and was 3.375% at December 31, 1993. The counter party to
this agreement is a large multi-national financial institution. The Company's
proportionate share of the carrying amount, representing accrued interest
receivable, and the fair value of the swap agreements are $277 and $1,281,
respectively. The fair value is based on quoted market prices provided by the
counter party to the swap.
In September 1993, the Company entered into a three year deposit interest
rate swap agreement, which effectively converts a notional deposit balance of
$75,000 from a variable rate to a fixed rate. The Company makes semi-annual
payments to the counter party at effectively the LIBOR rate, reset every six
months, and in return receives payments based on a fixed rate of 4.87%. The
counter party to this agreement is the same counter party to the Coso Joint
Ventures. The carrying amount is $286, representing accrued interest
receivable. The fair value of the interest rate swap is currently negative in
the amount of $642 which is based on quoted market prices provided by the
counter party to the swap.
4. PROPERTIES AND PLANTS
Properties and plants comprise the following at December 31:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Project costs:
Power plants........................................... $246,219 $235,924
Well and resource development.......................... 161,137 144,595
-------- --------
Total operating facilities........................... 407,356 380,519
Less accumulated depreciation and amortization......... (67,813) (51,054)
-------- --------
Net operating facilities............................. 339,543 329,465
Well and resource development in progress................ 939 916
-------- --------
Total project costs...................................... 340,482 330,381
Pacific Northwest geothermal exploration costs........... 41,539 25,882
Nevada and Utah properties............................... 35,492 32,089
Yuma--construction in progress........................... 41,461 1,294
-------- --------
Total................................................ $458,974 $389,646
======== ========
</TABLE>
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operating Facilities
The Coso operating facilities comprise the Company's proportionate share of
the assets of three of its Joint Ventures; Coso Finance Partners (Navy I Joint
Venture), Coso Energy Developers (BLM Joint Venture), and Coso Power Developers
(Navy II Joint Venture). With respect to the Coso Project, distributions from
its project accounts are made semi-annually to each Coso Joint Venture partner
for profit sharing under a prescribed calculation subject to mutual agreement
by the partners and compliance with the Coso Joint Ventures' financing
documents. As of December 31, 1993, payout had only been reached on Units 2 and
3 of the Navy I power plant.
Navy I Plant
The Navy I Plant consists of three turbines, of which one unit commenced
delivery of firm power in August 1987, and the second and third units in
December 1988. The 80 NMW power plant is located on land owned by and leased
from the U.S. Navy through December 2009, with a 10 year extension at the
option of the Navy. Under terms of the Navy I Joint Venture, profits and losses
were allocated approximately 49% before payout of units 2 and 3 and
approximately 46.4% thereafter to the Company.
BLM Plant
The BLM Plant consists of two turbines at one site (BLM East), which
commenced delivery of firm power in March and May 1989, respectively, and one
turbine at another site (BLM West) which commenced delivery of firm power in
August 1989. The BLM Plant is situated on lands leased from the U.S. Bureau of
Land Management under a geothermal lease agreement that extends until October
31, 2035. The lease may be extended to 2075 at the option of the BLM. Under the
terms of the BLM Joint Venture agreement, the Company's share of profits and
losses before and after payout is approximately 45% and 48%, respectively.
During 1990, the Company upgraded the cooling tower and turbines to increase
the plant's capacity to 80 NMW from the initial level of 70 NMW.
Navy II Plant
The Navy II Plant consists of three turbines, of which two units commenced
delivery of firm power in January 1990, and the third in February 1990,
respectively. The 80 NMW power plant is on the southern portion of the Navy
lands. Under terms of the Joint Venture, all profits, losses and capital
contributions for Navy II are divided equally by the two partners.
Significant Customer
All of the Company's sales of electricity from the Coso Project, which
comprise approximately 94% of 1993 electricity and steam revenues, are to
Southern California Edison (SCE) and are under long-term power purchase
contracts. Under the terms of these contracts, SCE pays firm prices for the
energy portion of the contract. The energy payment escalates pursuant to the
contracts at an average rate of approximately 7.0% per year for the delivery of
electricity for ten years, commencing with the initial delivery of electricity
at firm power; thereafter, the energy payment adjusts to the actual avoided
energy cost experienced by SCE at that time. The capacity payment, which
initially represented approximately 25% of the Company's revenue, remains fixed
during the entire period of the contract. In addition, the Company is eligible
for bonus payments based on the amount by which the actual output exceeds the
contract capacity of each power plant. Bonus payments aggregated $3,050, $3,257
and $2,635 in the years ended December 31, 1993, 1992 and 1991.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Company has three contracts for terms of 24, 30 and 20 years, expiring in
2011, 2019 and 2010, respectively. Delivery of electricity by the Navy I Joint
Venture, the BLM Joint Venture and the Navy II Joint Venture commenced under
those contracts in 1987, 1989 and 1990, respectively.
See Note 13 for a description of litigation involving SCE.
Royalties
Royalties comprise the following for the years ended:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Navy I, Unit I...................................... $1,556 $2,014 $1,787
Navy I, Units 2 and 3............................... 2,924 2,628 1,160
BLM................................................. 1,868 1,268 1,033
Navy II............................................. 1,717 1,509 1,486
Other............................................... 209 291 39
------ ------ ------
Total............................................. $8,274 $7,710 $5,505
====== ====== ======
</TABLE>
The amount of royalties paid by the Company to the U.S. Navy to develop
geothermal energy for Navy I, Unit 1 on the lands owned by the Navy comprises
(i) a fee payable during the term of the contract based on the difference
between the amounts paid by the Navy to SCE for specified quantities of
electricity and the price as determined under the contract (which currently
approximates 65% of that paid by the Navy to SCE), and (ii) $11,600 payable in
December 2009. The $11,600 payment is secured by funds placed on deposit
monthly, which funds, plus accrued interest, will aggregate $11,600. The
monthly deposit is currently $23. As of December 31, 1993, the balance of funds
deposited approximated $1,283, which amount is included in restricted cash and
accrued liabilities.
Units 2 and 3 of Navy I and the Navy II power plants are on Navy lands, on
which the Navy receives a royalty based on electric sales revenue at the
initial rate of 4% escalating to 22% by the end of the contract in December
2019. The BLM is paid a royalty of 10% of the value of steam produced by the
geothermal resource supplying the BLM Plant.
Pacific Northwest Geothermal Exploration Costs
In the Pacific Northwest, the Company has acquired leasehold rights and has
performed certain geological evaluations to determine the resource potential of
the underlying properties. Recovery of those costs is ultimately dependent upon
the Company's ability to prove geothermal reserves and sell geothermal steam,
or to obtain financing, build power plants, gain access to high voltage
transmission lines, and sell the resultant electricity at favorable prices or,
sell its leaseholds. In the opinion of management, the Company will be able to
realize its exploration costs through the generation of electricity for sale.
Nevada and Utah Properties
On May 3, 1990, the Company entered into a definitive purchase agreement with
a subsidiary of Chevron Corporation (Chevron) for the acquisition of certain
geothermal operations, including interests in approximately 83,750 acres of
geothermal properties in Nevada and Utah, for an aggregate purchase price of
approximately $51,100. These property interests consist largely of leasehold
interests, including properties leased from the BLM and from private
landowners.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The property acquired from Chevron includes a 9 MW power plant at Desert
Peak, Nevada ("Desert Peak"), and a 70% interest in a steam field at Roosevelt
Hot Springs, Utah ("Roosevelt Hot Springs"). The facility at Desert Peak is
currently selling electricity to Sierra Pacific Power Company under a contract
that runs through 1995 and then may be extended on a year-to-year basis as
agreed by the parties. The price for electricity under this contract is 6.5
cents per kWh, comprising an energy payment of 2.0 cents per kWh (which is
adjustable pursuant to an inflation based index) and a capacity payment of 4.5
cents per kWh. The Roosevelt Hot Springs site has a contract to sell steam to a
25 MW power plant owned by Utah Power and Light Company (UP&L) and to dispose
of the brine that is a by-product of the electricity production process.
As part of the Nevada and Utah properties acquisition the Company acquired
leasehold interests in an aggregate of approximately 20,000 acres at the
Roosevelt site in Utah and approximately 63,750 acres at four sites in Nevada.
The Roosevelt Hot Springs and Desert Peak properties have been the subject of
exploration and testing by Chevron and its predecessors. Based on these tests
and reports of independent engineering companies, the Company believes that
there are significant geothermal resources available for commercial development
at these sites. Other tests conducted by Chevron and its predecessors indicate
that commercially viable amounts of geothermal resources may underlie the other
Chevron properties.
The Company financed the acquisition of Roosevelt Hot Springs through an
equity offering, a $20,317 pre-sale of steam from the Roosevelt Hot Springs
field to the utility-owned power plant located at the site, and seller
financing. The acquisition of Roosevelt Hot Springs and certain of the Nevada
properties closed on January 22, 1991 for an aggregate amount of approximately
$35,000. The remainder of the transaction closed on March 28, 1991 and was
financed with seller financing and the proceeds of the sale of common stock to
Kiewit Energy Company (Kiewit Energy); see Note 12.
5. PROJECT LOANS
Project loans, which are non-recourse to the Company, comprise the following
at December 31:
<TABLE>
<CAPTION>
1993 1992
-------- ---------
<S> <C> <C>
PROJECT LOANS with fixed interest rates (weighted
average interest rates of 8.04% and 7.88% at December
31, 1993 and 1992, respectively) with scheduled
repayments through December 2001..................... $246,880 $ 263,604
</TABLE>
The project loans are from Coso Funding Corp. ("Funding Corp."). Funding
Corp. is a single-purpose corporation formed to issue notes for its own account
and as an agent acting on behalf of Navy I, BLM, and Navy II Joint Ventures,
collectively the "Coso Joint Ventures." Pursuant to separate credit agreements
executed between Funding Corp. and each Coso Joint Venture on December 16,
1992, the proceeds from Funding Corp.'s note offering were loaned to the Coso
Joint Ventures. The proceeds of $560,245 were used by the Coso Joint Ventures
to (i) purchase and retire project finance debt comprised of the term loans and
construction loans in the amount of $424,500, (ii) fund contingency funds in
the amount of $68,400, (iii) fund debt service reserve funds in the amount of
$40,000, and (iv) finance $27,345 of capital expenditures and transaction
costs. The contingency fund and debt service reserve fund were required by the
project loan agreements.
The contingency fund represented the approximate maximum amount, if any,
which could theoretically have been payable by the Coso Joint Ventures to third
parties to discharge all liens of record and other contract claims encumbering
the Coso Joint Ventures' plant at the time of the project loans (See Note 13).
The contingency fund was established in order to obtain investment-grade
ratings to facilitate the offer and sale of the notes by Funding Corp., and
such establishment did not reflect the Coso Joint Ventures' view as to the
merits or likely disposition of such litigation or other contingencies. On June
9, 1993, MPE and the
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Mission Power Group, subsidiaries of SCECorp., and the Coso Joint Ventures
reached a final settlement of all of their outstanding disputes and claims
relating to the construction of the Coso Project. As a result of the various
payments and releases involved in such settlement, the Coso Joint Ventures
agreed to make a net payment of $20,000 to MPE from the cash reserves of the
Coso Project contingency fund and MPE agreed to release its mechanics' liens on
the Coso Project. After making the $20,000 payment, the remaining balance of
the Coso Project contingency fund (approximately $49,300) was used to increase
the Coso Project debt reserve fund from approximately $43,000 to its maximum
fully-funded requirement of $67,900. The remaining $24,400 balance of
contingency fund was retained within the Coso Project for future capital
expenditures and for Coso Project debt service payments. Since the Coso Project
debt service reserve is fully funded in advance, Coso Project cash flows
otherwise intended to fund the Coso Project debt service reserve fund, subject
to satisfaction of certain covenants and conditions contained in the Coso Joint
Ventures' refinancing documents, may be available for distribution to the
Company in its proportionate share.
The loans are collateralized by, among other things, the power plants,
geothermal resource, debt service reserve funds, contingency funds, pledge of
contracts, and an assignment of all such Coso Joint Ventures' revenues which
will be applied against the payment of obligations of each Coso Joint Venture,
including the project loans. Each Coso Joint Venture's assets will secure only
its own project loan, and will not be cross-collateralized with assets pledged
under other Coso Joint Venture's credit agreements. The project loans are non-
recourse to any partner in the Coso Joint Ventures and Funding Corp. shall
solely look to such Coso Joint Venture's pledged assets for satisfaction of
such project loans. However, the loans are cross-collateralized by the
available cash flow of each Coso Joint Venture. Each Coso Joint Venture after
satisfying a series of its own obligations has agreed to advance support loans
(to the extent of available cash flow and, under certain conditions, its debt
service reserve funds) in the event revenues from the supporting Coso Joint
Ventures are insufficient to meet scheduled principal and interest on their
separate project loans.
The annual repayments of the project loans for the five years beginning
January 1, 1994 and thereafter are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1994............................ $ 27,599
1995............................ 32,109
1996............................ 38,826
1997............................ 41,729
1998............................ 38,912
Thereafter...................... 67,705
--------
$246,880
========
</TABLE>
Based on quoted market rates of the Funding Corp. notes, the fair value of
the project loan was approximately $260,276 at December 31, 1993.
In connection with the aforementioned refinancing, the Company entered into
an agreement with Community Energy Alternatives Incorporated ("CEA") for the
Company to purchase at the close of the Coso Project refinancing CEA's interest
in the Coso Project. Until the close of the Coso Project refinancing, CEA had
been a partner in a partnership structure organized by the Company's Joint
Venture Partner in the BLM Project. The Company purchased the CEA interest
under certain terms and conditions which are designed to provide the Company
with a 17% per annum return on the CEA interest purchase price of $9,800. The
Company's 17% per annum return is secured in part by a pledge and assignment to
the Company of certain cash flows to be received by the Company's Coso Project
Joint Venture Partner (and certain affiliates) from
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Coso Project distributions. The Company has granted its Coso Project Joint
Venture Partner the right to purchase the CEA interest for a price which will
provide the Company a 17% per annum return for the duration the Company owns
the CEA interest.
6. SENIOR NOTES
The Senior Notes are due in March 1995, and bear interest at the rate of 12%
per annum, plus 10% of the Company's share of the cash flow from the Coso
Project, commencing July 1, 1989 and terminating December 31, 1994. The Senior
Notes prohibit the payment of cash dividends unless the Company has a net worth
of at least $50,000 after payment of such dividends, and dividends do not
exceed 50% of accumulated net income subsequent to December 31, 1987. The
Senior Notes also place restrictions on capital expenditures not related to the
Coso Project. The fair value of the Senior Notes approximates the carrying
value.
7. CONVERTIBLE SUBORDINATED DEBENTURES
In June of 1993, the Company issued $100,000 principal amount of 5%
convertible subordinated debentures (debentures) due July 31, 2000. The
debentures are convertible into shares of the Company's common stock at any
time prior to redemption or maturity at a conversion price of $22.50 per share,
subject to adjustment in certain circumstances. Interest on the debentures is
payable semi-annually in arrears on July 31 and January 31 of each year,
commencing on July 31, 1993. The debentures are redeemable for cash at any time
on or after July 31, 1996 at the option of the Company. The redemption prices
commencing in the twelve month period beginning July 31, 1996 (expressed in
percentages of the principal amount) are 102%, 101%, 100% and 100% in 1996,
1997, 1998 and 1999, respectively. The debentures are unsecured general
obligations of the Company and subordinated to all existing and future senior
indebtedness of the Company. The fair value of the debentures as of December
31, 1993 was approximately $103,250, which is based on quoted market rates.
8. INCOME TAXES
On January 1, 1993, the Company adopted Statement of Financial Accounting
Standard No. 109 (FAS 109), "Accounting for Income Taxes." The adoption of FAS
109 changes the Company's method of accounting for income taxes from the
deferred method as required by Accounting Principles Board Opinion No. 11 to an
asset and liability approach. Under FAS 109, the net excess deferred tax
liability as of January 1, 1993 was determined to be $4,100. This amount is
reflected in 1993 income as the cumulative effect of a change in accounting
principle. It primarily represents the recognition of the Company's tax credit
carryforwards as a deferred tax asset. There was no cash impact to the Company
upon the required adoption of FAS 109. Under FAS 109, the effective tax rate
increased to approximately 30% from 23.5% in 1992. This increase was due to the
Company's tax credit carryforward being recognized as an asset and unavailable
to reduce the current period's effective tax rate for computing the Company's
provision for income taxes.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Provision for income tax was comprised of the following at December 31:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Currently payable:
State................................................. $ 3,300 $ 2,300 $ 2,134
Federal............................................... 7,686 4,444 261
------- ------- -------
10,986 6,744 2,395
------- ------- -------
Deferred:
State................................................. 385 1,607 929
Federal............................................... 6,813 2,038 4,960
------- ------- -------
7,198 3,645 5,889
------- ------- -------
Total after benefit of extraordinary item........... 18,184 10,389 8,284
------- ------- -------
Tax benefit attributable to extraordinary item...... -- 1,533 --
------- ------- -------
Total before benefit of extraordinary item.......... $18,184 $11,922 $ 8,284
======= ======= =======
</TABLE>
The deferred expense is primarily temporary differences associated with
depreciation and amortization of certain assets.
A reconciliation of the federal statutory tax rate to the effective tax rate
applicable to income before provision for income taxes follows:
<TABLE>
<CAPTION>
1993 1992 1991
----- ------ ------
<S> <C> <C> <C>
Federal statutory rate................................... 35.00% 34.00% 34.00%
Percentage depletion in excess of cost depletion......... (6.70) (6.81) (6.89)
Investment and energy tax credits........................ (4.62) (10.52) (10.93)
State taxes, net of federal tax effect................... 3.90 5.83 6.32
Cumulative effect of change in federal tax rate.......... 1.90 -- --
Other.................................................... .20 1.00 1.26
----- ------ ------
29.68% 23.50% 23.76%
===== ====== ======
</TABLE>
Deferred tax liabilities (assets) are comprised of the following at December
31:
<TABLE>
<CAPTION>
1993
--------
<S> <C>
Depreciation and amortization, net............................. $111,117
Other.......................................................... 1,733
--------
112,850
Deferred income................................................ (2,415)
Loss carryforwards............................................. (39,529)
Energy and investment tax credits.............................. (40,106)
Alternative minimum tax credits................................ (12,018)
Other.......................................................... (472)
--------
(94,540)
--------
Net deferred taxes............................................. $ 18,310
========
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In 1992, the significant components of the deferred tax liability were timing
differences in the computation of depreciation and amortization of the power
plants and exploration and development costs for financial reporting purposes
versus income tax purposes.
As of December 31, 1993, the Company has an unused net operating loss (NOL)
carryover of approximately $113,000 for regular federal tax return purposes
which expires primarily between 2001 and 2007. In addition, the Company has
unused investment and geothermal energy tax credit carryforwards of
approximately $40,106 expiring between 2002 and 2008. The Company also has
approximately $12,018 of alternative minimum tax credit carryforwards which
have no expiration date.
9. COMMITMENTS
The Company's former office space lease, which requires annual rental of $660
through April 1994, has been partially sublet at annual rentals of $261 and
remaining future rental costs were previously provided for in a restructuring
charge. The Company also leases an aircraft under a lease that expires on
August 1, 1995, at an annual rental of approximately $464. The aircraft has
been subleased at an annual rental of approximately $300. Rental expense for
the aircraft, vehicles, geothermal leases, and other equipment leases for the
years ended December 31, 1993, 1992 and 1991 was approximately $1,143, $1,018
and $986 respectively.
Total projected lease commitments (net of sublease contracts) at December 31,
1993, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
1994............................. $318
1995............................. 186
1996............................. 8
----
Total............................ $512
====
</TABLE>
10. PREFERRED STOCK
SERIES A:
On December 1, 1988, the Company distributed a dividend of one preferred
share purchase right (right) for each outstanding share of common stock. The
rights are not exercisable until ten days after a person or group acquires or
has the right to acquire, beneficial ownership of 20% or more of the Company's
common stock or announces a tender or exchange offer for 30% or more of the
Company's common stock. Each right entitles the holder to purchase one one-
hundredth of a share of Series A junior preferred stock for $52. The rights may
be redeemed by the Board of Directors up to ten days after an event triggering
the distribution of certificates for the rights. The rights plan was amended in
February 1991 so that the agreement with Kiewit Energy (See Note 12) would not
trigger the exercise of the rights. The rights will expire, unless previously
redeemed or exercised, on November 30, 1998. The rights are automatically
attached to, and trade with, each share of common stock.
SERIES B:
On November 15, 1990, the Company sold 357.5 shares of convertible preferred
stock, Series B at $14 per share. Each share of the convertible preferred stock
was convertible into two shares of common stock, and had a dividend rate of 15%
through November 15, 1992, 10% from November 16, 1992 to November 15, 1994 and
5% from November 16, 1994 to November 15, 1996. The dividends were payable
semi-annually in convertible preferred stock, Series B.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
On November 15, 1992, the Company called the preferred stock for conversion
into common stock. Each Series B preferred stock was converted into two shares
of common stock; accordingly, the Company issued 954.9 shares of common stock.
SERIES C:
On November 19, 1991, the Company sold one thousand shares of convertible
preferred stock, Series C at $50,000 per share to Kiewit Energy, in a private
placement. Each share of the Series C preferred stock is convertible at any
time at $18.375 per common share into 2,721 shares of common stock subject to
customary adjustments. The Series C preferred stock has a dividend rate of
8.125%, commencing March 15, 1992 through conversion date or December 15, 2003.
The dividends, which are cumulative, are payable quarterly in convertible
preferred stock, Series C, through March 15, 1995 and in cash on subsequent
dividend dates.
The Company is obligated to redeem 20% of the outstanding preferred stock,
Series C each December 15, commencing 1999 through 2003 at a price per share
equal to $50,000, plus accrued and unpaid dividends.
At any time after December 15, 1994, upon 20 days written notice, the Company
may redeem all, or any portion consisting of at least $5,000, of the preferred
stock, Series C, then outstanding, provided that the Company's common stock has
traded at or above 150% of the then effective conversion price, for any 20
trading days out of 30 consecutive trading days ending not more than five
trading days prior to notice of redemption.
The Company may also exchange the preferred stock, Series C, in whole or part
on any dividend date commencing December 15, 1994, for 9.5% Convertible
Subordinated Debentures of the Company due 2003.
Each share of preferred stock, Series C shall be entitled to the number of
votes equal to $50,000 per share divided by the then effective conversion
price. If cash dividends are in arrears six consecutive quarters, Kiewit Energy
shall have the exclusive right, voting separately as a class, to elect two
directors of the Company.
No cash dividends shall be paid or declared on the Company's common stock
unless all accumulated dividends on the Series C preferred stock have been
paid.
11. STOCK OPTIONS AND WARRANTS
The Company has issued various stock options and warrants. As of December 31,
1993, a total of 8,953 shares are reserved for stock options, of which 8,514
shares have been granted and remain outstanding at prices of $3.00 to $19.00
per share.
Stock Options
The Company has stock option plans under which shares were reserved for grant
as incentive or non-qualified stock options, as determined by the Board of
Directors. As of December 31, 1993, the total options granted for the non-1986
plan and the 1986 plan are 5,778 and 6,354, respectively. The plans allow
options to be granted at 85% of their fair market value at the date of grant.
Generally, options are issued at 100% of fair market value at the date of
grant. Options granted under the 1986 Plan become exercisable over a period of
three to five years and expire if not exercised within ten years from the date
of grant or, in some instances a lesser term. Prior to the 1986 Plan, the
Company granted 256 options at fair market value at date of grant which had
terms of ten years and were exercisable at date of grant. In addition, the
Company had issued
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
approximately 138 options to consultants on terms similar to those issued under
the 1986 Plan. The non-1986 plan options are primarily options granted to
Kiewit Energy; see Note 12.
Transactions in Stock Options
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES AVAILABLE FOR -----------------------------------
GRANT UNDER 1986 OPTION PRICE
OPTION PLAN SHARES PER SHARE TOTAL
-------------------- ------ ----------------- --------
<S> <C> <C> <C> <C>
Balance January 1, 1991. 72 3,361 $ 3.00 - $13.096 $ 12,658
Options granted......... (368) 8,268* $ 8.063 - $14.875 89,193
Options terminated...... 304 (331) $ 3.00 - $ 9.708 (3,065)
Options exercised....... -- (2,328)* $ 3.00 - $ 9.00 (15,116)
Additional shares
reserved under 1986
Option Plan............ 1,230 -- -- --
------ ------ ----------------- --------
Balance December 31,
1991................... 1,238 8,970* $ 3.00 - $14.875 83,670
Options granted......... (551) 751 $11.90 - $15.938 11,262
Options terminated...... 129 (780) $ 3.00 - $11.625 (7,839)
Options exercised....... -- (1,544) $ 3.00 - $11.625 (7,072)
------ ------ ----------------- --------
Balance December 31,
1992................... 816 7,397* $ 3.00 - $15.938 80,021
Options granted......... (1,396) 1,396 $17.75 - $19.00 26,209
Options terminated...... 19 (20) $ 3.00 - $14.875 (114)
Options exercised....... -- (259) $ 3.00 - $14.875 (1,185)
Additional shares
reserved under 1986
Option Plan............ 1,000 -- -- --
------ ------ ----------------- --------
Balance December 31,
1993................... 439 8,514* $ 3.00 - $19.00 $104,931
Options which became ex-
ercisable during:
Year ended December
31, 1993............. 592 $ 3.00 - $19.00 $ 10,180
Year ended December
31, 1992............. 333 $ 3.00 - $15.938 $ 3,693
Year ended December
31, 1991............. 7,767* $ 3.00 - $14.88 $ 79,890
Options exercisable at:
December 31, 1993..... 7,026* $ 3.00 - $19.00 $ 78,644
December 31, 1992..... 6,708* $ 3.00 - $15.938 $ 69,739
December 31, 1991..... 8,070* $ 3.00 - $14.88 $ 73,481
</TABLE>
* Includes Kiewit Energy options. See Note 12.
Warrants
The Company has granted warrants in connection with various financing
activities to purchase shares of common stock as follows:
<TABLE>
<CAPTION>
WARRANTS OUTSTANDING
WARRANT SHARES PRICE PER SHARE TOTAL
-------------- -------------------- -------
<S> <C> <C> <C>
Balance January 1, 1991............ 2,549 $2.04 - $6.67 $ 6,804
Warrants exercised................. (660) $2.04 - $6.67 (2,951)
------ ------------- -------
Balance December 31, 1991.......... 1,889 $2.04 3,853
Warrants exercised................. (612) $2.04 (1,247)
Warrants repurchased............... (1,277) $2.04 (2,606)
------ ------------- -------
Balance December 31, 1992.......... -- $ --
------ -------
</TABLE>
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
On October 13, 1992, the Company repurchased, and cancelled, certain warrants
exercisable for 1,025 shares of unregistered common stock at $2.04 per share,
for a purchase price of $9.16 per share or $9,389 in aggregate. Separately,
Kiewit Energy simultaneously purchased and exercised other warrants to purchase
600 shares of unregistered common stock at $2.04 per share, providing the
Company with proceeds of $1,224.
On October 27, 1992, the Company repurchased, and cancelled, certain warrants
exercisable for 250 shares of unregistered common stock at $2.04 per share, for
a purchase price of $9.316 per share or $2,329 in aggregate.
12. COMMON STOCK SALES & RELATED OPTIONS
In January 1991, the Company sold 2,505 shares of unregistered common stock
at $6.75 per share for an aggregate total of $16,909. The funds were used to
repay a portion of the seller financing related to the Company's acquisition of
Chevron's interest in Roosevelt Hot Springs, Utah.
The Company and Kiewit Energy signed a stock purchase agreement and related
agreements, dated as of February 18, 1991. Kiewit Energy is a subsidiary of
Peter Kiewit Sons', Inc. of Omaha, Nebraska, a large construction and mining
company with diversified operations. Under the terms of the agreements, Kiewit
Energy purchased 4,000 shares of common stock at $7.25 per share and received
options to buy 3,000 shares at a price of $9 per share exercisable over three
years and an additional 3,000 shares at a price of $12 per share exercisable
over five years (subject to customary adjustments).
In connection with this initial stock purchase, the Company and Kiewit Energy
also entered into certain other agreements pursuant to which (i) Kiewit Energy
and its affiliates agreed not to acquire more than 34% of the outstanding
common stock (the Standstill Percentage) for a five-year period, (ii) Kiewit
Energy became entitled to nominate at least three of the Company's directors,
and (iii) the Company and Kiewit Energy agreed to use their best efforts to
negotiate and execute a joint venture agreement relating to the development of
certain geothermal properties in Nevada and Utah.
On June 19, 1991, the board approved a number of amendments to the stock
purchase agreement and the related agreements. Pursuant to those amendments,
the Company reacquired from Kiewit Energy the rights to develop the Nevada and
Utah properties, and Kiewit Energy agreed to exercise options to acquire 1,500
shares of Common Stock at $9.00 per share, providing the Company with $13,500
in cash. The Company also extended the term of the $9.00 and $12.00 options to
seven years; modified certain of the other terms of these options; granted to
Kiewit Energy an option to acquire an additional 1,000 shares of the
outstanding Common Stock at $11.625 per share (closing price for the shares on
the American Stock Exchange on June 18, 1991 for a ten year term); and
increased the Standstill Percentage from 34% to 49%.
On November 19, 1991, the Board approved the issuance by the Company to
Kiewit Energy of one thousand shares of Series C Preferred Stock for $50,000
per share, as described in Note 10 above. In connection with the sale of the
Series C Preferred Stock to Kiewit Energy, the Standstill Agreement was amended
so that the 49% Standstill Percentage restriction would apply to voting stock
rather than just common stock.
13. LITIGATION
Settlement of Contractor Claims
In June 1990, Mission Power Engineering Company (MPE), a subsidiary of
SCECorp. and the general contractor for eight of the nine facilities at the
Coso Project recorded mechanic's liens (the Liens) against two of the Coso
Projects and filed suit to pursue claims for amounts allegedly due from the
Coso Joint
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Ventures in connection with the turnkey contracts for the design and
construction on eight of the units. In July 1990, MPE, the Joint Venture
Partners and the Company agreed to enter settlement discussions during which
period the suit was suspended. In January 1991, MPE terminated settlement
discussions and refiled its suit in the amount of approximately $70,900 in
contract claims. The Coso Joint Ventures counterclaimed on January 10, 1991,
for performance and equipment related and other damages arising under the
turnkey contracts.
On June 9, 1993, MPE and the Mission Power Group, subsidiaries of SCECorp,
and the Coso Joint Ventures and the Company announced that the companies had
reached a final settlement of all of their outstanding disputes relating to the
construction of and the filing of mechanics' liens against the Coso Project.
Under the settlement agreement, MPE agreed to dismiss with prejudice its
$70,900 breach of contract suit against the Coso Joint Ventures and the Coso
Joint Ventures agreed to dismiss with prejudice their counterclaims against MPE
and related parties. As a result of the various payments and releases involved
in such settlement, the Coso Joint Ventures agreed to make a net payment of
$20,000 to MPE from the cash reserves of the Coso Project Contingency Fund and
MPE agreed to release its mechanics' liens on the Coso Project.
Settlement of Transmission Line Disputes
In September 1990, the California Public Utilities Commission (CPUC) issued a
decision which would fix at approximately $10,500 the Coso Joint Ventures'
maximum exposure for the cost of the construction of a new 220kV electric
transmission line (Line) on the SCE transmission system. The Coso Joint
Ventures appealed the decision of the CPUC to the Federal district court and
intended to petition the CPUC to reconsider its decision on the grounds that
such line is not necessary. In a related proceeding involving the cost
allocation for existing and ancillary interconnection facilities, the CPUC
ruled that the Coso Joint Ventures' share would be approximately $7,000. The
Coso Joint Ventures appeal of such decision to the California Supreme Court was
denied in February 1993. In addition, SCE alleged certain line losses that SCE
deemed applicable to the existing 115kV line utilized by two of the Coso Joint
Ventures and deducted amounts from revenues payable under the power purchase
contracts. The Coso Joint Ventures dispute SCE's allegations, methodology and
alleged ability to deduct amounts under the interconnection contracts and filed
a complaint alleging breach of contract in the California State Court.
On May 3, 1993, SCE and the Coso Joint Ventures agreed to settle the
transmission line loss contract dispute and certain related interconnection
disputes involving the Coso Project under a separate agreement whereby, among
other things, the parties made certain cash payments to each other and agreed
to certain interconnection cost and historical line loss allocations and to the
release to the Coso Joint Ventures of certain funds previously deducted from
project revenues and held in escrow. The parties also agreed to jointly pursue
appropriate rate treatment by the CPUC of certain SCE financed interconnection
costs, including the one remaining cost allocation issue between them in the
amount of $5,900. As a result of the various payments, allocations and releases
involved in such partial settlement, SCE released $15,500 of Coso Project funds
(the Company's share was approximately $7,800) held in escrow in respect of
interconnection costs (transmission line deposit) and the Partners of Coso
Joint Ventures' posted an irrevocable letter of credit to support their
contingent obligation of $5,900 on the cost allocation matter to be jointly
pursued with SCE at the CPUC.
Settlement of Anti-Trust Lawsuit
On January 31, 1991, the Company filed an antitrust lawsuit in San Francisco
Federal Court against SCECorp., its subsidiaries (MPE, Mission Power Group and
SCE) and Kidder-Peabody & Co., and others alleging violations of the federal
antitrust laws, unfair competition and tortious interference. This lawsuit was
settled in conjunction with the transmission line disputes.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Settlement with Joint Venture Partner
The Company has served as managing partner, project manager and field
operator for the Coso Project since its inception. It has been plant operator
for the facilities since August 1988. In April 1990, the Company's principal
Coso Joint Venture partner (the J.V. Partner) served the Company and certain of
the Company's subsidiaries with a demand for arbitration arising out of
disagreements concerning primarily the operating budgets and the allocation to
the Joint Ventures of certain expenses incurred by the Company.
On March 19, 1991, the Company and its J.V. Partner executed a settlement
agreement which resolved all their outstanding disputes. The terms of the
settlement provide that if the Coso Project performs at capacity level in the
future so that certain formula-based contingencies related to the productivity
of the power plants are satisfied in any of the following eight years, then,
out of the excess cash flow generated from such performance levels, up to $1.4
million may be paid in each such year to the J.V. Partner by the Company.
During 1992, the Company purchased the J.V. Partner's contingent payment for
$5,000; which will be amortized over the remaining seven years of the
agreement.
In return for the original settlement, the J.V. Partner agreed to the
conversion of all prior advances made by the Company on behalf of the
partnership into a Coso Joint Venture note payable to the Company due on or
before March 19, 1999. The note bore interest at an adjustable rate tied to
LIBOR and was subordinated to the prior payment in full of all the senior bank
debt on the project as well as to the foregoing contingent payments to the J.V.
Partner. On December 16, 1992 the Coso Joint Ventures paid $5,133 of their note
payable plus accrued interest to the Company. A new promissory note was then
signed on December 16, 1992 for the remaining principal balance. This note
bears a fixed interest rate of 12.5% and is payable on or before March 19,
2002. This note continues to be subordinated to the senior project loan on the
project. The fair value of this note approximates the carrying value.
14. RELATED PARTY TRANSACTIONS
The Company charged and recognized a management fee and interest on advances
to its Coso Joint Ventures, which aggregated approximately $5,354, $4,246 and
$5,664 in the years ended December 31, 1993, 1992 and 1991.
15. EXTRAORDINARY ITEM
The refinancing of the Coso Joint Ventures' project financing debt in 1992
resulted in an extraordinary item in the amount of $4,991, after the tax effect
of $1,533. The extraordinary item represents the unamortized portion of the
deferred financing costs and related repayment costs associated with the
original Coso Joint Ventures' project financing debt.
16. SUBSEQUENT EVENT
The Company is currently in the process of arranging a proposed offering of
$400,000 Senior Discount Notes (Notes). The interest rate will be between
approximately 9% and 10%, with cash interest payment commencing in 1997. The
Notes will be senior unsecured obligations of the Company. The Company intends
to use the proceeds from the offering to: (i) fund equity commitments in, and
the construction costs of, geothermal power projects presently planned in the
Philippines and Indonesia, (ii) to fund equity investments in, and loans to,
other potential international and domestic private power projects and related
facilities, (iii) for corporate or project acquisitions permitted under the
Indenture, and (iv) for general corporate purposes.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of the Company's quarterly results of operations for
the years ended December 31, 1993 and December 31, 1992.
<TABLE>
<CAPTION>
THREE MONTHS ENDED*
---------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1993 1993 1993 1993
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue:
Sales of electricity and steam. $27,617 $31,996 $41,433 $31,013
Other income................... 3,544 3,926 4,824 4,900
------- ------- ------- -------
Total revenue.................... 31,161 35,922 46,257 35,913
Total costs and expenses......... 20,314 21,833 22,087 23,761
------- ------- ------- -------
Income before provision for
income taxes and change in
accounting principle............ 10,847 14,089 24,170 12,152
Provision for income taxes....... 3,363 3,439 7,493 3,889
------- ------- ------- -------
Net income before change in
accounting principle............ 7,484 10,650 16,677 8,263
Cumulative effect of change in
accounting principle............ 4,100 -- -- --
------- ------- ------- -------
Net income....................... 11,584 10,650 16,677 8,263
Preferred dividends.............. 1,107 1,143 1,179 1,201
------- ------- ------- -------
Net income attributable to common
shares.......................... $10,477 $ 9,507 $15,498 $ 7,062
------- ------- ------- -------
Net income per share before
change in accounting principle.. $ 0.16 $ 0.25 $ 0.41 $ 0.18
Cumulative effect of change in
accounting principle............ $ 0.11 -- -- --
------- ------- ------- -------
Net income per share............. $ 0.27 $ 0.25 $ 0.41 $ .018
======= ======= ======= =======
</TABLE>
- --------
* The Company's operations are seasonal in nature with a disproportionate
percentage of income earned in the second and third quarters.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED*
---------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1992 1992 1992 1992
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue:
Sales of electricity and steam... $24,147 $28,173 $37,977 $27,045
Other income..................... 1,995 2,609 3,160 2,423
------- ------- ------- -------
Total revenue.................... 26,142 30,782 41,137 29,468
Total costs and expenses......... 18,541 18,779 20,583 18,894
------- ------- ------- -------
Income before provisions for in-
come taxes and extraordinary
item............................ 7,601 12,003 20,554 10,574
Provision for income taxes....... 1,806 2,852 4,884 2,380
------- ------- ------- -------
Net income before extraordinary
item............................ 5,795 9,151 15,670 8,194
Extraordinary item............... -- -- -- (4,991)
------- ------- ------- -------
Net income....................... 5,795 9,151 15,670 3,203
Preferred dividends.............. 1,020 1,056 1,089 1,110
------- ------- ------- -------
Net income attributable to common
shares.......................... $ 4,775 $ 8,095 $14,581 $ 2,093
------- ------- ------- -------
Net income per share before ex-
traordinary item................ $ 0.13 $ 0.22 $ 0.39 $ 0.19
Extraordinary item............... -- -- -- (0.13)
------- ------- ------- -------
Net income per share............. $ 0.13 $ 0.22 $ 0.39 $ 0.06
======= ======= ======= =======
</TABLE>
- --------
* The Company's operations are seasonal in nature with a disproportionate
percentage of income earned in the second and third quarters.
F-23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offering covered by the Prospectus. If given or made, such
information or representations must not be relied upon as having been autho-
rized by the Company. This Prospectus does not constitute an offer to sell, or
a solicitation of an offer to buy, any security other than the Notes offered by
this Prospectus, nor does it constitute an offer to sell, or a solicitation of
an offer to buy the Notes by anyone in any jurisdiction where, or to any person
to whom, it is unlawful to make such offer or solicitation. Neither the deliv-
ery of this Prospectus nor any sale made hereunder shall, under any circum-
stances, create any implication that there has not been any change in the in-
formation set forth in this Prospectus or in the affairs of the Company since
the date hereof.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Prospectus Summary........................................................ 4
Investment Considerations................................................. 11
Use of Proceeds........................................................... 15
Capitalization............................................................ 16
Selected Historical Consolidated Financial and Operating Data............. 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Business.................................................................. 25
Management................................................................ 45
Security Ownership of Significant Stockholders and Management............. 49
Certain Transactions and Relationships.................................... 50
Description of the Notes.................................................. 51
Certain Federal Income Tax Considerations................................. 81
Underwriting.............................................................. 85
Legal Matters............................................................. 85
Experts................................................................... 86
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$
LOGO OF CALIFORNIA ENERGY
COMPANY, INC.
CALIFORNIA ENERGY COMPANY, INC.
% SENIOR DISCOUNT NOTES DUE 2004
-----------------
PROSPECTUS
March , 1994
-----------------
LEHMAN BROTHERS
SALOMON BROTHERS INC
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered which will be paid
solely by the Company. All the amounts shown are estimates, except the
Securities and Exchange Commission registration fee:
<TABLE>
<S> <C>
SEC Registration Fee............................................ $137,931.03
Trustee Fees and Expenses....................................... *
Printing and Engraving Expenses................................. *
Legal Fees and Expenses......................................... *
Accounting Fees and Expenses.................................... *
Blue Sky Fees and Expenses...................................... *
Miscellaneous Expenses.......................................... *
-----------
Total......................................................... $
*
===========
</TABLE>
- --------
* To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") grants each corporation organized thereunder, such as the Company, the
power to indemnify its directors and officers against liabilities for certain
of their acts. Article EIGHTH of the Company's Restated Certificate of
Incorporation and Article V of the Company's By-Laws provides for
indemnification of directors and officers of the Company to the extent
permitted by the DGCL. Article V of the Company's By-Laws further provides that
the Registrant may enter into contracts providing indemnification to the full
extent authorized or permitted by the DGCL and that the Company may create a
trust fund, grant a security interest and/or use other means to ensure the
payment of such amounts as may become necessary to effect indemnification
pursuant to such contracts or otherwise.
Section 102(b)(7) of the DGCL permits a provision in the certificate of
incorporation of each corporation organized thereunder, such as the Company,
eliminating or limiting, with certain exceptions, the personal liability of a
director to the corporation or its stockholders for monetary damages for
certain breaches of fiduciary duty as a director. Article EIGHTH of the
Company's Restated Certificate of Incorporation eliminates the personal
liability of directors to the full extent permitted by the DGCL.
The foregoing statements are subject to the detailed provisions of Sections
145 and 102(b)(7) of the DGCL, Article EIGHTH of the Company's Restated
Certificate of Incorporation and Article V of the Company's By-laws.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
4.1 Form of Indenture*
5.1 Opinion of Willkie Farr & Gallagher regarding the legality of the
Notes**
8.1 Opinion of Willkie Farr & Gallagher regarding certain tax matters**
11.1 Statement regarding computation of earnings per share*
12.1 Statement regarding computation of ratio of earnings to fixed charges*
23.1 Consent and report on schedules of Deloitte & Touche
23.2 Consent of Willkie Farr & Gallagher (included in Exhibit 5.1)**
24.1 Power of Attorney**
25.1 Statement of eligibility of trustee*
27.1 Financial Data Schedule
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
II-1
<PAGE>
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
II Amounts Receivable from Related Parties and Underwriters, Promoters and
Employees other than Related Parties
III Parent Company only Financial Statements
V Property, Plant and Equipment
VI Accumulated Depreciation and Amortization of Property, Plant and
Equipment
IX Short-Term Borrowings
X Supplementary Income Statement Information
</TABLE>
Other financial statement schedules are either not required or the
information is included in the Notes to the Consolidated Financial Statements.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT CERTIFIES
THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS
FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF OMAHA, STATE OF NEBRASKA, ON MARCH 3, 1994.
California Energy Company, Inc.
(Registrant)
/s/ David L. Sokol
By ----------------------------------
David L. Sokol
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS, IN
THE CAPACITIES AND ON THE DATE INDICATED.
NAME TITLE DATE
President, Chief
/s/ David L. Sokol Executive Officer March 3, 1994
- ------------------------------------- and Director
DAVID L. SOKOL (Principal
Executive Officer)
Vice President,
/s/ John G. Sylvia Chief Financial March 3, 1994
- ------------------------------------- Officer and
JOHN G. SYLVIA Treasurer
(Principal
Financial Officer
and Principal
Accounting Officer)
* Director
- ------------------------------------- March 3, 1994
EDGAR D. ARONSON
* Director
- ------------------------------------- March 3, 1994
JUDITH E. AYRES
* Director
- ------------------------------------- March 3, 1994
HARVEY F. BRUSH
II-3
<PAGE>
NAME TITLE DATE
* Director
- ------------------------------------- March 3, 1994
JAMES Q. CROWE
* Director
- ------------------------------------- March 3, 1994
RICHARD K. DAVIDSON
* Chairman of the
- ------------------------------------- Board of Directors March 3, 1994
RICHARD R. JAROS
* Director
- ------------------------------------- March 3, 1994
BEN M. HOLT
* Director
- ------------------------------------- March 3, 1994
EVERETT B. LAYBOURNE
* Director
- ------------------------------------- March 3, 1994
DANIEL J. MURPHY
* Director
- ------------------------------------- March 3, 1994
HERBERT L. OAKES, JR.
* Director
- ------------------------------------- March 3, 1994
WALTER SCOTT, JR.
* Director
- ------------------------------------- March 3, 1994
BARTON W. SCHACKELFORD
* Director
- ------------------------------------- March 3, 1994
DAVID E. WIT
*By
/s/ Steven A. McArthur March 3, 1994
---------------------------------
STEVEN A. MCARTHUR ATTORNEY-IN-FACT
II-4
<PAGE>
SCHEDULE II
CALIFORNIA ENERGY COMPANY, INC.
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND
EMPLOYEES OTHER THAN RELATED PARTIES
AS OF DECEMBER 31, 1993, 1992, AND 1991 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF
PERIOD ADDITIONS COLLECTED CURRENT NONCURRENT
------------ --------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1993...................... $-- $-- $-- $-- $--
Year ended December 31,
1992...................... -- -- -- -- --
Year ended December 31,
1991
Robert D. Tibbs*.......... 100 -- 100 -- --
</TABLE>
- --------
* Relocation Loan, repaid January 2, 1991
S-1
<PAGE>
SCHEDULE III
CALIFORNIA ENERGY COMPANY, INC.
PARENT COMPANY ONLY BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1992 (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
ASSETS
Cash and investments........................................ $126,824 $ 53,321
Restricted cash............................................. 13,535 634
Development projects in progress............................ 44,272 21,428
Investment in and advances to subsidiaries and joint ven-
tures...................................................... 215,660 168,949
Equipment, net of accumulated depreciation.................. 2,587 1,575
Notes receivable--joint ventures............................ 21,558 19,098
Deferred charges and other assets........................... 16,458 17,214
-------- --------
Total assets............................................ $440,894 $282,219
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 86 $ 937
Other accrued liabilities................................. 10,550 5,061
Income taxes payable...................................... 4,000 --
Senior notes.............................................. 35,730 35,730
Convertible subordinated debenture........................ 100,000 --
Deferred income taxes..................................... 18,310 15,212
-------- --------
Total liabilities....................................... 168,676 56,940
-------- --------
Deferred income relating to joint ventures.................. 1,915 2,165
-------- --------
Redeemable preferred stock.................................. 58,800 54,350
-------- --------
Stockholders' equity:
Preferred stock--authorized 2,000 shares no par value..... -- --
Common stock--authorized 60,000 shares par value $0.0675
per share; issued and outstanding 35,446 and 35,258
shares................................................... 2,404 2,380
Additional paid-in capital................................ 100,965 97,977
Retained earnings......................................... 111,031 68,407
Treasury stock, 157 common shares at cost................. (2,897) --
-------- --------
Total stockholders' equity.............................. 211,503 168,764
-------- --------
Total liabilities and stockholders' equity.............. $440,894 $282,219
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-2
<PAGE>
SCHEDULE III
CALIFORNIA ENERGY COMPANY, INC.
PARENT COMPANY ONLY STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31, 1993 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Revenues:
Equity in earnings of subsidiary companies and joint
ventures before extraordinary items................ $61,412 $53,685 $38,364
Interest and other income........................... 15,992 4,557 4,923
------- ------- -------
Total revenues.................................... 77,404 58,242 43,287
------- ------- -------
Expenses:
General and administration.......................... 13,800 6,796 5,585
Interest, net of capitalized interest............... 2,346 714 2,836
------- ------- -------
Total expenses.................................... 16,146 7,510 8,421
------- ------- -------
Income before provision for income taxes.............. 61,258 50,732 34,866
Provision for income taxes............................ 18,184 11,922 8,284
------- ------- -------
Income before change in accounting principle and ex-
traordinary item..................................... 43,074 38,810 26,582
------- ------- -------
Cumulative effect of change in accounting principle... 4,100 -- --
Equity in extraordinary item of joint ventures (Less
applicable income taxes of $1,533)................... -- (4,991) --
------- ------- -------
Net income.......................................... 47,174 33,819 26,582
Preferred dividends................................... 4,630 4,275 --
------- ------- -------
Net income available to common stockholders........... $42,544 $29,544 $26,582
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-3
<PAGE>
SCHEDULE III
CALIFORNIA ENERGY COMPANY, INC.
PARENT COMPANY ONLY CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1993 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities............. $ 45,671 $ 22,597 $ 631
-------- -------- --------
Cash flows from investing activities:
Increase in development projects in progress... (22,844) (4,218) (3,458)
Decrease (increase) in advances to and invest-
ments in subsidiaries and joint ventures...... (36,812) 12,155 (41,162)
Other.......................................... (9,945) (15,711) 251
-------- -------- --------
Cash flows from investing activities............. (69,601) (7,774) (44,369)
-------- -------- --------
Cash flows from financing activities:
Proceeds from sale of common, treasury and pre-
ferred stocks, and exercise of warrants and
stock options................................. 2,912 8,065 111,458
Payment of senior notes........................ -- -- (6,000)
Purchase of treasury stock..................... (2,897) (4,887) --
Net change in short-term bank loan............. -- -- (15,000)
Proceeds from issue of convertible subordinated
debentures.................................... 100,000 -- --
Purchase of warrants........................... -- (11,716) --
Deferred charges relating to debt financing.... (2,582) -- --
-------- -------- --------
Cash flows from financing activities............. 97,433 (8,538) 90,458
-------- -------- --------
Net increase in cash and investments............. 73,503 6,285 46,720
Cash and investments at beginning of period...... 53,321 47,036 316
-------- -------- --------
Cash and investments at end of period............ $126,824 $ 53,321 $ 47,036
======== ======== ========
Interest paid (net of amounts capitalized)....... $ (897) $ 464 $ 3,342
======== ======== ========
Income taxes paid................................ $ 6,819 $ 4,129 $ 1,682
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-4
<PAGE>
SCHEDULE III
CALIFORNIA ENERGY COMPANY, INC.
PARENT COMPANY ONLY SUPPLEMENTAL NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
RELATED PARTY TRANSACTIONS
The Company bills the Coso Project partnership and joint ventures for
management, professional and operational services. Billings for the years ended
December 31, 1993, 1992 and 1991 were $18,285, $19,629 and $18,316,
respectively. Dividends received from subsidiaries for the years ended December
31, 1993, 1992 and 1991 were $49,053, $33,524 and $18,935 respectively.
RECLASSIFICATION
Certain amounts in the fiscal 1992 and 1991 financial statements have been
reclassified to conform to the fiscal 1993 presentation. Such reclassifications
do not impact previously reported net income or retained earnings.
S-5
<PAGE>
SCHEDULE V
CALIFORNIA ENERGY COMPANY, INC.
CONSOLIDATED PROPERTY, PLANT AND EQUIPMENT
AS OF DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF ADDITIONS OTHER END OF
ASSET DESCRIPTION PERIOD AT COST RETIREMENTS CHANGES PERIOD
----------------- ------------ --------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1993
Power plant and gather-
ing system............ $235,924 $10,295 $ -- $ -- $246,219
Wells and resource de-
velopment costs....... 144,595 16,542 -- -- 161,137
-------- ------- ----- ------- --------
Total operating facili-
ties.................. 380,519 26,837 -- -- 407,356
Wells and resource con-
struction in progress.. 916 23 -- -- 939
-------- ------- ----- ------- --------
Total project costs.... 381,435 26,860 -- -- 408,295
Pacific Northwest prop-
erties costs........... 25,882 15,657 -- -- 41,539
Nevada and Utah proper-
ties costs............. 32,089 3,403 -- -- 35,492
Yuma-construction in
progress............... 1,294 40,167 -- -- 41,461
Equipment............... 8,308 1,104 -- (99)(1) 9,313
-------- ------- ----- ------- --------
$449,008 $87,191 $ -- $ (99)(1) $536,100
======== ======= ===== ======= ========
YEAR ENDED DECEMBER 31,
1992
Power plant and gather-
ing system............ $229,213 $ 6,711 $ -- $ -- $235,924
Wells and resource de-
velopment costs....... 124,416 19,029 -- 1,150 (1) 144,595
-------- ------- ----- ------- --------
Total operating facili-
ties.................. 353,629 25,740 -- 1,150 (1) 380,519
Wells and resource con-
struction in progress.. 1,892 174 -- (1,150)(1) 916
-------- ------- ----- ------- --------
Total project costs.... 355,521 25,914 -- -- 381,435
Pacific Northwest prop-
erties costs........... 22,627 3,255 -- -- 25,882
Nevada and Utah proper-
ties costs............. 31,199 890 -- -- 32,089
Yuma-construction in
progress............... -- 1,294 -- -- 1,294
Equipment............... 7,215 1,093 -- -- 8,308
-------- ------- ----- ------- --------
$416,562 $32,446 $ -- $ -- $449,008
======== ======= ===== ======= ========
YEAR ENDED DECEMBER 31,
1991
Power plant and gather-
ing system............ $221,991 $ 7,784 $ -- $ (562)(1) $229,213
Wells and resource de-
velopment costs....... 92,280 31,574 -- 562 (1) 124,416
-------- ------- ----- ------- --------
Total operating facili-
ties.................. 314,271 39,358 -- -- 353,629
Wells and resource con-
struction in progress.. 1,812 80 -- -- 1,892
-------- ------- ----- ------- --------
Total project costs.... 316,083 39,438 -- -- 355,521
Pacific Northwest prop-
erties costs........... 18,761 3,866 -- -- 22,627
Nevada and Utah proper-
ties costs............. 8,028 23,171 -- -- 31,199
Equipment............... 6,898 1,027 (710) -- 7,215
-------- ------- ----- ------- --------
$349,770 $67,502 $(710) $ -- $416,562
======== ======= ===== ======= ========
</TABLE>
- --------
(1) Other reclassification
S-6
<PAGE>
SCHEDULE VI
CALIFORNIA ENERGY COMPANY, INC.
CONSOLIDATED ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND
EQUIPMENT
AS OF DECEMBER 31, 1993, 1992, AND 1991 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT DEPRECIATION BLANACE AT
BEGINNING OF AND OTHER END OF
PERIOD AMORTIZATION RETIREMENTS CHANGES PERIOD
------------ ------------ ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1993
Power plant and gather-
ing system............ $21,947 $ 6,844 $ -- $(276)(1) $28,515
Wells and resource de-
velopment costs....... 29,107 10,191 -- -- 39,298
------- ------- ----- ----- -------
Total operating facili-
ties.................. 51,054 17,035 -- (276) 67,813
Equipment............... 3,996 777 -- -- 4,773
------- ------- ----- ----- -------
$55,050 $17,812 $ -- $(276) $72,586
======= ======= ===== ===== =======
YEAR ENDED DECEMBER 31,
1992
Power plant and gather-
ing system............ $15,812 $ 6,135 $ -- $ -- $21,947
Wells and resource de-
velopment costs....... 19,587 9,520 -- -- 29,107
------- ------- ----- ----- -------
Total operating facili-
ties.................. 35,399 15,655 -- -- 51,054
Equipment............... 2,897 1,099 -- -- 3,996
------- ------- ----- ----- -------
$38,296 $16,754 $ -- $ -- $55,050
======= ======= ===== ===== =======
YEAR ENDED DECEMBER 31,
1991
Power plant and gather-
ing system............ $ 9,885 $ 5,927 $ -- $ -- $15,812
Wells and resource de-
velopment costs....... 11,684 7,903 -- -- 19,587
------- ------- ----- ----- -------
Total operating facili-
ties.................. 21,569 13,830 -- -- 35,399
Equipment............... 2,251 922 (276) -- 2,897
------- ------- ----- ----- -------
$23,820 $14,752 $(276) $ -- $38,296
======= ======= ===== ===== =======
</TABLE>
- --------
(1) Reclassification
S-7
<PAGE>
SCHEDULE IX
CALIFORNIA ENERGY COMPANY, INC.
SHORT-TERM BORROWINGS
AS OF DECEMBER 31, 1993, 1992, AND 1991 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAXIMUM AVERAGE WEIGHTED
AMOUNT AMOUNT AVERAGE
WEIGHTED OUTSTANDING OUTSTANDING INTEREST RATE
CATEGORY OF AGGREGATE BALANCE AT AVERAGE DURING THE DURING THE DURING THE
SHORT-TERM BORROWINGS END OF PERIOD INTEREST RATE PERIOD PERIOD PERIOD
--------------------- ------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1993................... $-- -- $ -- $ -- --
Year ended December 31,
1992................... $-- -- -- -- --
Year ended December 31,
1991................... $-- 7.21% $15,000 $8,125 8.5%
</TABLE>
The short-term borrowing payable to a bank was under a $15,000 multi-year
Credit Agreement. The average amount outstanding during the period was computed
based on month-end balances. The weighted average interest rate during the
period was the effective rate incurred.
S-8
<PAGE>
SCHEDULE X
CALIFORNIA ENERGY COMPANY, INC.
CONSOLIDATED SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE THREE YEARS ENDED DECEMBER 31, 1993 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Maintenance and repairs................................... $3,465 $3,337 $2,283
Amortization of deferred financing cost................... 1,031 1,232 964
Taxes, other than payroll and income taxes................ 3,902 3,572 3,603
Royalties................................................. 8,274 7,710 5,505
Advertising costs......................................... * * *
</TABLE>
- --------
* Less than amounts required to be reported pursuant to Securities and Exchange
Commission
S-9
<PAGE>
Graphics Appendix List
Page of Registration Statement
where graphic appears Description of Graphic
- ------------------------------ ----------------------
Page 28 Schematic diagram demonstrating
how geothermal energy is
extracted from the earth
Page 35 Map of the earth depicting areas
of potential geothermal activity
Page 38 Map of the Philippines indicating
proposed project sites
Page 42 Map of Indonesia indicating
proposed project sites and
location of CE regional office
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. EXHIBIT NO.
------- ------- ----
<S> <C> <C>
1.1 Form of Underwriting Agreement*
4.1 Form of Indenture*
5.1 Opinion of Willkie Farr & Gallagher regarding the legality of the Notes**
8.1 Opinion of Willkie Farr & Gallagher regarding certain tax matters**
11.1 Statement regarding computation of earnings per share*
12.1 Statement regarding computation of ratio of earnings to fixed charges*
23.1 Consent and report on schedules of Deloitte & Touche
23.2 Consent of Willkie Farr & Gallagher (included in Exhibit 5.1)**
24.1 Power of Attorney**
25.1 Statement of eligibility of trustee*
27.1 Financial Data Schedule
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
To the Board of Directors and Stockholders
California Energy Company, Inc.
Omaha, Nebraska
We consent to the use in this Registration Statement of California Energy
Company, Inc. on Form S-3 of our report dated February 24, 1994, appearing in
the Prospectus, which is part of this Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedules of California Energy
Company, Inc., listed in Item 16. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
DeLoitte & Touche
Omaha, Nebraska
March 3, 1994
<PAGE>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
ITEM 601(C) OF REGULATION S-K COMMERCIAL
AND INDUSTRIAL COMPANIES ARTICLE 5 OF REGULATION S-X
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
ITEM NUMBER ITEM DESCRIPTION 1993
- ----------- ---------------- ------------
<S> <C> <C>
5-02(1) cash and cash items......................................................... 127,756
5-02(1) cash and cash items--joint ventures......................................... 14,943
5-02(1) cash and cash items--restricted............................................. 48,105
5-02(2) marketable securities....................................................... N/A
5-02(3)(a)(1) notes and accounts receivable--trade........................................ 21,658
5-02(4) allowances for doubtful accounts............................................ N/A
5-02(6) inventory................................................................... N/A
5-02(9) total current assets........................................................ N/A
5-02(13) property--power plant, net.................................................. 458,974
5-02(13) property--equipment, net.................................................... 4,540
5-02(14) accumulated depreciation--plant............................................. 67,813
5-02(14) accumulated depreciation equipment.......................................... 4,773
5-02(18) total assets................................................................ 715,984
5-02(21) total current liabilities................................................... N/A
5-02(22) bonds and mortgages and similar debt--senior notes.......................... 35,730
5-02(22) bonds and mortgages and similar debt--convertible debentures................ 100,000
5-02(28) preferred stock--mandatory redemption....................................... 58,800
5-02(29) preferred stock--no mandatory redemption.................................... N/A
5-02(30) common stock................................................................ 2,404
5-02(31) other stockholders' equity--additional paid-in capital...................... 100,965
5-02(31) other stockholders' equity--retained earnings............................... 111,031
5-02(32) total liabilities and stockholders' equity.................................. 715,984
5-03(b)1(a) net sales of tangible products.............................................. 132,059
5-03(b)1 total revenues.............................................................. 149,253
5-03(b)2(a) cost of tangible goods sold................................................. N/A
5-03(b)2 total costs and expenses applicable to sales and revenues--plant operations. 25,362
5-03(b)3 other costs and expenses--general and administration........................ 13,158
5-03(b)3 other costs--royalties...................................................... 8,274
5-03(b)5 provision for doubtful accounts and notes................................... N/A
5-03(b)(8) interest and amortization of debt discount.................................. 30,205
5-03(b)(8) interest and amortization--capitalized...................................... (6,816)
5-03(b)(10) income before taxes and other items......................................... 61,258
5-03(b)(11) income tax expense.......................................................... 18,184
5-03(b)(14) income continuing operations................................................ 43,074
5-03(b)(15) discontinued operations..................................................... N/A
5-03(b)(17) extra ordinary items........................................................ N/A
5-03(b)(18) cumulative effect--changes in accounting principle.......................... 4,100
5-03(b)(19) net income.................................................................. 47,174
5-03(b)(20) earnings per share primary.................................................. 1.11
5-03(b)(20) earnings per share fully diluted............................................ 1.11
</TABLE>
