<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 18, 1994
REGISTRATION NO. 33-52439
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
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 18, 1994
PROSPECTUS
[ART]
$
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 the Notes will be delivered through the
facilities of The Depository Trust Company, 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."
Form and Registration.. The Notes may be represented by one or more
Global Notes (the "Global Notes") registered in
the name of The Depository Trust Company (the
"Depositary") or its nominee. Beneficial
interests in the Global Notes will be shown on,
and transfers thereof will be effected only
through, records maintained by the Depositary and
its participants. Except as provided herein,
Notes in certificated form will not be issued.
See "Description of the Notes--Global Notes."
NYSE Listing................ The Notes have been approved for listing on the
New York Stock Exchange, subject to official
notice of issuance. See "Investment
Considerations--No Prior Public Market; Possible
Volatility of Note Price."
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 $209.2
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....... 305,265 331,134 298,146 336,272 425,393 788,663
Redeemable preferred
stock.................. N/A 4,705 54,705 54,350 58,800 58,800
Total stockholders' eq-
uity................... 42,163 55,088 143,128 168,764 211,503 209,233
</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" and "Use of Proceeds."
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" and "Use of Proceeds."
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 $209.2 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, 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
Notes have been approved for listing on the New York Stock Exchange, subject to
official notice of issuance. There can be no assurance, however, 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.................................. 111,031 108,761
Treasury stock, 157,000 common shares at cost...... (2,897) (2,897)
---------- ------------
Total stockholders' equity....................... 211,503 209,233
---------- ------------
Total capitalization........................... $673,201 $1,035,201
========== ============
</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..... 305,265 331,134 298,146 336,272 425,393 788,663
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 55,088 143,128 168,764 211,503 209,233
</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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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 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 April 8, 1994 (subject to extension by agreement
of the parties) 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 is available and, if
appropriate, will request similar coverage from the Export-Import Bank of
Japan for Japanese goods and services. 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 theinterim 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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<PAGE>
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. Mr. Davidson is also a
director of FirsTier Financial Inc., Chicago & Northwestern Holdings
Corporation and Missouri Pacific Railroad Company.
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.
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<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 $3.6
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, premium, if any, and any interest 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), or at such
additional offices or agencies as the Company from time to time may designate
for such purpose. At the option of the Company, payment of interest may be made
by check mailed to the address of the Person entitled thereto as such address
may appear in the Security Register. While the Notes are represented by Global
Notes, the Company will make payments of principal and interest by wire
transfer to the Depositary or its nominee, as the case may be, which will
distribute payments to beneficial holders in accordance with its customary
procedures. The Notes (other than Global Notes and beneficial interests
therein) are transferable and exchangeable at the office of the Security
Registrar. The Company has initially appointed the Trustee as the Paying Agent
and the Security Registrar.
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<PAGE>
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.
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.
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 $209.2 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
52
<PAGE>
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."
GLOBAL NOTES
The Notes will be issued in the form of registered global notes (the "Global
Notes") that will be deposited with, or on behalf of, The Depository Trust
Company, New York, New York (the "Depositary") and registered in the name of
the Depositary's nominee. Unless and until exchanged in whole or in part for
Notes in certificated registered form, the Global Notes may not be transferred
except as a whole by the Depositary to another nominee of the Depositary or to
a successor depositary or a nominee of such successor.
Upon the issuance of the Global Notes, the Depositary will credit on its
book-entry registration and transfer system, the principal amount of the Notes
represented by the Global Notes to accounts of participant institutions that
have accounts with the Depositary. The accounts to be credited shall be
designated by the Underwriters, dealers or agents. Owners of beneficial
interests in the Global Notes that are not participants or Persons that may
hold through participants but desire to purchase, sell or otherwise transfer
ownership of the Notes by book-entry on the records of the Depositary may do so
only through participants and Persons that may hold through participants.
Because the Depositary can only act on behalf of participants and Persons that
may hold through participants, the ability of an owner of a beneficial interest
in the Global Notes to pledge Notes to Persons that do not participate in the
book-entry and transfer system of the Depositary, or otherwise take actions in
respect of such Notes, may be limited. In addition, the laws of some states
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may impair the ability
to transfer or pledge beneficial interests in the Global Notes.
So long as the Depositary, or its nominee, is the registered owner of a
Global Note, the Depositary or its nominee, as the case may be, will be
considered the sole owner or Holder of such Global Note for all purposes under
the Indenture. Except as provided below, owners of beneficial interests in a
Global Note will not be entitled to have Notes registered in their name, will
not receive or be entitled to receive physical delivery of the Notes in
certificated form and will not be considered the owners or Holders thereof
under the Indenture.
Accordingly, each Person owning a beneficial interest in a Global Note must
rely on the procedures of the Depositary and, if such Person is not a
participant, on the procedures of the participant through which such Person
owns its interest, to exercise any rights of a Holder under the Indenture. The
Company understands that under existing industry practices, in the event that
the Company requests any action of Holders or that an owner of a beneficial
interest in such Global Note desires to take any action that the Depositary, as
the Holder of the Global Notes is entitled to take under the Indenture, the
Depositary would authorize the participants holding the relevant beneficial
interests to take such action, and such participants would authorize beneficial
owners holding through such participants to take such action or would otherwise
act upon the instructions of beneficial owners holding through them.
Payment of principal of and interest on the Global Notes will be made to the
Depositary or its nominee, as the case may be, as the sole registered owner of
the Global Notes. None of the Company, the Trustee, any paying agent or the
registrar for the Notes will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
The Depositary has advised the Company and the Trustee that its current
practice is upon receipt of any payment of principal, premium, if any, or
interest, if any, to immediately credit the accounts of the participants with
such payment in amounts proportionate to their respective holdings in principal
amount of beneficial interest in the Global Notes as shown in the records of
the Depositary. Payments by participants to owners of beneficial interests in
the Global Notes held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name", and will be the
responsibility of such participants. Owners of beneficial interests in the
Global Notes that hold through the Depositary under a book-entry format (as
opposed to holding certificates directly) may experience some delay in the
receipt of interest payments since the Depositary will forward payments to its
participants, which in turn will forward them to Persons that hold through
participants or such owners.
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<PAGE>
If the Depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by the Company or the
Depositary within ninety days, the Company will issue Notes in definitive form
in exchange for the Global Notes. In addition, the Company or the Depositary
may at any time and in its sole discretion determine not to have the Notes
represented by the Global Notes and, in such event, the Company will issue
Notes in definitive form in exchange for the Global Notes. In either instance,
an owner of a beneficial interest in the Global Notes will be entitled to have
Notes equal in principal amount to such beneficial interest registered in its
name and will be entitled to physical delivery of such Notes in definitive
form. Notes so issued in definitive form will be issued in denominations of
$1,000 and integral multiples thereof and will be issued in registered form
only, without coupons.
The Depositary has advised the Company and the Underwriters as follows: The
Depositary is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary was created to hold securities of participants and to
facilitate the clearance and settlement of securities transactions among the
participants in deposited securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. Participants include securities brokers
and dealers (including the Underwriters), banks, trust companies, clearing
corporations and certain other organizations, some of which (and/or their
representatives) own the Depositary. Access to the Depositary's book-entry
system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants"). Persons
who are not participants may beneficially own securities held by the Depositary
only through participants or indirect participants. The rules applicable to the
Depositary and the participants are on file with the Commission. The Depositary
agrees with and represents to its participants that it will administer its
book-entry system in accordance with its rules and bylaws and requirements of
law.
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.
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.
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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 to the extent permitted
under the covenant described under "Limitation on Restricted Payments" below as
a "Permitted Investment"), (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 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
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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 or an Eligible Joint Venture, 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 being designated as 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, (i) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary, in the manner provided in the definition of "Unrestricted
Subsidiary," will be an Investment that will be subject to the foregoing
paragraph and (ii) the transfer of the Company's interest (or any portion
thereof) in an entity that has been deemed to be an Eligible Joint Venture,
directly or indirectly, to an Unrestricted Subsidiary will be an Investment (to
the extent of the interest transferred) 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.
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
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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 the applicable
jurisdiction, (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 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
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Company or any of its Restricted Subsidiaries or any Eligible Joint Venture (or
as otherwise required under the terms of such Debt), provided that, no such
payment of Debt (x) 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 or (y) owed to the Company, a
Restricted Subsidiary thereof or an Eligible Joint Venture will count for this
purpose, 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 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
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first sentence of the first paragraph of this covenant, the Company may apply
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 pursuant to this covenant 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, with a copy to the
Trustee, within 30 days after 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"), 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 and
that will contain information concerning the procedures applicable to the Offer
(including, without limitation, the right of withdrawal) and the effect of such
Offer on the Notes tendered. 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 properly tendered by Holders pursuant to the Offer exceeds
the amount of such Excess Proceeds, the Notes or portions of Notes to be
accepted for purchase 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 pursuant to
this covenant 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 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, 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) 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, 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.
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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 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.
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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 fifth Business Day prior to 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 Purchase 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 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 and purchased, 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 pursuant to this covenant 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.
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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 and 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 are at least equal
to the fair market value of the property sold (determined in good faith as
evidenced by an Officers' Certificate delivered to the Trustee in respect of a
transaction involving less than $25 million, or, if equal to or in excess of
$25 million, 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
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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 of 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, (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 and (iv) the Net Worth of the Company or the surviving entity, as the
case may be, on a pro forma basis after giving effect to such transaction
(without giving effect to the fees and expenses incurred in respect of such
transaction), is not less than the Net Worth of the Company immediately prior
to such transaction.
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.
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.
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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) failure to make an offer required under either of the covenants
described under "Limitation on Dispositions" or "Purchase of Notes Upon a
Change of Control" above or a failure to purchase Notes tendered in respect of
such offer, (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) 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, (vi) 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 (vii) 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, or interest 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 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.
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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)(iii)(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
respective Stated Maturities 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 or the Company 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)(iii)(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.
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," clauses (i) and (iii) with respect to
certain offers for the Notes required by certain covenants and clauses (v) and
(vi) under "Events of Default" will cease to be applicable to the Company, its
Restricted Subsidiaries and its Eligible Joint Ventures 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.
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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 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.
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"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 "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.
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"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 Permitted
Payment or 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 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. Any Asset Disposition that results from a casualty loss
need not comply with the provisions of clause (i) of the covenant described
under "Limitation on Dispositions" above.
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"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, regulation or executive order to close.
"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 any
commercial bank organized 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, (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 another nationally recognized rating service acceptable to the
Trustee), (v) commercial paper issued by (a) the parent corporation of any
commercial bank organized in the United States having capital and surplus in
excess of $500,000,000 or any commercial bank organized under the laws of any
other country having total assets in excess of $500,000,000, and (b) others
having one of the two highest ratings obtainable from either S&P or Moody's
(or, if at any time neither S&P
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nor Moody's may be rating such obligations, then from another nationally
recognized rating service 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 any 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 any
commercial bank organized in the United States having capital and surplus in
excess of $500,000,000 or any 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 another nationally
recognized rating service 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 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
the Company 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 the Company;
(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.
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"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 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
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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 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,
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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 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
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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 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.
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"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 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
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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.
"Net Worth" of any Person is defined to mean, as of any date, the aggregate
of capital, surplus and retained earnings (including any cumulative currency
translation adjustment) of such Person and its consolidated Subsidiaries as
would be shown on a consolidated balance sheet of such Person and its
consolidated Subsidiaries prepared as of such date in accordance with GAAP.
When the "Person" referred to above is the Company, the foregoing references to
"Subsidiaries" will be deemed to refer to "Restricted Subsidiaries."
"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 Restricted Subsidiary or Eligible Joint Venture that owns the
Property that constitutes such Permitted Facility and (iv) the Capital Stock of
the Restricted Subsidiary or Eligible Joint Venture obligated with respect to
such financing and of any Subsidiary or Joint Venture (that is a Restricted
Subsidiary or an Eligible Joint 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.
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"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 its 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) 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 other than Debt 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 Eligible 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 all the 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
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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 in the applicable jurisdiction.
"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 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
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subordinate to the Notes at 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 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
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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 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
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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 or any Eligible Joint Venture) 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 being junior in right of
payment to the Notes or any other Debt of the Company.
"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
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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
Subsidiaries or Joint Ventures 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 Stock 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 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 persons 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"
82
<PAGE>
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 will be effective for debt instruments issued on or after April 4,
1994 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.
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
83
<PAGE>
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 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. 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.
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
84
<PAGE>
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 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.
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
85
<PAGE>
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 Notes have been approved for listing on the New York Stock Exchange,
subject to official notice of issuance. 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. See
"Investment Considerations--No Prior Public Market; Possible Volatility of Note
Price."
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.
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................................. 82
Underwriting.............................................................. 85
Legal Matters............................................................. 86
Experts................................................................... 86
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$
(LOGO OF CALIFORNIA ENERGY
COMPANY, INC. APPEARS HERE)
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
Trustee Fees and Expenses........................................... 4,000
Printing and Engraving Expenses..................................... 150,000
Legal Fees and Expenses............................................. 500,000
Accounting Fees and Expenses........................................ 80,000
Blue Sky Fees and Expenses.......................................... 20,000
Miscellaneous Expenses.............................................. 100,000
--------
Total............................................................. $991,931
========
</TABLE>
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.
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. 2 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 17, 1994.
California Energy Company, Inc.
(Registrant)
By /s/ David L. Sokol
----------------------------------
David L. Sokol
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 2 TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS, IN
THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ David L. Sokol President, Chief March 17, 1994
- ------------------------------------- Executive Officer
DAVID L. SOKOL and Director
(Principal
Executive Officer)
/s/ John G. Sylvia Vice President, March 17, 1994
- ------------------------------------- Chief Financial
JOHN G. SYLVIA Officer and
Treasurer
(Principal
Financial Officer
and Principal
Accounting Officer)
* Director March 17, 1994
- -------------------------------------
EDGAR D. ARONSON
* Director March 17, 1994
- -------------------------------------
JUDITH E. AYRES
* Director March 17, 1994
- -------------------------------------
HARVEY F. BRUSH
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
* Director March 17, 1994
- -------------------------------------
JAMES Q. CROWE
* Director March 17, 1994
- -------------------------------------
RICHARD K. DAVIDSON
* Chairman of the March 17, 1994
- ------------------------------------- Board of Directors
RICHARD R. JAROS
* Director March 17, 1994
- -------------------------------------
BEN M. HOLT
* Director March 17, 1994
- -------------------------------------
EVERETT B. LAYBOURNE
* Director March 17, 1994
- -------------------------------------
DANIEL J. MURPHY
* Director March 17, 1994
- -------------------------------------
HERBERT L. OAKES, JR.
* Director March 17, 1994
- -------------------------------------
WALTER SCOTT, JR.
* Director March 17, 1994
- -------------------------------------
BARTON W. SCHACKELFORD
* Director March 17, 1994
- -------------------------------------
DAVID E. WIT
*By /s/ Steven A. McArthur March 17, 1994
---------------------------------
STEVEN A. MCARTHUR
ATTORNEY-IN-FACT
</TABLE>
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........................... 8,756 4,557 4,923
------- ------- -------
Total revenues.................................... 70,168 58,242 43,287
------- ------- -------
Expenses:
General and administration.......................... 6,564 6,796 5,585
Interest, net of capitalized interest............... 2,346 714 2,836
------- ------- -------
Total expenses.................................... 8,910 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.
<PAGE>
$_______________________
CALIFORNIA ENERGY COMPANY, INC.
__% Senior Discount Notes due 2004
UNDERWRITING AGREEMENT
March ___, 1994
LEHMAN BROTHERS INC.
SALOMON BROTHERS INC
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
California Energy Company, Inc., a Delaware corporation (the "Company"),
proposes to sell $_________ aggregate principal amount of the Company's __%
Senior Discount Notes due January 15, 2004 (the "Notes"). This is to confirm
the agreement concerning the purchase of the Notes from the Company by the
Underwriters named in Schedule 1 hereto (the "Underwriters").
1. Representations, Warranties and Agreements of the Company. The Company
---------------------------------------------------------
represents, warrants and agrees that:
(a) A registration statement on Form S-3, and amendments thereto, with
respect to the Notes have (i) been prepared by the Company in conformity with
the requirements of the Securities Act of 1933 (the "Securities Act") and the
rules and regulations (the "Rules
<PAGE>
and Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, (ii) been filed with the Commission under the Securities Act and
(iii) become effective under the Securities Act; and the indenture ("the
"Indenture"), between the Company and IBJ Schroder Bank & Trust Company, as
trustee (the "Trustee"), pursuant to which the Notes shall be issued, shall
have been qualified under the Trust Indenture Act of 1939 (the "Trust
Indenture Act"). Copies of such registration statement and the amendments
thereto have been delivered by the Company to you as the representatives (the
"Representatives") of the Underwriters. As used in this Agreement, "Effective
Time" means the date and the time as of which such registration statement, or
the most recent post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date of the Effective
Time; "Preliminary Prospectus" means each prospectus included in such
registration statement, or amendments thereof, before it became effective
under the Securities Act and any prospectus filed with the Commission by the
Company with the consent of the Representatives pursuant to Rule 424(a) of the
Rules and Regulations; "Registration Statement" means such registration
statement, as amended at the Effective Time, including any documents or
portions of any documents incorporated by reference therein at such time and
all information contained in the final prospectus filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations in accordance with
Section 5(a) hereof and deemed to be a part of the registration statement as
of the Effective Time pursuant to paragraph (b) of Rule 430A of the Rules and
Regulations; and "Prospectus" means such final prospectus, as first filed with
the Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the Rules
and Regulations. Reference made herein to any Preliminary Prospectus or to the
Prospectus shall be deemed to refer to and include any documents or portions
of any documents incorporated by reference therein pursuant to Item 12 of Form
S-3 under the Securities Act, as of the date of such Preliminary Prospectus or
the Prospectus, as the case may be, and any reference to any amendment or
supplement to any Preliminary Prospectus or the Prospectus shall be deemed to
refer to and include any documents or portions of any documents filed under
the Securities Exchange Act of 1934 (the "Exchange Act") after the date of
such Preliminary Prospectus or the Prospectus, as the case may be, and
incorporated by
2
<PAGE>
reference in such Preliminary Prospectus or the Prospectus, as the case may
be, in accordance with Item 12 of Form S-3; and any reference to any amendment
to the Registration Statement shall be deemed to include any annual report of
the Company filed with the Commission pursuant to Section 13(a) or 15(d) of
the Exchange Act after the Effective Time that is incorporated by reference in
the Registration Statement in accordance with Item 12 of Form S-3. The
Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus.
(b) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus shall, when they become effective or are filed with the Commission,
as the case may be, conform in all material respects to the requirements of the
Securities Act and the Rules and Regulations and the Trust Indenture Act and the
rules and regulations thereunder and do not and shall not, as of the applicable
effective date (as to the Registration Statement and any amendment thereto) and
as of the filing date (as to the Prospectus and any amendment or supplement
thereto) contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in respect of the Prospectus, in the light of the circumstances under
which they were made, not misleading; provided that no representation or
warranty is made as to information contained in or omitted from the Registration
Statement or the Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with written information furnished to the Company through
the Representatives by or on behalf of any Underwriter specifically for
inclusion therein; and the Indenture conforms in all material respects to the
requirements of the Trust Indenture Act and the rules and regulations
thereunder.
(c) The documents incorporated by reference in the Prospectus, when they
became effective or were last amended or filed with the Commission, as the case
may be, conformed in all material respects to the requirements of the Securities
Act or the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder, and none of such documents contained an untrue statement
of a material fact or omitted to
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state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made, and any further documents so filed and incorporated by
reference in the Prospectus, when such documents become effective or are filed
with the Commission, as the case may be, shall conform in all material
respects to the requirements of the Securities Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission thereunder and
shall not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made.
(d) The Company, each Subsidiary (as defined below) and each Joint Venture
(as defined below) have been duly organized and are validly existing and, if
applicable, in good standing under the laws of their respective jurisdictions of
organization as a corporation or partnership, as the case may be, and have the
power and authority to own, lease and operate their property and conduct their
businesses as described in the Prospectus; the Company, the Subsidiaries and the
Joint Ventures are duly qualified to do business and are in good standing as
foreign corporations or foreign partnerships, as the case may be, in each
jurisdiction, domestic or foreign, in which such registration or qualification
or good standing is required (whether by reason of the ownership or leasing of
property, the conduct of business or otherwise), except where the failure to
so register or qualify or be in good standing would not have a material
adverse effect on the financial condition or results of operations of the
Company, its Subsidiaries and Joint Ventures taken as a whole; and the
Company has all requisite corporate power and authority to enter into this
Agreement and the Indenture, and to consummate the transactions contemplated
hereby and thereby. For purposes of this Agreement, (A) the term "Subsidiary"
shall mean Coso Hotsprings Intermountain Power, Inc., China Lake Operating
Company and Coso Technology Corporation, each a Delaware corporation, and the
other subsidiaries listed on Schedule 2 hereto, and (B) the term "Joint
Venture" shall mean the Permitted Joint Ventures and the Eligible Joint
Ventures (as such terms are defined in the Indenture) and Coso Finance
Partners ("CFP"), Coso Energy Developers ("CED") and Coso Power Developers
("CPD"),
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each a California general partnership, it being understood that such term
means the general or limited partnership or other joint venture entity and not
the individual general or limited partners or other joint venturers thereof.
The Subsidiaries listed above and on Schedule 2 are all the direct and
indirect "subsidiaries" of the Company, as such term is defined in Rule 405 of
the Rules and Regulations, and are all of the "Significant Subsidiaries" of
the Company, as such term is defined in Rule 1-02 of Regulation S-X.
(e) All the issued and outstanding shares of capital stock of the Company
have been validly authorized and issued and are fully-paid and nonassessable;
all the outstanding shares of capital stock of each Subsidiary have been duly
and validly authorized and issued and are fully-paid and nonassessable; and
except as otherwise set forth or referred to in the Prospectus, all outstanding
shares of capital stock of each Subsidiary are owned beneficially by the Company
free and clear of any material claims, liens, encumbrances and security
interests. As of the date of this Agreement and the Delivery Date (as defined
below), the Company is the beneficial owner of approximately 46%, 48% and 50% of
the outstanding partnership interests of CFP, CED and CPD, respectively.
All of such interests beneficially owned by the Company have been duly and
validly authorized and issued and, except as otherwise disclosed or referred to
in the Prospectus, are owned beneficially by the Company free and clear of any
material claims, liens, encumbrances and security interests.
(f) The Notes have been duly authorized by the Company, and, when duly
executed, authenticated, issued and delivered against payment therefor as
contemplated hereby and by the Indenture, shall be validly issued and
outstanding, and shall constitute valid and binding obligations on the part of
the Company, entitled to the benefits of the Indenture, and enforceable against
the Company in accordance with their terms, except as enforcement may be limited
by applicable bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and by
equitable principles generally; and the Notes, when issued and delivered, shall
conform in all material respects to the descriptions thereof contained in the
Prospectus.
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<PAGE>
(g) The Indenture has been duly authorized, and when duly executed and
delivered by the Company, shall constitute a valid and binding agreement on the
part of the Company, enforceable against the Company in accordance with its
terms, except as enforcement may be limited by applicable bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by equitable principles generally; and
the Indenture, when executed and delivered, shall conform in all material
respects to the descriptions thereof contained in the Prospectus.
(h) This Agreement has been duly authorized, executed and delivered by the
Company.
(i) The execution, delivery and performance of this Agreement and the
Indenture, the consummation of the transactions contemplated herein and therein
and the issuance and delivery of the Notes shall not (i) conflict with the
corporate charter or by-laws or partnership agreement of the Company, any
Subsidiary or any Joint Venture, (ii) conflict with, result in the creation or
imposition of any lien, charge or other encumbrance upon any asset with a
value in excess of $10,000,000 (a "Material Asset") of the Company, any
Subsidiary or any Joint Venture pursuant to the terms of, or constitute a
breach of, or default under, any material agreement, indenture or other
instrument to which the Company, any Subsidiary or any Joint Venture is a
party (other than the Note Purchase Agreement, dated March 15, 1988, as
amended (the "Note Purchase Agreement"), between the Company and Principal
Mutual Life Insurance Company ("Principal Mutual") pursuant to which
approximately $35 million aggregate principal amount of the Company's 12%
Senior Notes with Contingent Interest due 1995 (the "Senior Notes") are
outstanding), or by which the Company, any Subsidiary or any Joint Venture is
bound or to which any Material Asset of the Company, any Subsidiary or any
Joint Venture is subject, or (iii) result in a violation of any law, order,
rule, regulation, judgment or decree of any court or governmental agency
having jurisdiction over the Company, any Subsidiary or any Joint Venture or
any Material Asset of the Company, any Subsidiary or any Joint Venture, where
any such conflicts, encumbrances, breaches, defaults or violations under
clauses (ii) or (iii), individually or in the
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aggregate, would have a material adverse effect on the financial condition or
results of operations of the Company, its Subsidiaries and Joint Ventures
taken as a whole. Except for (i) the registration of the Notes under the
Securities Act, (ii) such consents, approvals, authorizations, registrations
or qualifications as may be required under the Exchange Act and applicable
state securities laws in connection with the purchase and distribution of the
Notes by the Underwriters, (iii) the approval for listing the Notes on the New
York Stock Exchange, Inc., (iv) the consent of Principal Mutual under the
Senior Notes and the Note Purchase Agreement, which shall have been obtained
on or prior to the Delivery Date and (v) the waiver by Peter Kiewit Sons',
Inc. of their right to include securities in the Registration Statement, which
has been obtained prior to the date of this Agreement, no consent,
authorization or order of, or filing or registration by the Company, any
Subsidiary or, to the best of the Company's knowledge, any Joint Venture with,
any court, governmental agency or third party is required in connection with
the execution, delivery and performance of this Agreement and the Indenture,
the consummation of the transactions contemplated herein and therein, and the
issuance and delivery of the Notes.
(j) Except with respect to a breach of certain covenants contained in the
Note Purchase Agreement that would occur upon the issuance and delivery of the
Notes, no event has occurred and is continuing that, had the Notes already been
issued, would (whether or not with the giving of notice and/or the passage of
time and/or the fulfillment of any other requirement) constitute an Event of
Default (as defined in the Indenture) under the Indenture.
(k) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Securities Act with respect to any debt
securities of the Company owned or to be owned by such person or to require the
Company to include any such securities in the securities registered pursuant to
the Registration Statement or, with respect to any debt securities, in any
securities being registered pursuant to any other registration statement filed
by the Company under the Securities Act.
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<PAGE>
(l) The Company has not sold or issued any Notes or similar debt
securities during the six-month period preceding the date of the Prospectus,
including any sales pursuant to Rule 144A or Regulations D or S under the
Securities Act.
(m) Since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus, (i) there has been no material
adverse change, or a development which is reasonably likely to lead to a
material adverse change, in the financial condition or results of operations
of the Company, its Subsidiaries and Joint Ventures taken as a whole, (ii)
except as disclosed in the Prospectus, there have not been any transactions
entered into by the Company, its Subsidiaries or any Joint Venture, other than
those in the ordinary course of business, which are material to the Company,
its Subsidiaries and Joint Ventures taken as a whole and (iii) there has not
been any dividend or distribution of any kind declared, paid or made by the
Company on any of its shares of capital stock.
(n) The financial statements of the Company and its consolidated
subsidiaries and the related notes and schedules included or incorporated by
reference in the Prospectus fairly present the financial position, the results
of operations and the cash flows of the Company and its consolidated
subsidiaries at the respective dates and for the respective periods to which
they apply; such financial statements and the related notes and schedules have
been prepared in conformity with United States generally accepted accounting
principles applied on a consistent basis throughout the periods therein
specified. The capitalization of the Company, as set forth in the column
labeled "Actual" under the caption "Capitalization" in the Prospectus, is
accurately described as of the date presented therein.
(o) Deloitte & Touche, who have certified certain financial statements of
the Company, whose report appears in the Prospectus or is incorporated by
reference therein and who have delivered the initial letter referred to in
Section 7(g) hereof, are and were independent public accountants as required by
the Securities Act and the Rules and Regulations during the periods covered
8
<PAGE>
by the financial statements on which they reported contained or incorporated
in the Prospectus.
(p) Except as described in or contemplated by the Prospectus, the
Company, each Subsidiary and each Joint Venture holds, as applicable, good and
valid title to, or valid and enforceable leasehold or contractual interests in,
all items of real and personal property that are material to the business of
such entity, free and clear of all liens, encumbrances and claims which would
materially interfere with the conduct of the business of such entity as
described in the Prospectus.
(q) Except as described in the Prospectus, the Company, the Subsidiaries
and the Joint Ventures carry, or are covered by, insurance in such amounts and
covering such risks as is customary for similarly situated companies in the
Company's industry. Each of the foregoing insurance policies is valid and in
full force and effect, and no event has occurred and is continuing that permits,
or after notice or lapse of time or both would permit, modifications or
terminations of the foregoing that in the aggregate would have a material
adverse effect on the financial condition or results of operations of the
Company, its Subsidiaries and Joint Ventures taken as a whole.
(r) Except as described in the Prospectus, the Company, each Subsidiary
and each Joint Venture (i) has properly obtained each license, permit,
certificate, franchise or other governmental authorization necessary to the
ownership of its property or to the conduct of its business as described in the
Prospectus and (ii) is in compliance with all terms and conditions of such
license, permit, certificate, franchise or other governmental authorization,
except (x) in either case where the failure to do so would not have a material
adverse effect on the financial condition or results of operations of the
Company and its Subsidiaries and Joint Ventures taken as a whole, (y) permits,
consents and approvals that may be required for future drilling or operating
activities which are ordinarily deemed to be ministerial in nature and which are
anticipated to be obtained in the ordinary course and (z) permits, consents and
approvals for developmental or construction activities which have not yet been
obtained but which have been or will be applied for
9
<PAGE>
in the course of development or construction and which are anticipated to be
obtained in the ordinary course.
(s) There is no legal or governmental proceeding before any court,
governmental agency or body, domestic or foreign, now pending or, to the
knowledge of the Company, threatened against, or, to the knowledge of the
Company, involving the Company, any Subsidiary or any Joint Venture (i) of a
character required to be disclosed in the Registration Statement which is not
adequately disclosed in the Registration Statement or (ii) that, if determined
adversely to the Company, any Subsidiary or any Joint Venture, would materially
and adversely affect the consummation of the transactions contemplated by this
Agreement.
(t) The conditions for use of Form S-3, as set forth in the General
Instructions thereto, have been satisfied.
(u) The Company, the Subsidiaries and the Joint Ventures are currently
conducting their respective businesses as described in the Prospectus.
(v) There are not any contracts or other documents that are required to be
described in the Prospectus or filed as exhibits to the Registration Statement
by the Securities Act or by the Rules and Regulations that have not been
described in the Prospectus or filed as exhibits to the Registration Statement
or incorporated therein by reference as permitted by the Rules and Regulations.
(w) There is not any relationship, direct or indirect, that exists between
or among the Company on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company on the other hand, that is required by the
Securities Act or by the Rules and Regulations to be described in the Prospectus
and which is not so described.
(x) There is not any labor problem or disturbance with the persons
employed by the Company, any Subsidiary or any Joint Venture that exists or, to
the knowledge of the Company, that is threatened and that might reasonably be
expected to have a material adverse effect on the financial condition or
results of opera-
10
<PAGE>
tions of the Company, its Subsidiaries and Joint Ventures taken as a whole.
(y) The Company, the Subsidiaries and the Joint Ventures do not maintain
any "pension plans," as defined by the Employee Retirement Income Security Act
of 1974, as amended, other than plans qualified under Section 401(k) of the
Internal Revenue Code of 1986, as amended.
(z) None of the Company, any Subsidiary or any Joint Venture (i) is in
violation of its respective charter, by-laws or partnership agreements, (ii) is
in default, and no event exists and is continuing that, with notice or lapse of
time or both, would constitute such a default, in the due performance and
observance of any material term contained in any lease, license, indenture,
mortgage, deed of trust, note, bank loan or other evidence of indebtedness or
any other agreement, understanding or instrument to which the Company, any
Subsidiary or any Joint Venture is a party or by which the Company, any
Subsidiary or any Joint Venture or any property of the Company, any Subsidiary
or any Joint Venture may be bound or affected, which default would have a
material adverse effect on the financial condition or results of operations of
the Company, its Subsidiaries and Joint Ventures taken as a whole, or (iii) is
in violation of any law, ordinance, governmental rule or regulation or court
decree to which it may be subject, which violation would have a material adverse
effect on the financial condition or results of operations of the Company, its
Subsidiaries and Joint Ventures taken as a whole.
(aa) There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, hazardous
wastes or hazardous substances by the Company, any Subsidiary or any Joint
Venture (or, to the knowledge of the Company, any of their predecessors in
interest) at, upon or from any of the property now or previously owned or
leased by the Company, any Subsidiary or any Joint Venture in violation of any
applicable law, ordinance, rule, regulation, order, judgment, decree or permit
or which would require remedial action under any applicable law, ordinance,
rule, regulation, order, judgment, decree or permit, except for any violation
or
11
<PAGE>
remedial action which does not have, or would not be reasonably likely to
have, singularly or in the aggregate with all such violations and remedial
actions, a material adverse effect on the financial condition or results of
operations of the Company, its Subsidiaries and the Joint Ventures taken as a
whole; there has been no material spill, discharge, leak, emission, injection,
escape, dumping or release of any kind onto such property or into the
environment surrounding such property of any toxic wastes, solid wastes,
hazardous wastes or hazardous substances due to or caused by the Company, any
Subsidiary or any Joint Venture or with respect to which the Company, any
Subsidiary or any Joint Venture has knowledge, except for any such spill,
discharge, leak, emission, injection, escape, dumping or release which does
not have, or would not be reasonably likely to have, singularly or in the
aggregate with all such spills, discharges, leaks, emissions, injections,
escapes, dumpings and releases, a material adverse effect on the financial
condition or results of operations of the Company, its Subsidiaries and its
Joint Ventures taken as a whole; and the terms "hazardous wastes", "toxic
wastes" and "hazardous substances" shall have the meanings specified in any
applicable local, state, federal and foreign laws or regulations with respect
to environmental protection.
(ab) The Company is not, and, after giving effect to the issuance of the
Notes and the application of the proceeds therefrom, shall not be, an
"investment company," or, to the best knowledge of the Company after due
inquiry, a company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended (the "1940 Act").
(ac) The Company, each Subsidiary and each Joint Venture has filed all
federal, state and local income and franchise tax returns required to be filed
through the date hereof, or has filed extensions in accordance with applicable
law, and has paid all taxes required to be paid through the date hereof thereon,
except for such failures to file or pay that would not have a material adverse
effect on the financial condition or results of operations of the Company and
its Subsidiaries and Joint Ventures taken as a whole, and no tax deficiency has
been determined adversely to the Company, any Subsidiary or any Joint Venture
that has had (nor
12
<PAGE>
does the Company have any knowledge of any tax deficiency which, if determined
adversely to the Company, any Subsidiary or any Joint Venture would be
reasonably likely to have) a material adverse effect on the financial
condition or results of operations of the Company and its Subsidiaries and
Joint Ventures taken as a whole.
2. Purchase of the Notes by the Underwriters. On the basis of the
-----------------------------------------
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell the Notes to the
several Underwriters and each of the Underwriters, severally and not jointly,
agrees to purchase the principal amount of Notes set forth opposite that
Underwriter's name in Schedule 1 hereto. The respective purchase obligations of
the Underwriters with respect to the Notes shall be rounded among the
Underwriters to avoid Notes in an amount less than $1,000 or any integral
multiple thereof, as the Representatives may determine. The price to be paid to
the Company for the Notes shall be __% of the aggregate principal amount
thereof. The Company shall not be obligated to deliver any of the Notes to be
delivered on the Delivery Date except upon payment for all the Notes to be
purchased on the Delivery Date as provided herein.
3. Offering of Notes by the Underwriters. Upon authorization by the
-------------------------------------
Representatives of the release of the Notes, the several Underwriters shall
offer the Notes for sale upon the terms and conditions set forth in the
Prospectus.
4. Delivery of and Payment for the Notes. Delivery of and payment for the
-------------------------------------
Notes shall be made at the offices of Skadden, Arps, Slate, Meagher & Flom, 919
Third Avenue, New York, New York 10022, at 10:00 A.M., New York City time, on
the fifth full business day following the date of this Agreement or at such
other date or place as shall be determined by agreement between the
Representatives and the Company. This date and time are sometimes referred to
as the "Delivery Date." On the Delivery Date, the Company shall deliver or
cause to be delivered certificates representing the Notes to the Representatives
for the account of each Underwriter against payment to or upon the order of the
Company of the purchase price by certified or official bank check or checks
payable in New York Clearing House (next-day)
13
<PAGE>
funds. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation
of each Underwriter hereunder. Upon delivery, the Notes shall be in definitive
fully registered form and registered in such names and in such denominations
as the Representatives shall request in writing not less than two full
business days prior to the Delivery Date. For the purpose of expediting the
checking and packaging of the certificates for the Notes, the Company shall
make the certificates representing the Notes available for inspection by the
Representatives in New York, New York, not later than 2:00 P.M., New York City
time, on the business day prior to the Delivery Date.
5. Further Agreements of the Company. The Company agrees:
---------------------------------
(a) To prepare the Prospectus in a form approved by the Representatives
and to file such Prospectus pursuant to Rule 424(b) under the Securities Act not
later than the Commission's close of business on the second business day
following the execution and delivery of this Agreement or, if applicable, such
earlier time as may be required by Rule 430A(a)(3) under the Securities Act; to
make no further amendment or any supplement to the Registration Statement or to
the Prospectus prior to the Delivery Date except as permitted herein; to
advise the Representatives, promptly after it receives notice thereof, of the
time when any amendment to the Registration Statement has been filed or
becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish the Representatives with copies
thereof; to promptly file all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of the Prospectus and for so long as the delivery of a prospectus is required
in connection with the offering or sale of the Notes; to advise the
Representatives, promptly after it receives notice thereof, of the issuance by
the Commission of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or the Prospectus, of the suspension of the
qualification of the Notes for offering or sale in any jurisdiction, of the
initiation or threatening of any proceeding for any such purpose, or of any
14
<PAGE>
request by the Commission for the amending or supplementing of the
Registration Statement or the Prospectus or for additional information; and in
the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or
suspending any such qualification, to promptly use its best efforts to obtain
its withdrawal;
(b) To furnish promptly to each of the Representatives and to counsel for
the Underwriters a signed copy of the Registration Statement as originally filed
with the Commission, and each amendment thereto filed with the Commission,
including all consents and exhibits filed therewith;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with the
Commission and each amendment thereto (in each case excluding exhibits other
than this Agreement and the Indenture), (ii) each Preliminary Prospectus, the
Prospectus and any amended or supplemented Prospectus and (iii) any document
incorporated by reference in the Prospectus (excluding exhibits thereto); and,
if the delivery of a prospectus is required at any time after the Effective
Time in connection with the offering or sale of the Notes as reasonably
determined by the Representatives and if at such time any event shall have
occurred as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be necessary
to amend or supplement the Prospectus or to file under the Exchange Act any
document incorporated by reference in the Prospectus in order to comply with
the Securities Act or the Exchange Act, to notify the Representatives and, to
file such document and to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as the
Representatives may from time to time reasonably request of an amended or
supplemented Prospectus which shall correct such statement or omission or
effect such compliance;
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<PAGE>
(d) Until completion of the distribution of the Notes, as reasonably
determined by the Representatives, and at any time if the delivery of a
prospectus is required in connection with the offering or sale of the Notes, to
file promptly with the Commission any amendment to the Registration Statement or
the Prospectus or any supplement to the Prospectus that may, in the judgment of
the Company or, in the reasonable judgment of the Representatives, be required
by the Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any (i) amendment to the
Registration Statement or supplement to the Prospectus, (ii) any document
incorporated by reference in the Prospectus or (iii) any Prospectus pursuant to
Rule 424 of the Rules and Regulations, to furnish a copy thereof to the
Representatives and counsel for the Underwriters and obtain the consent of the
Representatives to the filing, which consent shall not be unreasonably
withheld;
(f) As soon as practicable after the Effective Date, to make generally
available to the Company's security holders and to deliver to the
Representatives an earnings statement of the Company and its Subsidiaries (which
need not be audited) complying with Section 11(a) of the Securities Act and the
Rules and Regulations (including, at the option of the Company, Rule 158);
(g) For a period of two years following the Effective Date, to furnish to
the Representatives, upon their request, a reasonable number of copies of all
materials furnished by the Company to its shareholders and all public reports
and all publicly available reports and financial statements furnished by the
Company to the principal national securities exchange upon which the Company's
common stock may be listed pursuant to requirements of or agreements with such
exchange or to the Commission pursuant to the Exchange Act or any rule or
regulation of the Commission thereunder;
(h) Promptly from time to time, to take such action as the Representatives
may reasonably request to qualify the Notes for offering and sale under the
securities laws of such jurisdictions as the Representatives may reasonably
request and to comply with such laws
16
<PAGE>
so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be reasonably necessary to complete the
distribution of the Notes; provided that, in connection therewith the Company
shall not, with respect to any such jurisdiction, be required to qualify as a
foreign corporation, to file a general consent to service of process or to
take any other action that would subject it to service of process in suits
other than those arising out of the offering of the Notes or to taxation in
respect of doing business in any jurisdiction in which it is not otherwise
subject;
(i) For a period of 90 days from the date of the Prospectus, not to offer
for sale, sell, contract to sell or otherwise dispose of, directly or
indirectly, any debt securities of the Company, or to sell, contract to sell
or grant options, rights or warrants with respect to any such debt securities
of the Company, without the prior written consent of the Representatives,
except for (i) the establishment of senior working capital facilities, (ii)
entering into interest rate swaps or other interest rate protection agreements
and (iii) other commercial banking transactions;
(j) Until the completion of the distribution of the Notes, as reasonably
determined by the Underwriters, to file promptly all documents required to be
filed with the Commission pursuant to Section 13, 14 or 15(d) of the Exchange
Act, and such documents shall comply in all material respects with the
requirements of the Exchange Act or any rule or regulation of the Commission
thereunder;
(k) Prior to the Effective Date, to apply for the listing of the Notes on
the New York Stock Exchange, Inc. and to use its reasonable efforts to complete
that listing, subject only to official notice of issuance, on or promptly after
the Delivery Date;
(l) To apply the net proceeds from the sale of the Notes being sold by the
Company as set forth in the Prospectus; and
(m) To take such steps as shall be necessary to ensure that, after giving
effect to the issuance of the Notes and the application of the proceeds
therefrom, none of the Company, any Subsidiary or any
17
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Joint Venture shall become an "investment company" within the meaning of the
term under the 1940 Act and the rules and regulations of the Commission
thereunder.
6. Expenses. The Company agrees to pay (a) the costs incident to the
--------
authorization, issuance, sale and delivery of the Notes and any taxes payable in
that connection, (b) the costs incident to the preparation, printing and filing
under the Securities Act of the Registration Statement and any amendments and
exhibits thereto (but excluding fees and expenses of counsel for the
Underwriters), (c) the costs of distributing the Registration Statement as
originally filed and each amendment thereto and any post-effective amendments
thereof (including, in each case, exhibits), any Preliminary Prospectus, the
Prospectus and any amendment or supplement to the Prospectus or any document
incorporated by reference therein, all as provided in this Agreement, (d) the
costs of reproducing and distributing this Agreement, (e) any applicable
listing or other fees, (f) the fees and expenses of qualifying the Notes under
the securities laws of the several jurisdictions as provided in Section 5(h)
and of preparing, printing and distributing a Blue Sky Memorandum (including
reasonable fees and expenses of counsel to the Underwriters not to exceed
$25,000 in the aggregate), (g) the fees paid to rating agencies in connection
with the rating of the Notes; and (h) all other costs and expenses incident to
the performance of the obligations of the Company under this Agreement;
provided that, except as provided in this Section 6 and in Section 11, the
Underwriters shall pay their own costs and expenses, including the costs and
expenses of their counsel, any transfer taxes on the Notes which they may sell
and the expenses of marketing and advertising any offering of the Notes made
by the Underwriters.
7. Conditions of Underwriters' Obligations. The respective obligations of
---------------------------------------
the Underwriters hereunder are subject to the accuracy, when made and on the
Delivery Date, of the representations and warranties of the Company contained
herein, to the performance by the Company of its obligations hereunder, and to
each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission in
accordance with
18
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Section 5(a); no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission; and any request of the Commission for inclusion of additional
information in the Registration Statement or the Prospectus or otherwise shall
have been complied with.
(b) No Underwriter shall have discovered and disclosed to the Company on
or prior to the Delivery Date that the Registration Statement or the Prospectus
or any amendment or supplement thereto contains an untrue statement of a fact
that, in the opinion of Skadden, Arps, Slate, Meagher & Flom, counsel for the
Underwriters, is material or omits to state a fact which, in the opinion of such
counsel, is material and is required to be stated therein or is necessary to
make the statements therein, in respect of the Prospectus, in the light of the
circumstances under which they were made, not misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Indenture, the Notes,
the Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the Indenture, and the transactions contemplated
hereby and thereby shall be satisfactory in all material respects to counsel for
the Underwriters, and the Company shall have furnished to such counsel all
documents and information that they may reasonably request to enable them to
pass upon such matters.
(d) The Company shall have furnished to the Representatives the opinion
of Steven A. McArthur, General Counsel to the Company, addressed to the
Underwriters and dated the Delivery Date, in form and substance satisfactory to
the Representatives, to the effect that:
(i) Each of the Company, its Subsidiaries and the Joint Ventures has
been duly organized and is validly existing and, if applicable, in good
standing under the laws of its respective jurisdiction of organization and
each of the Company, its Subsidiaries and the Joint Ventures has the
corporate power and authority to own, lease and
19
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operate its respective properties and to conduct its businesses as described
in the Prospectus;
(ii) Each of the Company, its Subsidiaries and the Joint Ventures is
duly registered or qualified to do business and, if applicable, is in good
standing as a foreign corporation or a foreign partnership, as the case may
be, in each jurisdiction, domestic or foreign, in which such registration,
qualification or good standing is required (whether by reason of the
ownership or leasing of property, the conduct of its business or
otherwise), except where failure to so register or qualify or be in good
standing would not have a material adverse effect on the financial
condition or results of operation of the Company, its Subsidiaries and the
Joint Ventures taken as a whole;
(iii) The Company has the authorized and outstanding capitalization
as set forth in the column labeled "Actual" under the caption
"Capitalization" in the Prospectus; all the outstanding shares of capital
stock of each Subsidiary have been duly and validly authorized and issued,
are fully paid and non-assessable, and, except as described in or
contemplated by the Prospectus, are owned beneficially by the Company free
and clear of any material claims, liens, encumbrances and security
interests; the Company is currently the beneficial owner of approximately
46%, 48% and 50% of the outstanding partnership interests of CFP, CED and
CPD, respectively; all such interests have been duly and validly authorized
and issued and are owned beneficially by the Company free and clear of any
material claims, liens, encumbrances and security interests, except as
described in or contemplated by the Prospectus;
(iv) There are no preemptive or other rights to subscribe for or to
purchase, nor any restriction upon the transfer of, the Notes pursuant to
the Company's charter, by-laws or any agreement or other instrument known
to such counsel;
(v) Except as contemplated in the Prospectus with respect to (i) the
pledging or granting of security interests in all material
20
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properties to secure project financing obligations and (ii) governmental
contracts, leases and other non-transferable interests that are terminable
by the applicable governmental body, each of the Company, its Subsidiaries
and the Joint Ventures has good title to, or valid and enforceable
leasehold or contractual interests in, all items of real and personal
property that are material to the business of such entity, free and clear
of all liens, encumbrances, claims and security interests except for liens,
claims, encumbrances and title defects that are, singularly and in the
aggregate, not material in amount or do not materially interfere with the
use or enjoyment of such properties by the Company, any Subsidiary or any
Joint Venture as described in the Prospectus;
(vi) To such counsel's knowledge, except as described in the
Prospectus, there is no action, suit or proceeding before any court or
governmental agency or body, domestic or foreign, now pending or threatened
against or affecting the Company, any Subsidiary or any Joint Venture, that
is reasonably expected to result in any material adverse change in the
financial condition or results of operations of the Company and its
Subsidiaries taken as a whole, or is reasonably expected to materially and
adversely affect the consummation of the transactions contemplated by this
Agreement;
(vii) To such counsel's knowledge, each of the Company, its
Subsidiaries and the Joint Ventures possesses such licenses, certificates,
permits and other authorizations issued by the appropriate state, federal
or foreign regulatory agencies or bodies as are currently required to
conduct the business now operated by it and all such licenses,
certificates, permits and other authorizations are in full force and
effect, and the Company, the Subsidiaries and the Joint Ventures are in
compliance therewith, except as described in or contemplated by the
Prospectus and except with respect to (A) licenses, certificates, permits
or authorizations that the failure to obtain would not have a material
adverse affect on the financial condition or results of operations of the
Company and its Subsidiaries and Joint Ventures taken as a whole,
21
<PAGE>
(B) permits, consents and approvals that may be required for future
drilling or operating activities that are ordinarily deemed to be
ministerial in nature and that are anticipated to be obtained in the
ordinary course and (C) permits, consents and approvals for developmental
or construction activities that have not yet been obtained but that have
been or shall be applied for in the course of development or construction
and that are anticipated to be obtained in the ordinary course;
(viii) The Company has all requisite corporate power and authority to
enter into this Agreement and the Indenture, to issue the Notes in
accordance with the Indenture and to consummate the transactions
contemplated by this Agreement and the Indenture;
(ix) The statements in the Prospectus under the captions (A)
"Description of the Notes" insofar as they purport to summarize the
provisions of the Indenture and the Notes and (B) "The Business of the
Company -- Legal Proceedings" to the extent that they constitute matters of
law or legal conclusions have been reviewed by such counsel and fairly
summarize the information or matters described therein;
(x) There are no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have
not been described or filed as exhibits to the Registration Statement or
incorporated by reference therein as permitted by the Rules and
Regulations;
(xi) This Agreement has been duly authorized, executed and delivered by
the Company;
(xii) The Indenture has been duly authorized, executed and delivered by
the Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement may
22
<PAGE>
be limited by bankruptcy, insolvency (involving, without limitation, all
laws relating to fraudulent transfers), reorganization or other similar
laws affecting creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law);
(xiii) The Notes have been duly authorized and executed by the Company,
and, assuming due authentication by the Trustee, when issued and delivered
as contemplated by the Indenture upon payment therefor as provided in this
Agreement, will be validly issued and outstanding and constitute valid and
binding obligations of the Company entitled to the benefits of the
Indenture and enforceable against the Company in accordance with their
terms, except as enforcement may be limited by bankruptcy, insolvency
(involving, without limitation, all laws relating to fraudulent transfers),
reorganization or other similar laws affecting creditors' rights generally
and except as enforcement thereof is subject to general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law);
(xiv) None of the Company, any Subsidiary or any Joint Venture is in
violation of its respective charter, by-laws or partnership agreement; to
such counsel's knowledge, none of the Company, any Subsidiary or any Joint
Venture is in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, loan agreement, note, license, lease or other agreement or
instrument to which it is a party or by which it may be bound, or to which
any of its property or assets is subject, other than any such violation or
default that would not have a material adverse affect on the financial
condition or results of operations of the Company and its Subsidiaries and
Joint Ventures taken as a whole;
(xv) The execution, delivery and performance of this Agreement, the
Indenture and the Notes, and the issuance and delivery by the Company of the
Notes pursuant to the Indenture do not and
23
<PAGE>
will not result in any violation of the charter or by-laws of the Company,
and do not and will not conflict with or constitute a breach of, or default
under, or result in the creation or imposition of any tax, lien, charge or
encumbrance upon any revenues, property or assets of the Company, any
Subsidiary or any Joint Venture pursuant to, (A) any applicable treaty,
law, rule or regulation, (B) any applicable judgment, order or decree of
any government, governmental instrumentality or court, domestic or foreign,
having jurisdiction over the Company, any Subsidiary or any Joint Venture
or any of their respective properties or assets or (C) any contract,
indenture, mortgage, loan, agreement, note, license, lease or other
agreement or instrument to which the Company, any Subsidiary or any Joint
Venture is a party or by which it or any of them may be bound, or to which
any of the property or assets of the Company, any Subsidiary or any Joint
Venture is subject (other than any such conflicts, violations, breaches,
defaults, creations or impositions as individually or in the aggregate
would not have a material adverse affect on the financial condition or
results of operations of the Company and its Subsidiaries taken as a
whole);
(xvi) No consent, authorization, order of, or filing or registration by
the Company with, any governmental authority or body having jurisdiction
over the Company is necessary or required for the performance by the
Company of its obligations under this Agreement, or in connection with the
issuance and sale of the Notes hereunder, except as may be required under
applicable or foreign state securities laws or blue sky laws in connection
with the purchase and distribution of the Notes by the Underwriters;
(xvii) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any debt securities of the Company owned or to be owned by such
person or (except as have been waived) to require the Company to include
any securities in the securities registered pursuant to the Registration
24
<PAGE>
Statement or, with respect to any debt securities, in any securities being
registered pursuant to any other registration statement filed by the
Company under the Securities Act;
(xviii) The Company is not, and after giving effect to the issuance of the
Notes and the application of the proceeds therefrom shall not be, an
"investment company," or, to such counsel's knowledge, a company
"controlled" by an "investment company," within the meaning of the 1940
Act; and
(xix) The documents incorporated by reference in the Prospectus and any
further amendments or supplements to any such incorporated document made by
the Company prior to the Delivery Date (other than the financial
statements, related schedules and other financial and statistical
information contained therein or omitted therefrom as to which such counsel
need express no opinion), when they became effective or were filed with the
Commission, as the case may be, appear on their face to have been
appropriately responsive in all material respects to the applicable
requirements of the Securities Act or the Exchange Act, as the case may be,
and the Rules and Regulations of the Commission thereunder.
(e) The Company shall have furnished to the Representatives the opinion of
Willkie Farr & Gallagher, special counsel to the Company, addressed to the
Underwriters and dated the Delivery Date, in form and substance satisfactory to
the Representatives, to the effect that:
(i) The Company has been duly organized and is validly existing and
in good standing under the laws of its jurisdiction of organization and the
Company has the corporate power and authority to own, lease and operate its
properties and to conduct its businesses as described in the Prospectus;
(ii) Such counsel has been advised by the Commission that the
Registration Statement has been declared effective under the Securities Act
and the Indenture has been qualified under the Trust
25
<PAGE>
Indenture Act; the Prospectus has been filed with the Commission pursuant
to the appropriate subparagraph of Rule 424(b) of the Rules and
Regulations; to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceeding for that purpose is pending or threatened by the Commission;
(iii) The Registration Statement and the Prospectus and any further
amendments or supplements thereto made by the Company prior to the Delivery
Date (other than the financial statements, related schedules, other
financial and statistical information contained therein or omitted
therefrom as to which such counsel need express no opinion) as of their
effective dates, appear on their face to have been appropriately responsive
in all material respects to the applicable requirements of the Securities
Act and the Rules and Regulations; and the Indenture conforms in all
material respects to the requirements of the Trust Indenture Act and the
applicable rules and regulations thereunder;
(iv) The statements in the Prospectus under the captions (A)
"Description of the Notes" insofar as they purport to summarize the
provisions of the Indenture and the Notes and (B) "Certain Tax
Considerations," to the extent that they constitute a summary of federal
income tax matters relating to the Notes and constitute matters of law or
legal conclusions, have been reviewed by such counsel and fairly summarize
the information or matters described therein;
(v) To such counsel's knowledge, there are no contracts or other
documents which are required to be described in the Prospectus or filed as
exhibits to the Registration Statement by the Securities Act or by the
Rules and Regulations which have not been described or filed as exhibits to
the Registration Statement or incorporated by reference therein as
permitted by the Rules and Regulations;
(vi) This Agreement has been duly authorized, executed and delivered by
the Company;
26
<PAGE>
(vii) The Indenture has been duly authorized, executed and delivered by
the Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law);
(viii) The Notes have been duly authorized and executed by the Company,
and, assuming due authentication by the Trustee, when issued and delivered
as contemplated by the Indenture upon payment therefor as provided in this
Agreement, will be validly issued and outstanding and constitute valid and
binding obligations of the Company entitled to the benefits of the
Indenture and enforceable against the Company in accordance with their
terms, except as enforcement may be limited by bankruptcy, insolvency
(involving, without limitation, all laws relating to fraudulent transfers),
reorganization or other similar laws affecting creditors' rights generally
and except as enforcement thereof is subject to general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law);
(ix) No consent, authorization, order of, or filing or registration
by the Company with, any governmental authority or body having jurisdiction
over the Company is necessary or required for the performance by the
Company of its obligations under this Agreement, or in connection with the
issuance and sale of the Notes hereunder, except as may be required under
applicable state or foreign securities laws or blue sky laws in connection
with the purchase and distribution of the Notes by the Underwriters;
(x) The issuance of the Notes and the compliance by the Company with
the terms of the Indenture and the Notes will not result in a "Default" or
"Event of Default" within the meaning of the Senior Notes or the Note
Purchase Agreement and
27
<PAGE>
each of (x) the Escrow Deposit Agreement, dated March 3, 1994, among the
Company, Principal Mutual and Bank of America NT & SA (the "Escrow
Agreement") and (y) the Defeasance Agreement, dated March 3, 1994, between
the Company and Principal Mutual (the "Defeasance Agreement"), is a valid
and binding agreement of the Company and is enforceable against the Company
in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency (involving, without limitation, all laws relating to
fraudulent transfers), reorganization or other similar laws affecting
creditors' rights generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law); and
(xi) The covenants contained in the Senior Notes and the Note Purchase
Agreement as to which the Defeasance Agreement provides for defeasance (the
"Defeased Covenants") shall have ceased to be effective and are not binding
on the Company; the issuance of the Notes and compliance by the Company
with the terms of the Indenture and the Notes would not constitute a
"Default" or "Event of Default" within the meaning of the Senior Notes or
the Note Purchase Agreement in the event the "Defeased Covenants" were
revived or reinstated in accordance with the terms of the Defeasance
Agreement; and the opinions set forth in paragraphs (vii) and (viii) as to
the validity and binding nature, and the enforceability, of the Notes and
the Indenture would not be affected by any such revival or reinstatement of
the Defeased Covenants.
(f) In the rendering of the opinions described in Section 7(d) and Section
7(e) above, such counsel may (i) state that their opinion is limited to matters
governed by the Federal laws of the United States of America, the laws of the
State of New York, the General Corporation Law of the State of Delaware and,
in the case of the General Counsel of the Company, the laws of the State of
California, and (ii) rely, to the extent they deem proper, in respect of matters
of fact, upon certificates and representations of officers of the Company, the
Subsidiaries or the Joint Ventures and public officials. Such counsel shall
also have furnished
28
<PAGE>
to the Representatives a written statement, addressed to the Underwriters and
dated the Delivery Date, in form and substance reasonably satisfactory to the
Representatives to the effect that (i) such counsel (in the case of Willkie
Farr & Gallagher, such counsel may state that they have acted as special
counsel to the Company for purposes of the subject Note Offering) have
participated in conferences with representatives of the Company, some of which
have been attended by the Underwriters and their counsel, at which conferences
the contents of the Registration Statement, the Prospectus, each amendment
thereof and supplement thereto and related matters were discussed, although
such counsel has not independently checked or verified and is not passing upon
and assumes no responsibility for the factual accuracy, completeness or
fairness of the statements contained in the Registration Statement, the
Prospectus, any amendment thereof or supplement thereto, and (ii) based on the
foregoing, no facts have come to the attention of such counsel which cause
them to believe that (except for the financial statements, related schedules
and other financial and statistical information contained therein or omitted
therefrom as to all of which such counsel need not express any belief) (I) the
Registration Statement, as of the Effective Date, contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein not
misleading, or that the Prospectus, as amended and supplemented as of the
Effective Time, contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading or (II), in the case of the General Counsel of
the Company, any document incorporated by reference in the Prospectus or any
further amendment or supplement to such incorporated document made by the
Company prior to the Delivery Date when they became effective or were filed
with the Commission, as the case may be, contained, in the case of a
registration statement that became effective under the Securities Act, any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein, in the light of the circumstances under which
they were made, or necessary in order to make the statements therein not
misleading, or, in the case of other documents which were filed under the
Exchange Act with the Commis-
29
<PAGE>
sion, an untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(g) With respect to the letter of Deloitte & Touche delivered to the
Representatives concurrently with the execution of this Agreement, the Company
shall have furnished to the Representatives a letter (the "bring-down letter")
of such accountants, addressed to the Underwriters and dated the Delivery Date,
(i) confirming that they are independent public accountants within the meaning
of the Securities Act and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01 of Regulation S-X
of the Commission, (ii) stating, as of the date of the bring-down letter (or,
with respect to matters involving changes or development since the respective
dates as of which specified financial information is given in the Prospectus, as
of a date not more than five days prior to the date of the bring-down letter),
the conclusions and findings of such firm with respect to the financial
information and other matters covered by the initial letter, and (iii)
confirming in all material respects the conclusions and findings set forth in
the initial letter.
(h) The Company shall have furnished to the Representatives a certificate,
dated the Delivery Date, of its Chairman of the Board, its President or a Vice
President and its Chief Financial Officer stating that:
(i) The representations, warranties and agreements of the Company in
Section 1 are true and correct as of the Delivery Date; the Company has
complied with all its agreements contained herein; and the conditions set
forth in Sections 7(a) and 7(j) have been fulfilled; and
(ii) They have carefully examined the Registration Statement and the
Prospectus and, in their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include any untrue statement
of a material fact and did not omit to state a material fact required to be
stated therein or necessary to make the statements therein, in respect of
the Prospectus, in the light of the circumstances under which they were
made, not
30
<PAGE>
misleading, and (B) since the Effective Date no event has occurred which is
required to be set forth in a supplement or amendment to the Registration
Statement or the Prospectus which has not been so set forth.
(i) Each of the Escrow Agreement and the Defeasance Agreement shall have
become effective in accordance with their terms, and pursuant thereto, the
Defeased Covenants shall have ceased to be effective, and no default or event of
default under the Senior Notes or the Note Purchase Agreement shall have
occurred and be continuing, and the Company shall have furnished or caused to be
furnished to the Representatives (i) satisfactory evidence with respect to the
foregoing and (ii) the consent of Principal Mutual to the issuance of the Notes
and the compliance by the Company with the Indenture and the Notes in form and
substance satisfactory to the Representatives;
(j) Since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus (i) there has been no material
adverse change, or a development which is reasonably likely to lead to a
material adverse change, in the financial condition or results of operations of
the Company, its Subsidiaries and Joint Ventures taken as a whole and (ii)
except as disclosed in the Prospectus, there have not been any transactions
entered into by the Company, its Subsidiaries or any Joint Venture, other than
those in the ordinary course of business, which are material and adverse to the
Company, its Subsidiaries and Joint Ventures taken as a whole, and which, in the
judgment of the Representatives, make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Notes on the terms and
in the manner contemplated in the Prospectus.
(k) Subsequent to the execution and delivery of this Agreement (i) no
downgrading shall have occurred in the rating accorded the Company's senior debt
securities by any "nationally recognized statistical rating organization", as
that term is defined by the Commission for purposes of Rule 436(g)(2) of the
Rules and Regulations and (ii) no such organization shall have publicly
announced that it has under surveillance or review, with
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<PAGE>
possible negative implications, its rating of the Company's senior debt
securities.
(l) Subsequent to the execution and delivery of this Agreement there shall
not have occurred any of the following: (i) trading in securities generally on
the New York Stock Exchange or the American Stock Exchange or in the over-the-
counter market, or trading in any securities of the Company on any exchange or
in the over-the-counter market, shall have been suspended or minimum prices
shall have been established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have been
declared by federal or state authorities, (iii) the United States shall have
become engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a declaration
of a national emergency or war by the United States, the effect of which on the
financial markets in the United States would make it, in the judgment of a
majority in interest of the several Underwriters, impracticable or inadvisable
to proceed with the public offering or delivery of the Notes on the terms and in
the manner contemplated by the Prospectus or (iv) there shall have occurred such
a material adverse change in general economic or financial conditions (or the
effect of international conditions on the financial markets in the United States
shall be such) as to make it, in the judgment of a majority in interest of the
several Underwriters, impractical or inadvisable to proceed with the public
offering or delivery of the Notes on the terms and in the manner contemplated
in the Prospectus.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance satisfactory to counsel
for the Underwriters.
8. Indemnification and Contribution. (a) The Company shall indemnify and
--------------------------------
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of the Securities Act, from and against any loss,
claim, damage or liability, joint or several, and any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or
32
<PAGE>
action relating to purchases and sales of the Notes), to which that
Underwriter or controlling person may become subject, under the Securities Act
or otherwise, insofar as such loss, claim, damage, liability or action arises
out of, or is based upon, (i) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus or in any amendment or supplement thereto or (ii)
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, with respect to
any Preliminary Prospectus or the Prospectus, in the light of the
circumstances under which they were made, not misleading, and shall reimburse
each Underwriter and each such controlling person promptly upon demand for any
legal or other expenses reasonably incurred by that Underwriter or controlling
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of, or is based upon,
any untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company through the
Representatives by or on behalf of any Underwriter specifically for inclusion
therein; and provided, further, that as to any Preliminary Prospectus or
Prospectus, this indemnity agreement shall not inure to the benefit of any
Underwriter or any person controlling that Underwriter on account of any loss,
claim, damage, liability or action arising from the sale of Notes to any
person by that Underwriter if that Underwriter failed to send or give a copy
of the Prospectus, as the same may be amended or supplemented, to that person
within the time required by the Securities Act, and the untrue statement or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact in such Preliminary Prospectus was corrected in the
Prospectus and such document was made available to the Underwriters prior to
the sale of such Notes. For purposes of the last proviso to the immediately
preceding sentence, the term "Prospectus" shall not be deemed to include the
documents incorporated therein by reference, and no Underwriter shall be
obligated to send
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<PAGE>
or give any supplement or amendment to any document incorporated by reference
in any preliminary Prospectus or the Prospectus to any person other than a
person to whom such Underwriter had delivered such incorporated document or
documents in response to a written request therefor. The foregoing indemnity
agreement is in addition to any liability which the Company may otherwise have
to any Underwriter or to any controlling person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall indemnify and hold
harmless the Company, each of its directors, officers, employees and agents
and each person, if any, who controls the Company within the meaning of the
Securities Act, from and against any loss, claim, damage or liability, joint
or several, and any action in respect thereof, to which the Company or any
such director, officer, employee, agent or controlling person may become
subject, under the Securities Act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus or in any
amendment or supplement thereto or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in respect of any Preliminary Prospectus or the
Prospectus, in the light of the circumstances under which they were made, not
misleading, but in each case only to the extent that the untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company
through the Representatives by or on behalf of such Underwriter specifically
for inclusion therein, and shall reimburse the Company and any such director,
officer, employee, agent or controlling person promptly upon demand for any
legal or other expenses reasonably incurred by the Company or any such
director, officer, employee, agent or controlling person in connection with
investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action . The foregoing indemnity agreement is in
addition to any liability which any Underwriter may otherwise have to the
Company or any such director, officer or controlling person.
34
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party in writing of the
claim or the commencement of that action (enclosing a copy of all papers
served); provided, however, that the failure to notify the indemnifying party
shall not relieve it from any liability which it may have under this Section 8
except to the extent it has been materially prejudiced by such failure and,
provided, further, that the failure to notify the indemnifying party shall not
relieve it from any liability which it may have to an indemnified party
otherwise than under this Section 8. If any such claim or action shall be
brought against an indemnified party, and it shall notify the indemnifying
party thereof, the indemnifying party shall be entitled to participate therein
and, to the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
claim or action, the indemnifying party shall not be liable to the indemnified
party under this Section 8 for any legal or other expenses subsequently
incurred by the indemnified party in connection with the defense thereof other
than reasonable costs of investigation; provided, however, that the
indemnified party shall have the right to employ counsel to represent the
indemnified party and their respective controlling persons who may be subject
to liability arising out of any claim in respect of which indemnity may be
sought by the indemnified party against the indemnifying party under this
Section 8 if the employment of such counsel shall have been authorized in
writing by the indemnifying party in connection with the defense of such
action or, if in the written opinion of counsel to either the indemnifying
party or the indemnified party, representation of both parties by the same
counsel would be inappropriate due to actual or likely conflicts of interest
between them, and in that event the fees and expenses of one firm of separate
counsel (in addition to the fees and expenses of local counsel) shall be paid
by the indemnifying party. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent.
35
<PAGE>
(d) If the indemnification provided for in this Section 8 shall for any
reason be unavailable to or insufficient to hold harmless an indemnified party
under Section 8(a) or 8(b) in respect of any loss, claim, damage or liability,
or any action in respect thereof, referred to therein, then each indemnifying
party shall, in lieu of indemnifying such indemnified party, contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability, or action in respect thereof, (i) in such
proportion as shall be appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Notes or (ii) if the allocations provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the Underwriters on
the other with respect to the statements or omissions which resulted in such
loss, claim, damage or liability, or action in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other with respect to such
offering shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Notes purchased under this Agreement (before
deducting expenses) received by the Company bear to the total underwriting
discounts, fees and commissions received by the Underwriters with respect to
the Notes purchased under this Agreement, on the other hand. The relative
fault shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Underwriters, the intent of the parties and their relative knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were to be determined
by pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
into account the equitable considerations referred to herein. The amount paid
or payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this Section
36
<PAGE>
8(d) shall be deemed to include, for purposes of this Section 8(d), any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim pursuant to Section
8(c) above. Notwithstanding the provisions of this Section 8(d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Notes underwritten by it and distributed
to the public was offered to the public exceeds the amount of any damages
which such Underwriter has otherwise paid or become liable to pay by reason of
any untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute as provided in this Section 8(d) are several in
proportion to their respective underwriting obligations and are not joint.
(e) The Underwriters severally confirm that the statements with respect to
the public offering of the Notes set forth on the cover page of, and under the
caption "Underwriting" in, the Prospectus are correct and constitute the only
information furnished in writing to the Company by or on behalf of the
Underwriters specifically for inclusion in the Registration Statement and the
Prospectus.
9. Defaulting Underwriters. If, on the Delivery Date, any Underwriter
-----------------------
defaults in the performance of its obligations under this Agreement, the
remaining non-defaulting Underwriters shall be obligated to purchase the
principal amount of Notes which the defaulting Underwriter agreed but failed to
purchase on the Delivery Date in the respective proportions which the principal
amount of the Notes set forth opposite the name of each remaining non-defaulting
Underwriter in Schedule 1 hereto bears to the aggregate principal amount of the
Notes set forth opposite the names of all the remaining non-defaulting
Underwriters in Schedule 1 hereto; provided, however, that the remaining non-
defaulting Underwriters shall not be obligated to purchase any Notes on the
Delivery Date if the principal amount of the Notes which the defaulting
Underwriter or Underwriters agreed but failed to purchase on such date exceeds
10.0% of
37
<PAGE>
the aggregate principal amount of the Notes to be purchased on the Delivery
Date. If the foregoing maximum is exceeded, the remaining non-defaulting
Underwriters, or those other underwriters satisfactory to the Representatives
who so agree, shall have the right, but shall not be obligated, to purchase,
in such proportion as may be agreed upon among them, all the Notes to be
purchased on the Delivery Date. If the remaining Underwriters or other
underwriters satisfactory to the Representatives do not elect to purchase the
principal amount of the Notes which the defaulting Underwriter or Underwriters
agreed but failed to purchase on the Delivery Date, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter or
the Company, except that the Company shall continue to be liable for the
payment of expenses to the extent set forth in Sections 6 and 11. As used in
this Agreement, the term "Underwriter" includes, for all purposes of this
Agreement unless the context requires otherwise, any party not listed in
Schedule 1 hereto who, pursuant to this Section 9, purchases Notes which a
defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company for damages caused by its default. If
other underwriters are obligated or agree to purchase the Notes of a defaulting
or withdrawing Underwriter, either the Representatives or the Company may
postpone the Delivery Date for up to seven full business days in order to effect
any changes that in the opinion of counsel for the Company or counsel for the
Underwriters may be necessary in the Registration Statement, the Prospectus or
in any other document or arrangement.
10. Termination. The obligations of the Underwriters hereunder may be
-----------
terminated by the Representatives by notice given to and received by the Company
prior to delivery of and payment for the Notes if, prior to that time, any of
the events described in Section 7(k) or 7(l) shall have occurred or if the
Underwriters shall decline to purchase the Notes for any reason permitted under
this Agreement.
11. Reimbursement of Underwriters' Expenses. If (a) the Underwriters
---------------------------------------
shall decline to purchase the Notes because of the occurrence of any of the
events
38
<PAGE>
described in Section 7(k) or 7(l) or (b) the sale of the Notes is not
consummated by reason of the failure by the Company to perform any material
obligation or satisfy any material condition under this Agreement, the Company
shall reimburse the Underwriters for the reasonable fees and expenses of their
counsel and for such other reasonable out-of-pocket expenses as shall have been
incurred by them in connection with this Agreement and the proposed purchase of
the Notes, and upon demand the Company shall pay the full amount thereof to the
Representatives; provided that, the aggregate amount to be reimbursed shall not
exceed $400,000 (or $350,000 if the Underwriters shall decline to purchase the
Notes because of the occurrence of any of the events described in Sections 7(k)
or 7(l)). If this Agreement is terminated pursuant to Section 9 by reason of
the default of one or more Underwriters, the Company shall not be obligated to
reimburse any defaulting Underwriter on account of those expenses.
12. Notices, etc. All statements, requests, notices and agreements
------------
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission to Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285, Attention: Syndicate
Departments (Fax: 212-528-8822);
(b) if to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the Company at 10831 Old Mill Road, Omaha,
Nebraska 68154, Attention: General Counsel (Fax: 402-330-9888);
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
- -------- -------
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address shall be supplied to any other party hereto by
the Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement
given or made on
39
<PAGE>
behalf of the Underwriters by Lehman Brothers Inc. on behalf of the
Representatives.
13. Persons Entitled to Benefit of Agreement. This Agreement shall inure
----------------------------------------
to the benefit of and be binding upon the Underwriters, the Company, and their
respective successors. This Agreement and the terms and provisions hereof are
for the sole benefit of only those persons, except that (a) the representations,
warranties, indemnities and agreements of the Company contained in this
Agreement shall also be deemed to be for the benefit of the person or persons,
if any, who control any Underwriter within the meaning of Section 15 of the
Securities Act and (b) the indemnity agreement of the Underwriters contained in
Section 8(b) of this Agreement shall be deemed to be for the benefit of
directors, officers, employees and agents of the Company and any person
controlling the Company within the meaning of Section 15 of the Securities Act.
Nothing in this Agreement is intended or shall be construed to give any person,
other than the persons referred to in this Section 13, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
contained herein.
14. Survival. The respective indemnities, representations, warranties and
--------
agreements of the Company and the Underwriters contained in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement, shall
survive the delivery of and payment for the Notes and shall remain in full force
and effect, regardless of any investigation made by or on behalf of any of them
or any person controlling any of them.
15. Definition of the Term "Business Day". For purposes of this
------------------------------------
Agreement, "business day" means any day on which the New York Stock Exchange,
Inc. is open for trading.
16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
17. Counterparts. This Agreement may be executed in one or more
------------
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such
40
<PAGE>
counterparts shall together constitute one and the same instrument.
18. Headings. The headings herein are inserted for convenience of
--------
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
41
<PAGE>
If the foregoing correctly sets forth the agreement among the Company and
the Underwriters, please indicate your acceptance in the space provided for that
purpose below.
Very truly yours,
CALIFORNIA ENERGY COMPANY, INC.
By
----------------------------------
Name:
Title:
Accepted:
LEHMAN BROTHERS INC.
SALOMON BROTHERS INC
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
For themselves and as Representatives
of the several Underwriters named in
Schedule 1 hereto
By LEHMAN BROTHERS INC.
By
-------------------------------------
Name:
Title:
42
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Principal
Underwriters Amount of Notes
------------ ---------------
<S> <C>
Lehman Brothers Inc. ......................... $
Salomon Brothers Inc .........................
Donaldson, Lufkin & Jenrette
Securities Corporation ......................
Bear, Stearns & Co. Inc. .....................
------------
Total ...................................... $
============
</TABLE>
<PAGE>
SCHEDULE 2
SUBSIDIARIES OF CALIFORNIA ENERGY COMPANY, INC.
Coso-Related Companies/Partnerships
Coso Hotsprings Intermountain Power, Inc.
Coso Energy Developers
China Lake Operating Co.
Coso Finance Partners
Coso Technology Corporation
Coso Power Developers
Coso Funding Corp.
Coso Transmission Line Partners
China Lake Geothermal Management Co.
Coso Finance Partners II
California Energy General Corporation
CEGC - Mojave Partnership
China Lake Plant Services, Inc.
Coso Land Company
China Lake Joint Venture
Coso Geothermal Company
Coso Hotsprings Overland Power, Inc.
Operating Companies/Partnerships
CE Geothermal Inc.
Western States Geothermal Company
Intermountain Geothermal Company
CE CIS-FSU
Russian-American Science, Inc.
California Energy Development Corporation
California Energy Yuma Corporation
Yuma Cogeneration Associates
Rose Valley Properties, Inc.
The Ben Holt Co.
Development (Holding) Companies
CE Exploration Company
CE Newberry, Inc.
CE Humboldt, Inc.
Beowawe Geothermal, Inc.
American Pacific Finance Company
<PAGE>
International Companies
CE International Ltd.
CE Philippines Ltd.
CE Indonesia Ltd.
Himpurna California Energy Ltd.
CE Cebu Geothermal Power Company, Inc.
2
<PAGE>
------------------------------------
CALIFORNIA ENERGY COMPANY, INC.
TO
----------------
Indenture
Dated as of _________, 1994
----------------
$__________________
______% Senior Discount Notes due 2004
IBJ SCHRODER BANK & TRUST COMPANY
Trustee
------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
---------------------
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- -------------------
<S> <C> <C>
(S) 310 (a)(1)............................................................. 609
(a)(2)............................................................. 609
(a)(3).................................................. Not Applicable
(a)(4).................................................. Not Applicable
(b)........................................................... 608, 610
(S) 311 (a)................................................................ 613
(b)................................................................ 613
(c)..................................................... Not Applicable
(S) 312 (a)........................................................... 701, 702
(b)................................................................ 702
(c)................................................................ 702
(S) 313 (a)................................................................ 703
(b)................................................................ 703
(c)................................................................ 703
(d)................................................................ 703
(S) 314 (a)................................................................ 704
(a)(4)........................................................ 101, 704
(b)..................................................... Not Applicable
(c)(1)............................................................. 102
(c)(2)............................................................. 102
(c)(3).................................................. Not Applicable
(d)..................................................... Not Applicable
(e)................................................................ 102
(f)..................................................... Not Applicable
(S) 315 (a)................................................................ 601
(b)................................................................ 602
(c)................................................................ 601
(d)................................................................ 601
(e)................................................................ 514
(S) 316 (a)................................................ 101 ("Outstanding")
(a)(1)(A)..................................................... 502, 512
(a)(1)(B).......................................................... 513
(a)(2).................................................. Not Applicable
(b)................................................................ 508
(c)................................................................ 104
(S) 317 (a)(1)............................................................. 503
(a)(2)............................................................. 504
(b)............................................................... 1003
(S) 318 (a)................................................................ 107
(b)..................................................... Not Applicable
(c)................................................................ 107
</TABLE>
- -------------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to
be a part of the Indenture.
-i-
<PAGE>
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
Page
----
<S> <C>
Parties.................................................................... 1
Recitals of the Company.................................................... 1
<CAPTION>
ARTICLE ONE
Definitions and Other Provisions
of General Application
<S> <C> <C>
SECTION 101. Definitions.................................................. 1
SECTION 102. Compliance Certificates and Opinions......................... 42
SECTION 103. Form of Documents Delivered to Trustee....................... 43
SECTION 104. Acts of Holders; Record Dates................................ 44
SECTION 105. Notices, Etc., to Trustee and Company........................ 47
SECTION 106. Notice to Holders; Waiver.................................... 48
SECTION 107. Conflict with Trust Indenture Act............................ 48
SECTION 108. Effect of Headings and Table of Contents..................... 49
SECTION 109. Successors and Assigns....................................... 49
SECTION 110. Separability Clause.......................................... 49
SECTION 111. Benefits of Indenture........................................ 49
SECTION 112. Governing Law................................................ 49
SECTION 113. Legal Holidays............................................... 50
SECTION 114. No Recourse Against Others................................... 50
SECTION 115. Duplicate Originals.......................................... 50
<CAPTION>
ARTICLE TWO
Security Forms
<S> <C> <C>
SECTION 201. Forms Generally.............................................. 51
SECTION 202. Form of Face of Security..................................... 51
SECTION 203. Form of Reverse of Security.................................. 54
SECTION 204. Form of Trustee's Certificate of Authentication.............. 61
</TABLE>
- -------------------
*Note: This table of contents shall not, for any purpose, be deemed to be
a part of the Indenture.
-ii-
<PAGE>
<TABLE>
<CAPTION>
ARTICLE THREE
The Securities
<S> <C> <C>
SECTION 301. Title and Terms.............................................. 62
SECTION 302. Denominations................................................ 62
SECTION 303. Execution, Authentication, Delivery and Dating............... 63
SECTION 304. Temporary Securities......................................... 63
SECTION 305. Registration, Registration of Transfer and Exchange.......... 64
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities............. 66
SECTION 307. Payment of Interest; Interest Rights Preserved............... 67
SECTION 308. Persons Deemed Owners........................................ 68
SECTION 309. Cancellation................................................. 69
SECTION 310. Computation of Interest...................................... 69
SECTION 311. CUSIP Numbers................................................ 69
<CAPTION>
ARTICLE FOUR
Satisfaction and Discharge
<S> <C> <C>
SECTION 401. Satisfaction and Discharge of Indenture...................... 70
<CAPTION>
ARTICLE FIVE
Remedies
<S> <C> <C>
SECTION 501. Events of Default............................................ 70
SECTION 502. Acceleration of Maturity; Rescission and Annulment........... 74
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee..................................... 75
SECTION 504. Trustee May File Proofs of Claim............................. 76
SECTION 505. Trustee May Enforce Claims Without Possession
of Securities.............................................. 78
SECTION 506. Application of Money Collected............................... 78
SECTION 507. Limitation on Suits.......................................... 78
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest....................................... 79
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 509. Restoration of Rights and Remedies........................... 80
SECTION 510. Rights and Remedies Cumulative............................... 80
SECTION 511. Delay or Omission Not Waiver................................. 80
SECTION 512. Control by Holders........................................... 81
SECTION 513. Waiver Of Past Defaults...................................... 81
SECTION 514. Undertaking for Costs........................................ 82
SECTION 515. Waiver of Stay or Extension Laws............................. 82
<CAPTION>
ARTICLE SIX
The Trustee
<S> <C> <C>
SECTION 601. Certain Duties and Responsibilities.......................... 82
SECTION 602. Notice of Defaults; Notice of Acceleration................... 84
SECTION 603. Certain Rights of Trustee.................................... 84
SECTION 604. Not Responsible for Recitals or Issuance of Securities....... 86
SECTION 605. May Hold Securities.......................................... 86
SECTION 606. Money Held in Trust.......................................... 86
SECTION 607. Compensation and Reimbursement............................... 87
SECTION 608. Conflicting Interests........................................ 88
SECTION 609. Corporate Trustee Required; Eligibility...................... 88
SECTION 610. Resignation and Removal; Appointment of Successor............ 89
SECTION 611. Acceptance of Appointment by Successor....................... 90
SECTION 612. Merger, Conversion, Consolidation or Succession
to Business................................................ 91
SECTION 613. Preferential Collection of Claims Against Company............ 91
SECTION 614. Appointment of Authenticating Agent.......................... 92
<CAPTION>
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
<S> <C> <C>
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.... 94
SECTION 702. Preservation of Information; Communications to Holders....... 95
SECTION 703. Reports by Trustee........................................... 95
</TABLE>
-iv-
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 704. Reports by Company........................................... 95
<CAPTION>
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
<S> <C> <C>
SECTION 801. Company May Consolidate, Etc. Only on Certain Terms.......... 96
SECTION 802. Successor Substituted........................................ 98
<CAPTION>
ARTICLE NINE
Supplemental Indentures
<S> <C> <C>
SECTION 901. Supplemental Indentures Without Consent of Holders........... 98
SECTION 902. Supplemental Indentures with Consent of Holders.............. 99
SECTION 903. Execution of Supplemental Indentures......................... 101
SECTION 904. Effect of Supplemental Indentures............................ 101
SECTION 905. Conformity with Trust Indenture Act.......................... 102
SECTION 906. Reference in Securities to Supplemental Indentures........... 102
<CAPTION>
ARTICLE TEN
Covenants
<S> <C> <C>
SECTION 1001. Payment of Principal, Premium and Interest................... 103
SECTION 1002. Maintenance of Office or Agency.............................. 103
SECTION 1003. Money for Security Payments to be Held in Trust.............. 104
SECTION 1004. Existence.................................................... 105
SECTION 1005. Maintenance of Properties.................................... 106
SECTION 1006. Payment of Taxes and Other Claims............................ 106
SECTION 1007. Maintenance of Insurance..................................... 107
SECTION 1008. Limitation on Debt........................................... 107
SECTION 1009. Limitation on Subsidiary Debt................................ 109
SECTION 1010. Limitation on Restricted Payments............................ 109
</TABLE>
-v-
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 1011. Limitation on Transactions with Affiliates................... 112
SECTION 1012. Limitations on Liens......................................... 113
SECTION 1013. Purchase of Securities Upon a Change of Control.............. 115
SECTION 1014. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries..................................... 117
SECTION 1015. Limitation on Dispositions................................... 119
SECTION 1016. Limitation on Certain Sale-Leasebacks........................ 124
SECTION 1017. Provision of Financial Information........................... 124
SECTION 1018. Limitation on Sale of Subsidiary Preferred Stock............. 125
SECTION 1019. Statement by Officers as to Default; Compliance
Certificates............................................... 126
SECTION 1020. Waiver of Certain Covenants.................................. 127
SECTION 1021. Company to Supply Information Concerning Original
Issue Discount............................................. 128
SECTION 1022. Limitation on Business....................................... 128
<CAPTION>
ARTICLE ELEVEN
Redemption of Securities
<S> <C> <C>
SECTION 1101. Right of Redemption.......................................... 129
SECTION 1102. Applicability of Article..................................... 129
SECTION 1103. Election to Redeem; Notice to Trustee........................ 129
SECTION 1104. Selection by Trustee of Securities to Be Redeemed............ 130
SECTION 1105. Notice of Redemption......................................... 130
SECTION 1106. Deposit of Redemption Price................................. 131
SECTION 1107. Securities Payable on Redemption Date........................ 131
SECTION 1108. Securities Redeemed in Part.................................. 132
<CAPTION>
ARTICLE TWELVE
Defeasance and Covenant Defeasance
<S> <C> <C>
SECTION 1201. Company's Option to Effect Defeasance or Covenant
Defeasance................................................. 133
SECTION 1202. Defeasance and Discharge..................................... 133
</TABLE>
-vi-
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 1203. Covenant Defeasance.......................................... 134
SECTION 1204. Conditions to Defeasance or Covenant Defeasance.............. 134
SECTION 1205. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Miscellaneous Provisions.................... 137
SECTION 1206. Reinstatement................................................ 138
TESTIMONIUM................................................................ 139
SIGNATURES AND SEALS....................................................... 140
ACKNOWLEDGEMENTS........................................................... 141
</TABLE>
-vii-
<PAGE>
INDENTURE, dated as of __________, 1994, between California Energy Company,
Inc., a corporation duly organized and existing under the laws of the State of
Delaware (herein called the "Company"), having its principal office at 10831 Old
Mill Road, Omaha, Nebraska 68154, and IBJ Schroder Bank & Trust Company, a New
York banking corporation, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its _____%
Senior Discount Notes due 2004 (the "Securities") of substantially the tenor and
amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture.
All things necessary to make the Securities, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company, in accordance with their and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions.
-----------
(a) For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
-1-
<PAGE>
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein that are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP (whether or not such is
indicated herein);
(4) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or Section, as the case may
be, of this Indenture;
(5) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(6) "or" is not exclusive;
(7) provisions apply to successive events and transactions; and
(8) each reference herein to a rule or form of the Commission shall
mean such rule or form and any rule or form successor thereto, in each
case as amended from time to time.
Whenever this Indenture requires that a particular ratio or amount be
calculated with respect to a specified period after giving effect to certain
transactions or events on a pro forma basis, such calculation shall be made as
---------
if the transactions or events occurred on the first day of such period, unless
otherwise specified.
"Accreted Value" means, with respect to each Security of a minimum
denomination, the lesser of (i) $1,000
-2-
<PAGE>
and (ii) an amount per $1,000 of principal amount that is equal to the sum of
(i) the issue price of such Security 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 Security 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 Security) that shall 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 Security (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 may be, to the date of determination, minus (iii) all amounts theretofore
-----
paid in respect of such Security, which amounts are considered as part of the
"stated redemption price at maturity" of such Security 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" means 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 Section 1009(b) 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 Section 1008(a), and
provided further that such Debt was not Incurred in connection with, or in
- -------- -------
contemplation of, such
-3-
<PAGE>
merger or such Person becoming a Restricted Subsidiary of the Company or an
Eligible Joint Venture.
"Acquisition Debt" means 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" means 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 shall 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 shall 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 Section 1010(a) (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 the 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,
-4-
<PAGE>
judgment, decree, order, statute, rule or governmental regulation applicable
to the 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 Section 1010(a), 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" shall be
deemed to refer to "Restricted Subsidiaries."
"Affiliate" of any Person means 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 "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 Section 1011, the term
"Affiliate" includes only Kiewit, any entity beneficially owning 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 includes the Unrestricted
Subsidiaries.
"Asset Acquisition" means (i) an investment by the Company, any of its
Subsidiaries or any Joint Venture in any other Person pursuant to which such
Person shall become a direct or indirect Subsidiary of the Company or a Joint
Venture or shall be merged into or consolidated with the Company, any of its
Subsidiaries or
-5-
<PAGE>
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" means 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" shall 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 shall, and shall cause
each of its Restricted Subsidiaries and Eligible Joint Ventures to, apply
pursuant to Section 1015 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 shall not constitute an Asset
Disposition. In addition, the term "Asset Disposition" shall 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 Issue Date of the Securities or pursuant to the
-6-
<PAGE>
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 an 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 Section 801 ,
(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 Permitted Payment or any Restricted Payment that is permitted to be made
pursuant to Section 1010. The term "Asset Disposition" also shall not include
(i) the grant of or realization upon a Lien permitted under Section 1012 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 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
-7-
<PAGE>
of the 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 Section
1015(a). Any Asset Disposition that results from a casualty loss need not
comply with the provisions of clause (i) of Section 1015(a).
"Asset Sale" means 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.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 614 hereof to act on behalf of the Trustee to authenticate
Securities.
"Average Life" means, 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.
-8-
<PAGE>
"Board of Directors" means either the Board of Directors of the Company or
any duly authorized committee of such Board .
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors (unless the context specifically requires that such resolution be
adopted by a majority of the Disinterested Directors, in which case by a
majority of such directors) and to be in full force and effect on the date of
such certification, and delivered to the Trustee.
"Business Day" means a day that, in the city (or in any of the cities, if
more than one) where amounts are payable in respect of the Securities, is
neither a legal holiday nor a day on which banking institutions are authorized
or required by law, regulation or executive order to close.
"Capital Stock" means, 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" means, 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" means 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
-9-
<PAGE>
$500,000,000 or any commercial bank organized 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, (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 were 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 S&P or A-2 from Moody's (or, if at any time neither S&P nor Moody's may
be rating such obligations, then from another nationally recognized rating
service acceptable to the Trustee), (v) commercial paper issued by (a) the
parent corporation of any commercial bank organized in the United States
having capital and surplus in excess of $500,000,000 or any commercial bank
organized under the laws of any other country having total assets in excess of
$500,000,000, and (b) 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 another nationally recognized rating
service 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 any 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 any
commercial bank organized in the United States having capital and surplus in
excess of $500,000,000 or any 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
-10-
<PAGE>
(or, if at any time neither S&P nor Moody's may be rating such obligations,
then from another nationally recognized rating service acceptable to the
Trustee).
"Change of Control" means 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 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 shall 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 shall 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
-11-
<PAGE>
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 the Company 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 the Company;
(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 shall not be deemed to have occurred unless and until a
Rating Decline has occurred as well.
"Common Stock" means 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" means the Person named as the "Company" in the first paragraph of
this Indenture until a successor Person shall have become such pursuant to the
applicable
-12-
<PAGE>
provisions of this Indenture and thereafter "Company" shall mean such
successor Person.
"Company Refinancing Debt" means Debt issued in exchange for, or the
proceeds of which are used to refinance (including to purchase), outstanding
Securities or other Debt of the Company Incurred pursuant to clauses (i), (iv),
and (vii) of Section 1008(b) and Debt Incurred pursuant to Section 1008(a) 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 shall 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 shall
--------
be subordinated in right of payment to the Securities at least to the same
extent, if any, as the Debt so exchanged or refinanced is subordinated to the
Securities, (B) such Debt shall be Non-Recourse if the Debt so exchanged or
refinanced is Non-Recourse, (C) the Average Life of the new Debt shall 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 shall 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 the
Securities, provided that if such new Debt refinances the Securities in part
--------
only, the final Stated Maturity of such new Debt must be at least six months
after the final Stated Maturity of the Securities.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President or
a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or
an Assistant Secretary, and delivered to the Trustee.
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<PAGE>
"Consolidated EBITDA" of any Person for any period means 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 shall 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 free and clear of the Lien of any other Person,
(II) is 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 shall 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 amortiza-
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<PAGE>
tion and other non-cash items as a result of this sentence shall be determined
in good faith by the Chief Financial Officer, as evidenced by an Officers'
Certificate that shall 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" shall be deemed to
refer to "Restricted Subsidiaries."
"Consolidated Fixed Charges" of any Person means, 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" shall be deemed to refer to "Restricted
Subsidiaries."
"Consolidated Interest Expense" of any Person means, 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 shall
--------
not include any interest expense (including all commissions,
-15-
<PAGE>
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 shall 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" shall be deemed to refer to "Restricted Subsidiaries."
"Construction Financing" means 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 shall not cease to be
Construction Financing.
"Corporate Trust Office" means the principal office of the Trustee at which
at any particular time its corporate trust business shall be administered, which
address as of the date of this Indenture is located at One State Street, New
York, New York 10004.
"Currency Protection Agreement" means, with respect to any Person, any
foreign exchange contract, currency swap agreement or other similar agreement or
arrangement
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<PAGE>
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 this
Indenture or becomes a party or a beneficiary thereafter.
"Debt" means, 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 shall 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
shall not be included. For purposes of determining compliance with this
Indenture, in the event that an item of Debt meets the criteria of more than one
of the types of Debt described in
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the above clauses, the Company, in its sole discretion, shall classify such
item of Debt and only be required to include the amount and type of such Debt
in one of such clauses.
"Default" means any event that is, or after notice or passage of time, or
both, would be, an Event of Default.
"Default Amount" means, prior to January 15, 1997, the Accreted Value, and
from and including January 15, 1997, the principal amount plus accrued interest.
"Disinterested Director" means, with respect to any proposed transaction
between the Company , a Restricted Subsidiary of the Company or an Eligible
Joint Venture, as applicable, and an Affiliate thereof, a member of the Board of
Directors who is not an officer or employee of the Company, a Restricted
Subsidiary of the Company or an Eligible Joint Venture, as applicable, would not
be a party to, or have a financial interest in, such transaction and is not an
officer, director or employee of, and does not have a financial interest in,
such Affiliate. For purposes of this definition, no person would be deemed not
to be a Disinterested Director solely because such person holds Capital Stock of
the Company.
"Eligible Joint Venture" means a Joint Venture (other than a Subsidiary)
(i) that is or shall be formed with respect to the construction, development,
acquisition, servicing, ownership, operation or 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
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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 shall 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.
"Exchange Act" refers to the Securities Exchange Act of 1934 and any
statute successor thereto, in each case as amended from time to time.
"Fixed Charge Ratio" means 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
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therefrom (including the retirement or defeasance of Debt) shall 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 to Purchase (in the amount of
the Excess Proceeds with respect to which such Offer to Purchase has been made
or would be made on the Transaction Date if the purchase of Securities
pursuant to such Offer to Purchase has not occurred on or before the
Transaction Date) shall 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) shall 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 shall 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 shall 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)
shall be used and (5) there shall 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) of Section 1008(b). 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 merged with or into the
Company or any
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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 shall be calculated on a pro forma basis, as shall 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" means generally accepted accounting principles in the U.S. as in
effect as of the date of this 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" means 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 partner ship 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
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<PAGE>
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" shall 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 Securities," "Securityholder" and other similar terms
are defined to mean the registered holder of any Security.
"Incur" means 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 shall be considered an
Incurrence of Debt. The term "Incurrence" has a corresponding meaning.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this instrument and any such supplemental indenture, respectively.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Interest Rate Protection Agreement" means, 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
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Person or any of its Subsidiaries is a party or a beneficiary on the date of
this Indenture or becomes a party or a beneficiary thereafter.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
"Investment" in a Person means 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" means with respect to the Securities, (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 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.
"Issue Date" means the date on which the Securities are first authenticated
and delivered under the Indenture.
"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form.
"Kiewit" means and includes Kiewit Energy Company and any other Subsidiary
of Peter Kiewit Sons', Inc., Kiewit Construction Group Inc. or Kiewit
Diversified Group, Inc.
"Lien" means, with respect to any Property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
Property, but shall 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 this Indenture, the
Company shall 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
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<PAGE>
agreement, capital lease or other title retention agreement relating to such
Property.
"Moody's" means Moody's Investors Services, Inc.
"Net Cash Proceeds" from an Asset Disposition means 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
shall not, under any circumstances, be made during the term of the Securities),
(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
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<PAGE>
Restricted Subsidiaries) as a result of such Asset Disposition.
"Net Income" of any Person for any period means 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 shall be excluded.
"Net Worth" of any Person means, as of any date, the aggregate of
capital, surplus and retained earnings (including any cumulative currency
translation adjustment) of such Person and its consolidated Subsidiaries as
would be shown on a consolidated balance sheet of such Person and its
consolidated Subsidiaries prepared as of such date in accordance with GAAP.
When the "Person" referred to above is the Company, the foregoing references
to "Subsidiaries" will be deemed to refer to "Restricted Subsidiaries."
"Non-Recourse", as applied to any Debt or any sale-leaseback, means 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
Restricted Subsidiary or Eligible Joint Venture that owns the Property that
constitutes such Permitted Facility and (iv) the Capital Stock of the
Restricted Subsidiary or Eligible Joint Venture obligated with respect to such
financing and of any Subsidiary or Joint Venture (that is a Restricted
Subsidiary or an Eligible Joint 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 shall not prevent other portions of the
financing with
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<PAGE>
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) shall 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 this Indenture, (a) the Permitted Facilities that jointly
secure a single Non-Recourse Debt pursuant to clause (i) of this sentence
shall be deemed to be a single Permitted Facility and (b) the Permitted
Facilities that jointly secure a single Acquired Debt shall be deemed to be a
single Permitted Facility.
"Offer to Purchase" means, as appropriate, a Change of Control Offer
pursuant to Section 1013 or an Excess Proceeds Offer pursuant to Section 1015.
"Officers' Certificate" means 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 shall comply with Section
314 of the Trust Indenture Act and include the statements provided for in this
Indenture if and to the extent required thereby.
"Opinion of Counsel" means an opinion in writing signed by legal counsel
who may be an employee of or
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counsel to the Company or who may be other counsel satisfactory to the
Trustee. Each such opinion shall comply with Section 314 of the Trust
Indenture Act and include the statements provided for in this Indenture, if
and to the extent required thereby.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities that have come due or that are to be called for
redemption, for whose payment or redemption money in the necessary amount
has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company or a Restricted Subsidiary) in trust for the
Holders of such Securities; provided that if such Securities are to be
--------
redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision for giving such notice within 10 days of such date
of determination satisfactory to the Trustee, has been made;
(iii) Securities that have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities
in respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company; and
(iv) Securities as to which Defeasance has been effected pursuant to
Section 1202;
provided that in determining whether the Holders of the requisite principal
- --------
amount of the Outstanding Securities have given, made or taken any request,
demand, authorization, direction, notice, consent, waiver or other action
hereunder as of any date, Securities owned by the Company
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<PAGE>
or any other obligor upon the Securities or any Affiliate or Restricted
Subsidiary of the Company or of such other obligor shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent, waiver or other action, only Securities which the
Trustee knows to be so owned shall be so disregarded, Securities so owned
which have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's right so
to act with respect to such Securities and that the pledgee is not the Company
or any other obligor upon the Securities or any Restricted Subsidiary of the
Company or any Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company.
"Permitted Facility" means (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 its 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" means (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
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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 (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 Securities, (ii) does not require any
payment of principal at any time sooner than six months after the final Stated
Maturity of the Securities, (iii) is subordinated in right of payment to all
other Debt of such Restricted Subsidiary other than Debt Incurred pursuant to
clause (vii) of Section 1009(b), all of which shall be pari passu, (iv) does not
---- -----
contain any events of default or acceleration provisions that are applicable at
any time sooner than six months after the final Stated Maturity of the
Securities and (v) is evidenced by a subordinated note in the form attached to
the Indenture as Exhibit A, and (b) Debt of a Holding Company to a Funding
Company.
"Permitted Investment" means 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 shall 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,
shall 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
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ratio of the Capital Stock in such Eligible 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 this Indenture, (vii) bonds, notes, debentures or other
debt securities and instruments received as a result of Asset Dispositions to
the extent permitted by Sections 1015 and 1022, (viii) any Lien permitted
under Section 1012 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,
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<PAGE>
than comparable requirements in comparable financings in the applicable
jurisdiction.
"Permitted Joint Venture" means a Joint Venture (i) that is or shall 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 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 shall
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
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<PAGE>
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 a Permitted Joint Venture if Kiewit
becomes the beneficial owner of at least 25% of the outstanding shares of the
Voting Stock of the Company and the other conditions set forth in this
definition are fulfilled.
"Permitted Payments" means, 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 Securities with the proceeds from the issuance of (x) Debt
that is subordinate to the Securities at 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 Securities, 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, Sections 1013 and 1015
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<PAGE>
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) and (vii), as the case
may be, may be increased by the net reduction in Investments of the type made
previously pursuant to clauses (iv) and (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 shall 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.
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<PAGE>
"Permitted Working Capital Facilities" means 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 shall be ranked pari
----
passu with or subordinate to the Securities in right of payment and may be
- -----
secured or unsecured.
"Person" means 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.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by
such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"Preferred Stock" means, 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 Issue Date of the Securities.
"Property" of any Person means 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 Date" means, as appropriate, the Change of Control Purchase Date
under Section 1013 or the Excess Proceeds Purchase Date under Section 1015.
"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.
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<PAGE>
"Rating Agencies" means (i) S&P and (ii) Moody's or (iii) if S&P or Moody's
or both do not make a rating of the Securities publicly available, a nationally
recognized securities rating agency or agencies, as the case may be, selected by
the Company, which shall be substituted for S&P, Moody's or both, as the case
may be.
"Rating Category" means (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 Securities 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) shall 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+, shall constitute a decrease of one gradation).
"Rating Decline" means 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 shall be extended so long as the rating of the
Securities is under publicly announced consideration for possible downgrading by
any of the Rating Agencies): (a) in the event that the Securities are rated by
either Rating Agency on the Rating Date as Investment Grade, the rating of the
Securities by both such Rating Agencies shall be reduced below Investment Grade,
or (b) in the event the Securities are rated below Investment Grade by both such
Rating Agencies on the Rating Date, the rating of the Securities by either
Rating Agency shall be decreased by one or more gradations (including gradations
within Rating Categories as well as between Rating Categories).
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<PAGE>
"Redeemable Stock" means 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 Securities, (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 Securities 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 Securities, 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 Securities shall 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 Section 1013 and 1015
and such Capital Stock specifically provides that the Company shall not
purchase or redeem any such Capital Stock pursuant to such covenants prior to
the Company's purchase of Securities required to be repurchased by the Company
under Sections 1013 and 1015.
"Redemption Date" when used with respect to any Security to be redeemed,
means the date fixed for redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Reference Period" means 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.
"Regular Record Date", for the interest payable on any Interest Payment
Date means the January 1 or July 1 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
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<PAGE>
"Responsible Officer", when used with respect to the Trustee, means the
chairman or any vice chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Payment" means (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 shall
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 Securities 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 or any Eligible Joint Venture) 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" shall not include any
Permitted Payment, except that any pay-
-37-
<PAGE>
ment made pursuant to clauses (iv) and (v) of the definition of "Permitted
Payment" shall be counted in the calculation set forth in clause (c) of
Section 1010(a).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Corporation.
"Securities" means securities designated in the first paragraph of the
RECITALS OF THE COMPANY.
"Securities Act" means the Securities Act of 1933 and any statute successor
thereto, in each case as amended from time to time.
"Senior Debt" means the principal of and interest on all Debt of the
Company whether created, Incurred or assumed before, on or after the Issue Date
of the Securities (other than the Securities), provided that Senior Debt shall
--------
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 being junior in right of payment to the Securities
or any other Debt of the Company.
"Significant Subsidiary" means 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.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" means, with respect to any debt security or any
installment of interest thereon, the date specified in such debt security as the
fixed date on
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<PAGE>
which any principal of such debt security or any such installment of interest
is due and payable.
"Subsidiary" means, 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" means 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 shall 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 shall be Non-Recourse, if
--------
the Debt so exchanged or refinanced is Non-Recourse and (B) the Average Life of
the new Debt shall be equal to or
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<PAGE>
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 shall not be limited by this provision and (ii) the
Subsidiary Refinancing Debt issued in exchange for or to refinance such
Construction Financing shall not be subject to the provisions of the foregoing
clause (B) of this provision.
"Trade Payables" means, 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 Subsidiaries or
Joint Ventures arising in the ordinary course of business.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this Indenture until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this Indenture was executed; provided that in the event the
--------
Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act"
shall mean, to the extent required by any such amendment, the Trust Indenture
Act of 1939 as so amended.
"Unrestricted Subsidiary" means 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 Section
1010(a) 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
Stock of any other Restricted Subsidiary unless such other Restricted
Subsidiary is designated as an Unrestricted Subsidiary at the same time. Any
such designation shall be effected by
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<PAGE>
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 Section 1009, and (ii) any
portion of such Debt could not be incurred thereunder, if the Company could
borrow all such remaining Debt pursuant to Section 1008(a).
"U.S. Government Obligations" means 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 shall 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.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
"Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors (or persons fulfilling similar responsibilities) of such Person.
-41-
<PAGE>
(b) Other definitions:
<TABLE>
<CAPTION>
Defined Term Defined in Section
- ------------ ------------------
<S> <C>
Act 104
Change of Control Offer 1013(b)
Change of Control Purchase Date 1013(b)
Covenant Defeasance 1203
Defaulted interest 307
Defeasance 1202
Default Amount 502
Excess Proceeds 1015(a)
Excess Proceeds Offer 1015(a)
Excess Proceeds Purchase Date 1015(e)
Event of Default 501
Ineligible Investment 1022
Notice of Default 501(5)
Record Expiration Date 104
Security Register 305
Security Registrar 305
Surviving Entity 801
10% Limit 1022
</TABLE>
Section 102. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of
an Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirement set forth in
this Indenture.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include
(1) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
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<PAGE>
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether, in the opinion of each such individual, such
condition or covenant has been complied with.
Section 103. Form of Documents Delivered to Trustee.
--------------------------------------
If several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect
to such matters are erroneous.
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<PAGE>
If any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 104. Acts of Holders; Record Dates.
-----------------------------
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, if it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section 104.
The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such
instrument or writing acknowledged to him the execution thereof. If such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
The ownership of Securities shall be proved by the Security Register.
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<PAGE>
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
The Company may set any day as a record date for the purpose of determining
the Holders of Outstanding Securities entitled to give or take any request,
demand, authorization, direction, notice, consent, waiver or other action
provided or permitted by this Indenture to be given or taken by Holders of
Securities, provided that the Company may not set a record date for, and the
--------
provisions of this paragraph shall not apply with respect to, the giving or
making of any notice, declaration, request or direction referred to in the next
paragraph. If any record date is set pursuant to this paragraph, the Holders of
Outstanding Securities on such record date, and no other Holders, shall be
entitled to take the relevant actions whether or not such Holders remain Holders
after such record date; provided that no such action shall be effective
--------
hereunder unless taken on or prior to the applicable Record Expiration Date by
Holders of the requisite principal amount of Outstanding Securities on such
record date; and provided further that for the purpose of determining whether
-------- -------
Holders of the requisite principal amount of such Securities have taken
such action, no Security shall be deemed to have been Outstanding on such record
date unless it is also Outstanding on the date such action is to become
effective. Nothing in this paragraph shall prevent the Company from setting a
new record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be cancelled and of no effect),
nor shall anything in this paragraph be construed to render ineffective any
action taken by Holders of the requisite principal amount of Outstanding
Securities on the date such action is taken. Promptly after any record date is
set pursuant to this paragraph, the Company, at its own expense, shall cause
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<PAGE>
notice of such record date, the proposed action by Holders and the applicable
Record Expiration Date to be given to the Trustee in writing and to each Holder
of Securities in the manner set forth in Section 106 .
The Trustee may set any day as a record date for the purpose of determining
the Holders of Outstanding Securities entitled to join in the giving or making
of (i) any Notice of Default, (ii) any declaration of acceleration referred to
in Section 502, (iii) any request to institute proceedings referred to in
Section 507(2) or (iv) any direction referred to in Section 512. If any record
date is set pursuant to this paragraph, the Holders of Outstanding Securities on
such record date, and no other Holders, shall be entitled to join in such
notice, declaration, request or direction, whether or not such Holders remain
Holders after such record date; provided that no such action shall be effective
--------
hereunder unless taken on or prior to the applicable Record Expiration Date by
Holders of the requisite principal amount of Outstanding Securities on such
record date; and provided further that for the purpose of determining whether
-------- -------
Holders of the requisite principal amount of such Securities have taken such
action, no Security shall be deemed to have been Outstanding on such record date
unless it is also Outstanding on the date such action is to become effective.
Nothing in this paragraph shall be construed to prevent the Trustee from
setting a new record date for any action (whereupon the record date previously
set shall automatically and without any action by any Person be cancelled and
of no effect), nor shall anything in this paragraph be construed to render
ineffective any action taken by Holders of the requisite principal amount of
Outstanding Securities on the date such action is taken. Promptly after any
record date is set pursuant to this paragraph, the Trustee, at the Company's
expense, shall cause notice of such record date, the matter(s) to be submitted
for potential action by Holders and the applicable Record Expiration Date to
be given to the Company in writing and to each Holder of Securities in the
manner set forth in Section 106.
With respect to any record date set pursuant to this Section 104, the party
hereto that sets such record date may designate any day as the "Record
Expiration Date" and
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<PAGE>
from time to time may change the Record Expiration Date to
any earlier or later day, provided that no such change shall be effective unless
--------
notice of the proposed new Record Expiration Date is given to the other party
hereto in writing, and to each Holder of Securities in the manner set forth in
Section 106, on or before the existing Record Expiration Date. If a Record
Expiration Date is not designated with respect to any record date set pursuant
to this Section 104, the party hereto that set such record date shall be deemed
to have initially designated the 180th day after such record date as the Record
Expiration Date with respect thereto, subject to its right to change the Record
Expiration Date as provided in this paragraph. Notwithstanding the foregoing,
no Record Expiration Date shall be later than the 180th day after the applicable
record date.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
Section 105. Notices, Etc., to Trustee and Company.
-------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing and
mailed, first-class postage prepaid, to or with the Trustee at its
Corporate Trust Office, Attention: Corporate Trust Administration, or
(2) the Company by the Trustee or by any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of
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<PAGE>
this Indenture, Attention: General Counsel, or at any other address
previously furnished in writing to the Trustee by the Company.
Section 106. Notice to Holders; Waiver.
-------------------------
When this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at such Holder's address as it appears in the Security Register,
not later than the latest date (if any), and not earlier than the earliest date
(if any), prescribed for the giving of such notice. Neither the failure to
mail or give such notice as otherwise provided herein, nor any defect in any
notice so mailed or given to any particular Holder shall affect the sufficiency
of such notice with respect to other Holders. When this Indenture provides
for notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
Section 107. Conflict with Trust Indenture Act.
---------------------------------
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act that is required under such Act to be part of and govern
this Indenture, the latter provision shall control. If any provision of this
Indenture modifies or excludes any provision of the Trust Indenture Act that may
be so modified or excluded, the latter provision shall be deemed to apply to
this Indenture as so modified or to be excluded, as the case may be.
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<PAGE>
Section 108. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein, the Cross-Reference Table and the
Table of Contents are for convenience only and shall not affect the construction
hereof.
Section 109. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
Section 110. Separability Clause.
-------------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
it being intended that all of the provisions hereof shall be enforceable to
the full extent permitted by law.
Section 111. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person other than the parties hereto and their successors hereunder
and the Holders of Securities, any benefit or any legal or equitable right,
remedy or claim under this Indenture. This Indenture may not be used to
interpret another indenture, loan agreement or debt agreement of the Company or
any of its Subsidiaries. No such other indenture or loan or debt agreement may
be utilized to interpret this Indenture.
Section 112. Governing Law.
-------------
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF
THE NEW YORK GENERAL OBLIGATIONS LAW, BUT OTHERWISE, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN
THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE
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<PAGE>
BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND THE SECURITIES,
AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY
AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT THAT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY HOLDER OF THE SECURITIES
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER
JURISDICTION.
Section 113. Legal Holidays.
--------------
If any Interest Payment Date, Redemption Date, Purchase Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or of the Securities) payment of interest or
principal (and premium, if any) need not be made on such date but may be made on
the next succeeding Business Day with the same force and effect (including with
respect to the accrual of interest) as if made on the Interest Payment Date,
Redemption Date or Purchase Date, or at the Stated Maturity.
Section 114. No Recourse Against Others.
--------------------------
A director, officer, employee, stockholder or incorporator, as such, of the
Company shall not have any liability for any obligations of the Company under
the Securities or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Holder by accepting a
Security waives and releases all such liability. Such waiver and release are
part of the consideration for the issuance of the Securities.
Section 115. Duplicate Originals.
-------------------
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<PAGE>
All parties may sign any number of copies or counterparts of this
Indenture. Each signed copy or counterpart shall be an original, but all of
them together shall represent the same agreement.
ARTICLE TWO
Security Forms
Section 201. Forms Generally.
---------------
The Securities and the Trustee's certificates of authentication shall be
in substantially the forms set forth in this Article Two, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon
as may be required to comply with the rules of any securities exchange or as
may, consistently herewith, be determined by the officers executing such
Securities, as evidenced by their execution thereof.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may be
produced in any other manner permitted by the rules of any securities exchange
on which the Securities may be listed, all as determined by the officers
executing such Securities, as evidenced by their execution of such Securities.
Section 202. Form of Face of Security.
------------------------
CALIFORNIA ENERGY COMPANY, INC.
___% Senior Discount Notes Due 2004.
No. _________ $_____________
CUSIP No._____________
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<PAGE>
California Energy Company, Inc., a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company", which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to _________________, or registered
assigns, the principal sum of ___________________ Dollars on January 15, 2004
and to pay interest thereon from January 15, 1997 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semi-annually on January 15 and July 15 in each year, commencing July 15, 1997
at the rate of _____% per annum, until the principal hereof is paid or duly
provided for, provided that any principal and premium, if any, and any such
--------
installment of interest, that is overdue shall bear interest at the rate of
[coupon plus 1%] _____% per annum (to the extent that the payment of such
interest shall be legally enforceable), from the dates such amounts are due
until they are paid or duly provided for, and such interest shall be payable on
demand. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date shall, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the January 1 or July 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such defaulted interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities not less than 10 days prior to such Special
Record Date, or be paid at any time in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in said Indenture.
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<PAGE>
Payment of the principal of (and premium, if any) and any interest on this
Security shall be made at the office or agency of the Company maintained for
that purpose in the Borough of Manhattan, The City of New York, or at such
additional offices or agencies as the Company from time to time may designate
for such purpose, in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts,
provided that payment of the principal of (and premium, if any, on) this
- --------
Security shall be made only upon presentation and surrender hereof
at any such office or agency and, at the option of the Company, payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
CALIFORNIA ENERGY COMPANY, INC.
[Seal]
By:
---------------------------
Title:
Attest:
- ---------------------------------
Title:
Section 203. Form of Reverse of Security.
---------------------------
This Security is one of a duly authorized issue of Securities of the
Company designated as its _____% Senior Discount Notes due 2004 (herein called
the "Securities"), limited in aggregate principal amount at final Stated
Maturity to $___________, issued and to be issued under an Indenture, dated as
of ______________, 1994 (herein called the "Indenture", which term shall have
the meaning assigned to it in such instrument), between the Company and IBJ
Schroder Bank & Trust Company, as Trustee (herein called the "Trustee" which
term includes any successor trustee under the Indenture), and reference is
hereby made to the Indenture for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered.
The Securities are subject to redemption upon not less than 30 nor more
than 60 days' notice by mail, at any time on or after January 15, 1999 and prior
to maturity, as a whole or in part, at the election of the Company, at the
following Redemption Prices (expressed as percentages of the principal amount at
Stated Maturity), if redeemed during the 12-month period commencing on or after
January 15 of the years indicated,
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<PAGE>
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------------
<S> <C>
1999..................................
2000..................................
2001 and thereafter................... 100%
</TABLE>
together in the case of any such redemption with accrued interest, if any, to
the Redemption Date, but interest installments whose Stated Maturity is on or
prior to such Redemption Date shall be payable to the Holders of such
Securities, or one or more predecessor Securities, of record at the close of
business on the relevant Record Dates referred to on the face hereof, all as
provided in the Indenture.
The Securities do not have the benefit of any sinking fund
obligations.
Upon the occurrence of both a Change of Control and a Rating Decline,
the Company shall be required to make an Offer to Purchase all or a specified
portion of the Securities at a Purchase Price in cash equal to (a) 101 percent
of the Accreted Value thereof on any Purchase Date occurring prior to January
15, 1997 or (b) 101 percent of the principal amount thereof on any Purchase
Date occurring on or after January 15, 1997 plus accrued and unpaid interest, if
any, to such Purchase Date. If the Company or any Restricted Subsidiary
consummates an Asset Sale, under certain circumstances, the Company shall be
required to make an Offer to Purchase up to all or a specified portion of the
Securities at a Purchase Price in cash equal to (a) 100 percent of the Accreted
Value thereof on any Purchase Date occurring prior to the January 15, 1997 or
(b) 100 percent of the principal amount thereof on any Purchase Date occurring
on or after January 15, 1997, plus accrued and unpaid interest, if any, to such
Purchase Date, in an amount equal to any Net Cash Proceeds from such an Asset
Sale that are not used to reinvest in the business of the Company and/or repay
in a permanent reduction of Debt of the Company or Debt of its Restricted
Subsidiaries and Eligible Joint Ventures. Holders of Securities shall receive
notice of any such Offer to Purchase from the Company prior to the related
Purchase Date and may elect to have such
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<PAGE>
Securities purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing on the reverse side of the Security.
In the event of redemption, or purchase pursuant to an Offer to
Purchase, of this Security in part only, a new Security or Securities for the
portion hereof not redeemed or purchased shall be issued in the name of the
Holder hereof upon the cancellation hereof.
The Indenture contains provisions for defeasance at any time of the
entire Debt of this Security or certain restrictive covenants and Events of
Default with respect to this Security, including, without limitation, covenants
relating to Offers to Purchase, in each case upon compliance with certain
conditions set forth in the Indenture.
If an Event of Default shall occur and be continuing, there may be
declared due and payable the Default Amount of the Securities, in the manner and
with the effect provided in the Indenture. Until January 15, 1997, the Default
Amount in respect of this Security as of the date upon which the Securities are
declared due and payable shall equal the Accreted Value of this Security as of
such date. On and after January 15, 1997, the Default Amount in respect of this
Security as of any particular date shall equal 100% of the principal amount of
this Security plus accrued and unpaid interest, if any, to such date.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. In addition,
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<PAGE>
without the consent of any Holder of a Security, the Indenture and the
Securities may be amended and supplemented to cure any ambiguity or
inconsistency, make other changes that shall not adversely affect the rights
of the Holders or certain other matters specified in the Indenture. Any such
consent or waiver by the Holder of this Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver
is made upon this Security.
As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver, or trustee
or for any other remedy thereunder, unless such Holder shall have previously
given the Trustee written notice of a continuing Event of Default with respect
to the Securities, the Holders of not less than 25 percent in principal amount
of the Securities at the time Outstanding shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default as Trustee
and offered the Trustee reasonable indemnity, and the Trustee shall not have
received from the Holders of a majority in principal amount of Securities at
the time Outstanding a direction inconsistent with such request and shall have
failed to institute any such proceeding for 60 days after receipt of such
notice, request and offer of indemnity. The foregoing shall not apply to
certain suits described in the Indenture, including any suit instituted by the
Holder of this Security for the enforcement of any payment of principal hereof
or any premium or interest hereon on or after the respective due dates
expressed herein (or, in the case of redemption, on or after the Redemption
Date or, in the case of any purchase of this Security required to be made
pursuant to an Offer to Purchase, on or after the Purchase Date).
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium,
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<PAGE>
if any) and interest on this Security at the times, place and rate, and in the
coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, (which initially shall be the corporate trust office of the Trustee),
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities, of authorized denominations and for the same aggregate
principal amount, shall be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of like tenor
of a different authorized denomination, as requested by the Holder surrendering
the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
A director, officer, employee, stockholder or incorporator of the
Company shall not have any liability for any obligations of the Company under
this Security or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Holder by accepting this
Security waives and releases all such liability. Such waiver and release are
part of the consideration for the issuance of this Security.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person
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<PAGE>
in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security is overdue, and neither the Company,
the Trustee nor any such agent shall be affected by notice to the contrary.
Interest on this Security shall be computed on the basis of a 360-day
year of 12 30-day months.
All terms used in this Security that are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
The Indenture and this Security shall be governed by and construed in
accordance with the laws of the State of New York, as applied to contracts made
and performed under the State of New York, without regard to principles of
conflicts of law.
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<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated: Your Signature:
---------------------------
(sign exactly as name appears on
the other side of this Security)
Signature Guarantee:
-----------------------------------------------------------
(Signature must be guaranteed by a financial institution
that is a member of the Securities Transfer Agent
Medallion Program ("STAMP"), the Stock Exchange Medallion
Program ("SEMP"), the New York Stock Exchange, Inc.
Medallion Signature Program ("MSP") or such other
signature guarantee program as may be determined by the
Security Registrar in addition to, or in substitution for,
STAMP, SEMP or MSP, all in accordance with the Securities
Exchange Act of 1934, as amended.)
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<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased in its entirety by the
Company pursuant to Section 1013 or 1015 of the Indenture, check the box: [ ]
If you want to elect to have only a part of the principal amount at Stated
Maturity of this Security purchased by the Company pursuant to Section 1013 or
1015 of the Indenture, state the portion of such amount: $________
Dated:
Your Signature:
-----------------------------------------
(sign exactly as name appears
on the other side of this
Security)
Signature Guarantee:
----------------------------------------------------------
(Signature must be guaranteed by a financial institution
that is a member of the Securities Transfer Agent
Medallion Program ("STAMP"), the Stock Exchange Medallion
Program ("SEMP"), the New York Stock Exchange, Inc.
Medallion Signature Program ("MSP") or such other
signature guarantee program as may be determined by the
Security Registrar in addition to, or in substitution
for, STAMP, SEMP or MSP, all in accordance with the
Securities Exchange Act of 1934, as amended.)
Section 204. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
Dated:
This is one of the Securities referred to in the within-mentioned
Indenture.
IBJ SCHRODER BANK & TRUST COMPANY,
As Trustee
By
-------------------------------------
Authorized Signatory
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<PAGE>
ARTICLE THREE
The Securities
Section 301. Title and Terms.
---------------
The aggregate principal amount of Securities that may be authenticated
and delivered under this Indenture is limited to $___________, except for
Securities authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities pursuant to Section 304, 305, 306,
906 or 1108 or in connection with an Offer to Purchase pursuant to Section 1013
or 1015.
The Securities shall be known and designated as the "_____% Senior Discount
Notes due 2004" of the Company. Their Stated Maturity shall be January 15,
2004 and they shall bear interest at the rate of _____% per annum, from July
15, 1997 or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, as the case may be, payable semi-annually on
January 15 and July 15, commencing July 15, 1997 until the principal thereof
is paid or made available for payment.
The principal of (and premium, if any) and interest on the Securities shall
be payable at the office or agency of the Company in the Borough of Manhattan,
The City of New York maintained for such purpose and at any other office or
agency maintained by the Company for such purpose; provided that (except as may
--------
be provided in any representation letter or agreement with a "clearing" agency
registered under the Exchange Act), payment of the principal of (and premium, if
any, on) the Securities shall be made only upon presentation and surrender
thereof at any such office or agency and at the option of the Company payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register.
Section 302. Denominations.
-------------
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The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 principal amount and any integral multiple
thereof.
Section 303. Execution, Authentication, Delivery and Dating.
-----------------------------------------------
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its President or one of its Vice Presidents, under its corporate
seal reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Securities may be
manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Securities; and the Trustee in accordance with such Company
Order shall authenticate and deliver such Securities as in this Indenture
provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such
Security has been duly authenticated and delivered hereunder.
Section 304. Temporary Securities.
--------------------
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<PAGE>
Pending the preparation of definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Securities that are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Securities in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company shall cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002 without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities, the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Securities of
authorized denominations and of a like tenor. Until so exchanged, the temporary
Securities shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities.
Section 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is
hereby appointed "Security Registrar" for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at an office or
agency of the Company designated
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<PAGE>
pursuant to Section 1002 for such purpose, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Securities of any authorized
denominations and of a like aggregate principal amount and tenor.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount and tenor, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the
Securities that the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Security Registrar duly executed, by the Holder thereof or
his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities,
other than exchanges pursuant to Section 304, 906 or 1108 or in accordance
with any Offer to Purchase pursuant to Section 1013 or 1015 , and in any such
case not involving any transfer.
Neither the Trustee, the Security Registrar nor the Company shall be
required (i) to issue, register the transfer of or exchange any Security during
a period
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<PAGE>
beginning at the opening of business 15 days before the day of the mailing of
a notice of redemption of Securities selected for redemption under Section
1104 and ending at the close of business on the day of such mailing or (ii) to
register the transfer of or exchange any Security so selected for redemption
in whole or in part, except the unredeemed portion of any Security being
redeemed in part.
Section 306. Mutilated, Destroyed, Lost and Stolen Securities.
-------------------------------------------------
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section 306 in lieu of any
destroyed, lost or stolen Security
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<PAGE>
shall constitute an original additional contractual obligation of the Company,
whether or not the destroyed, lost or stolen Security shall be at any time
enforceable by anyone, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Securities duly
issued hereunder.
The provisions of this Section 306 are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
Section 307. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Security that is payable and is punctually paid or duly
provided for on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest.
Any interest on any Security that is payable but is not punctually paid or
duly provided for on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the
Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Security and the date of the
proposed payment and at the same time the Company shall deposit with the Trustee
an amount of money equal to the aggregate amount proposed to be paid in respect
of such Defaulted Interest or shall make arrangements satisfactory to the
Trustee for such deposit prior to the date of the proposed payment, such money
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when deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as provided in this clause. Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted Interest that
shall be not more than 15 days and not less than 10 days prior to the date of
the proposed payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be given to each Holder in the manner
specified in Section 106 not less than 10 days prior to such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so given, such Defaulted Interest shall be
paid to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such Special
Record Date and shall no longer be payable pursuant to the following clause
(2).
(2) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause, such manner of payment shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
Section 308. Persons Deemed Owners.
---------------------
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner of
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such Security for the purpose of receiving payment of principal of (and
premium, if any) and (subject to Section 307) interest on such Security and
for all other purposes whatsoever, whether or not such Security be overdue,
and neither the Company, the Trustee nor any agent of the Company or the
Trustee shall be affected by notice to the contrary.
Section 309. Cancellation.
------------
All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any Offer to Purchase pursuant to
Section 1013 or 1015 shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The
Company may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder that the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly cancelled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities cancelled as provided in this Section 309,
except as expressly permitted by this Indenture. All cancelled Securities held
by the Trustee shall be disposed of as directed by a Company Order; provided
--------
that the Trustee shall not be required to destroy cancelled Securities.
Section 310. Computation of Interest.
-----------------------
Interest on the Securities shall be computed on the basis of a 360-day year
of twelve 30-day months.
Section 311. CUSIP Numbers.
-------------
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use CUSIP numbers in notices of
redemption or repurchase as a convenience to Holders; provided that any such
--------
notice may state that no representation is made as to the correctness of such
numbers either as printed on the Securities or as contained in any notice of a
redemption or repurchase and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption or
repurchase
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shall not be affected by any defect in or omission of such numbers.
ARTICLE FOUR
Satisfaction and Discharge
Section 401. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall cease to be of further effect and the Trustee, on
demand of and at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture, when
(1) no Securities remain Outstanding;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article Four, (i) the obligations of the Company to the Trustee under
Section 607, the obligations of the Company to any Authenticating Agent under
Section 614 and (ii) if the Company shall have effected a Defeasance pursuant to
Article Twelve, the provisions hereof specified in Section 1202 shall also
survive.
ARTICLE FIVE
Remedies
Section 501. Events of Default.
-----------------
"Event of Default", whenever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary
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or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of the principal of (or premium, if any,
on) any Security at its maturity (whether at final Stated Maturity or upon
repurchase, acceleration, optional redemption or otherwise); or
(2) default in the payment of any interest upon any Security when it
becomes due and payable, and continuance of such default for a period of 30
days; or
(3) default in the purchase of Securities, on the applicable Purchase
Date, required to be purchased by the Company pursuant to an Offer to Purchase
under Section 1013 or Section 1015 as to which an offer has been mailed to
Holders or the failure to make such offer as required hereunder; or
(4) default in the performance, or breach, of any covenant, agreement
or warranty of the Company in this Indenture and the Securities (other than a
covenant, agreement or warranty a default in whose performance or whose breach
is elsewhere in this Section 501 specifically dealt with), and continuance of
such default or breach for a period of 30 days after there has been given to
the Company by the Trustee or to the Company and the Trustee by the Holders of
at least 25 percent in principal amount at final Stated Maturity of the
Outstanding Securities a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(5) a default or defaults under any bond, debenture, note or other
evidence of Debt by the Company or any Significant Subsidiary (or under any
mortgage, in denture or instrument under which there may be issued or by which
there may be secured or evidenced any Debt by 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 de-
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fault, 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; or
(6) 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
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 shall not be on 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 is otherwise permitted
under this Indenture, and the Company could, at the expiration of the
applicable 60 day period, after giving effect to such judgement or order and
the consequences thereof, Incur at least $1 of Debt under the provisions
described in Section 1008(a); or
(7) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under the Federal bankruptcy
laws, as now or hereafter constituted, or any other applicable Federal, state,
or foreign bankruptcy, insolvency, or other similar law or (B) a decree or order
adjudging the Company or any Significant Subsidiary a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company or any Significant
Subsidiary under the Federal bankruptcy laws, as now or hereafter constituted,
or any other applicable Federal, State or foreign bankruptcy, insolvency, or
similar law, or appointing a custodian, receiver, liq-
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uidator, assignee, trustee, sequestrator or other similar official of the
Company or any Significant Subsidiary or of any substantial part of the
Property or assets of the Company or any Significant Subsidiary, or ordering
the winding up or liquidation of the affairs of the Company or any Significant
Subsidiary, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 60
consecutive days; or
(8) (A) the commencement by the Company or any Significant Subsidiary
of a voluntary case or proceeding under the Federal bankruptcy laws, as now or
hereafter constituted, or any other applicable federal, state, or foreign
bankruptcy, insolvency or other similar law or of any other case or proceeding
to be adjudicated a bankrupt or insolvent, or (B) the consent by the Company
or any Significant Subsidiary to the entry of a decree or order for relief in
respect of the Company or any Significant Subsidiary in an involuntary case or
proceeding under the Federal bankruptcy laws, as now or hereafter constituted,
or any other applicable federal, state, or foreign bankruptcy, insolvency, or
other similar law or to the commencement of any bankruptcy or insolvency case
or proceeding against the Company or any Significant Subsidiary, or (C) the
filing by the Company or any Significant Subsidiary of a petition or answer or
consent seeking reorganization or relief under the Federal bankruptcy laws, as
now or hereafter constituted, or any other applicable Federal, state or
foreign bankruptcy, insolvency or other similar law, or (D) the consent by the
Company or any Significant Subsidiary to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or of any substantial part of the Property or assets of
the Company or any Significant Subsidiary, or the making by the Company or any
Significant Subsidiary of an assignment for the benefit of creditors, or (E)
the admission by the Company or any Significant Subsidiary in writing of its
inability to pay its debts generally as they become due, or (F) the taking of
corporate action by the Company or any Significant Subsidiary in furtherance
of any such action.
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Section 502. Acceleration of Maturity; Rescission and Annulment.
---------------------------------------------------
If an Event of Default (other than an Event of Default specified in Section
501(7) or (8)) occurs and is continuing, then and in every such case the Trustee
or the Holders of not less than 25 percent in principal amount at Stated
Maturity of the Outstanding Securities may declare the Default Amount of all the
Securities to be due and payable immediately by a notice in writing to the
Company (and to the Trustee if given by Holders), and upon any such
declaration such Default Amount shall become immediately due and payable. If
an Event of Default specified in Section 501(7) or (8) occurs, the Default
Amount of the Securities then Outstanding shall ipso facto become immediately
---- -----
due and payable without any declaration or other Act on the part of the
Trustee or any Holder.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article Five provided, the Holders of a
majority in principal amount of the Outstanding Securities, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Securities (without duplication
of any amount thereof paid or deposited pursuant to clause (B) or (C) below),
(B) the Default Amount of (and premium, if any, on) any
Securities that have become due otherwise than by such declaration of
acceleration (including any Securities required to have been purchased on any
Purchase Date pursuant to an Offer to Purchase made by the Company) and, to
the extent that payment of such interest is lawful, interest thereon at the
rate provided by the Securities (without duplication of any amount
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thereof paid or deposited pursuant to clause (A) above or clause (C) below),
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate provided by the Securities (without
duplication of any amount thereof paid or deposited pursuant to clause (A) or
(B) above), and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel;
and
(2) all Events of Default (other than the non-payment of the
Accreted Value of Securities that have become due solely by such declaration of
acceleration) have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
----------------------------------------------------------------
The Company covenants that if
(1) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days, or
(2) default is made in the payment of the principal or Accreted Value
of (or premium, if any, on) any Security at the final Stated Maturity thereof
or, with respect to any Security required to have been purchased pursuant to an
Offer to Purchase made by the Company, at the Purchase Date thereof, the
Company shall, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities
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<PAGE>
Accreted Value or principal, as the case may be, (premiums, if any)
and interest, and, to the extent that payment of such interest shall be legally
enforceable, interest on any overdue Accreted Value or principal, as the case
may be, (premium, if any) and interest, and on any overdue interest, at the rate
provided by the Securities, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the Property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
Section 504. Trustee May File Proofs of Claim.
--------------------------------
In case of any judicial proceeding relative to the Company (or any other
obligor upon the Securities), its Property or assets or its creditors, the
Trustee (irrespective of whether the Accreted Value or principal, as the case
may be, (premium, if any) or interest of the Securities then shall be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee has made any demand on the Company for the payment of
overdue Accreted Value or principal, as the case may be, (premium, if any) or
interest shall
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be entitled and empowered, by intervention in such proceeding or otherwise, to
file such proofs of claim and other papers or documents and to take any and
all actions authorized under the Trust Indenture Act in order to have claims
of the Holders and the Trustee (including any claim for reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
or counsel) allowed in any such proceeding. In particular, the Trustee shall
be authorized to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar
official in any such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 607 . To the extent that payment
of any such compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any amounts due the Trustee under Section 607
hereof out of the estate in any such proceeding shall be denied for any
reason, payment of the same shall be secured by a Lien and shall be paid out
of any and all distributions, dividends, money, securities and other
properties that the Holders of the Securities may be entitled to receive in
such proceedings whether in liquidation or under any plan of reorganization or
arrangement or otherwise.
No provision of this Indenture shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided that the
--------
Trustee may, on behalf of the Holders, vote for the election of a trustee in
bankruptcy or similar official and be a member of a creditors or other similar
committee.
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Section 505. Trustee May Enforce Claims Without Possession of Securities.
-----------------------------------------------------------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
Section 506. Application of Money Collected.
------------------------------
Any money collected by the Trustee pursuant to this Article Five shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607; and
SECOND: To the payment of the amounts then due and unpaid on the
Securities in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities in respect of principal (and
premium, if any) and interest; and
THIRD: To whosoever may be lawfully entitled thereto, the
remainder, if any.
Section 507. Limitation on Suits.
-------------------
No Holder of any Security shall have any right to institute any proceeding,
judicial or otherwise, with
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respect to this Indenture, or for the appointment of a receiver or trustee, or
for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25 percent in principal amount of
the Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
Section 508. Unconditional Right of Holders to Receive Principal, Premium and
-----------------------------------------------------------------
Interest.
- --------
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
full payment of the Accreted Value or principal, as the case may be, of (and
premium, if any) and (subject to Section
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307) interest on such Security on the respective Stated Maturities expressed
in such Security (or, in the case of redemption on the Redemption Date or in
the case of an Offer to Purchase made by the Company and accepted as to such
Security, on the Purchase Date) in accordance with the terms of this Indenture
and the Securities and to institute suit for the enforcement of any such
payment, and such rights shall not be impaired without the consent of such
Holder.
Section 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
Section 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder or otherwise shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or
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remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article Five or by law to the
Trustee or to the Holders may be exercised from time to time, and as often as
may be deemed expedient, by the Trustee or by the Holders, as the case may be.
Section 512. Control by Holders.
------------------
The Holders of a majority in principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, provided that
--------
(1) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee that is not inconsistent with such direction.
Section 513. Waiver Of Past Defaults.
-----------------------
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security (including any Security that is required to have been
purchased pursuant to an Offer to Purchase that has been made by the Company),
or
(2) in respect of a covenant or provision hereof that under Article
Nine cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subse-
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quent or other default or impair any right consequent thereon.
Section 514. Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act.
Section 515. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it shall not hinder, delay or impede the execution of any
power herein granted to the Trustee, but shall suffer and permit the execution
of every such power as though no such law had been enacted.
ARTICLE SIX
The Trustee
Section 601. Certain Duties and Responsibilities.
-----------------------------------
(a) The duties and responsibilities of the Trustee shall be as provided by
the Trust Indenture Act. Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to the
provisions of this Section 601.
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(b) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied covenants
or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions that by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture but need not confirm the accuracy of any calculations contained
therein.
(c) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(d) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that
------
(1) this subsection (d) shall not be construed to limit the effect
of subsections (b) or (c) of this Section 601;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in
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good faith in accordance with the direction of the Holders of a majority in
principal amount of the Outstanding Securities relating to the time, method
and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee, under
this Indenture; and
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
Section 602. Notice of Defaults; Notice of Acceleration.
------------------------------------------
Within 90 days after the occurrence of any Default or Event of Default, the
Trustee shall transmit by mail to all Holders, as their names and addresses
appear in the Security Register, notice of such Default or Event of Default
known to the Trustee, unless such Default or Event of Default shall have been
cured or waived; provided that, except in the case of a default in any payment
--------
of the principal of (or premium, if any) or interest on any Security and any
payment required in connection with a Change of Control or an Asset Disposition,
the Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or a trust committee of directors or
Responsible Officers of the Trustee in good faith determine that the withholding
of such notice is in the interest of the Holders; and provided further that in
-------- -------
the case of any Default or Event of Default of the character specified in
Section 501(5), no such notice to Holders shall be given until at least 30
days after the occurrence thereof.
Section 603. Certain Rights of Trustee.
-------------------------
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, re-
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port, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or parties;
(b) any request, order, demand or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or Company Order and
any resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities that might be incurred by it in compliance with such
request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investi-
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gation, it shall be entitled (subject to reasonable confidentiality arrangements
as may be proposed by the Company) to examine the books, records and premises of
the Company, personally or by agent or attorneys;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder; and
(h) the Trustee shall not be liable for any action taken, suffered or
omitted by it and believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Indenture.
Section 604. Not Responsible for Recitals or Issuance of Securities.
-------------------------------------------------------
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Securities. The Trustee shall not be accountable for the use or
application by the Company of Securities or the proceeds thereof.
Section 605. May Hold Securities.
-------------------
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
Section 606. Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent
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required by law. The Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed with the Company.
Section 607. Compensation and Reimbursement.
------------------------------
The Company agrees
(1) to pay to the Trustee from time to time such reasonable
compensation as the Company and the Trustee shall from time to time agree in
writing for all services rendered by it hereunder (which compensation shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel) except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee in its individual capacity and each of
its officers, directors, agents and counsel for, and to hold it harmless
against, any loss, damage, claim, liability or expense incurred without
negligence or bad faith on such Person's part, arising out of or in connection
with the acceptance or administration of this Indenture or the performance of
any of its powers and duties hereunder, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder and complying
with any process served upon the Trustee or any such other Person hereunder.
The Trustee shall have a Lien prior to the Securities with respect to all
Property and funds held or collected by the Trustee hereunder for any amount
owing to it pursuant to this Section 607, except with respect to funds held in
trust for the benefit of the Holders of particular Securities.
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When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 501(7) or Section 501(8), the expenses
(including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.
The Company's obligations under this Section 607 and any Lien arising
hereunder shall survive the resignation or removal of the Trustee, the discharge
of the Company's obligations pursuant to Article Twelve, any rejection or
termination of the Indenture under any Federal or state bankruptcy, insolvency
or other similar law or any other termination of this Indenture.
Section 608. Conflicting Interests.
---------------------
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
Section 609. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall at all times be a Trustee hereunder that shall be a Person
that is eligible pursuant to the Trust Indenture Act to act as such and has a
combined capital and surplus of at least $50,000,000 and its Corporate Trust
Office in the Borough of Manhattan, The City of New York and shall be subject to
supervision or examination by Federal or State authority. If such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section 609 and to the extent permitted by the Trust Indenture Act, the
combined capital and surplus of such Person shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section 609, it shall resign immediately in the
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manner and with the effect hereinafter specified in this Article Six.
Section 610. Resignation and Removal; Appointment of Successor.
--------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article Six shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 611.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
in accordance with the applicable requirements of Section 611 shall not have
been delivered to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been a bona
fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609
and shall fail to resign after written request therefor by the Company or by any
such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
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then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in
accordance with the applicable requirements of Section 611, become the
successor Trustee and supersede the successor Trustee appointed by the
Company. If no successor Trustee shall have been so appointed by the Company
or the Holders and accepted appointment in accordance with the applicable
requirements of Section 611, any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give written notice of each resignation and
each removal of the Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
Section 611. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such
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successor Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring Trustee;
but, on request of the Company or the successor Trustee, such retiring Trustee
shall, upon payment of any amounts then due under Section 607, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder, subject, nevertheless, to its Lien, if any, provided for in
Section 607. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 612. Merger, Conversion, Consolidation
---------------------------------
or Succession to Business.
-------------------------
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided that
--------
such corporation shall be otherwise qualified and eligible under this Article
Six, without the execution or filing of any paper or any further act on the part
of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
Section 613. Preferential Collection
-----------------------
of Claims Against Company.
-------------------------
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If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
Section 614. Appointment of Authenticating Agent.
-----------------------------------
The Trustee may from time to time appoint an Authenticating Agent or Agents
that shall be authorized to act on behalf of the Trustee to authenticate
Securities issued upon original issue and upon exchange, registration of
transfer or partial redemption or partial purchase or pursuant to Section 306,
and Securities so authenticated shall be entitled to the benefits of this
Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or
the Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized
and doing business under the laws of the United States of America, any State
thereof or the District of Columbia, authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of not less than
$50,000,000 and subject to supervision or examination by Federal or State
authority. If such Authenticating Agent publishes reports of condition at
least annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section 614, the combined
capital and surplus of such Authenticating Agent shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to
be eligible in accordance with the provisions of this Section 614, such
Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section 614.
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Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent. In case any
Securities shall have been authenticated, but not delivered, by the
Authenticating Agent then in office, any successor by merger, conversion or
consolidation to such authenticating Authenticating Agent may adopt such
authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 614, the Trustee may appoint a successor
Authenticating Agent that shall be acceptable to the Company and shall give
notice of such appointment in the manner provided in Section 106, to all Holders
as their names and addresses appear in the Security Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section 614.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section.
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If an appointment is made pursuant to this Section 614, the Securities may
have endorsed thereon, in lieu of the Trustee's certificate of authentication,
an alternative certificate of authentication in the following form:
This is one of the Securities described in the within-mentioned Indenture.
Dated: IBJ SCHRODER BANK & TRUST
COMPANY
as Trustee
By ,
-------------------------
As Authenticating Agent
By ,
-------------------------
Authorized Signatory
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
Section 701. Company to Furnish Trustee
--------------------------
Names and Addresses of Holders.
------------------------------
The Company shall furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular Record
Date, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the time
such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
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Section 702. Preservation of Information; Communications to Holders.
------------------------------------------------------
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to the names and addresses of Holders made pursuant
to the Trust Indenture Act.
Section 703. Reports by Trustee.
------------------
(a) Within 60 days after May 15 of each year commencing with the May
15 following the Issue Date, the Trustee shall transmit to Holders such reports
concerning the Trustee and its actions under this Indenture as may be required
pursuant to the Trust Indenture Act in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Securities are listed, with the Commission and with the Company. The
Company shall notify the Trustee in writing when the Securities are listed on
any stock exchange.
Section 704. Reports by Company.
------------------
The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information,
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documents and other reports, and such summaries thereof, as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant to such Act; provided that any such information, documents or reports
--------
required to be filed with the Commission pursuant to Section 13 or 15(d) of
the Exchange Act shall be filed with the Trustee within 15 days after the same
is so required to be filed with the Commission.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
Section 801. Company May Consolidate, Etc. Only on Certain Terms.
---------------------------------------------------
The Company shall not, in any transaction or series of transactions,
consolidate with or merge into any other Person, or sell, convey, assign,
transfer, lease or otherwise dispose of all or substantially all of the Property
and assets of the Company to any other Person, unless:
(i) either (a) the Company shall be the continuing corporation
or (b) the corporation (if other than the Company) formed by such consolidation
or into which the Company is merged, or the Person that acquires, by sale,
assignment, conveyance, transfer, lease or disposition, all or substantially all
of the Property and assets of the Company (such corporation or Person, the
"Surviving Entity"), shall be a corporation organized and validly existing
under the laws of the United States of America, any political subdivision
thereof or any state thereof or the District of Columbia, and shall expressly
assume, by a supplemental indenture, the due and punctual payment of the
principal of (and premium, if any) and interest on all the Securities and the
performance of the Company's covenants and obligations under this Indenture;
(ii) immediately before and immediately after giving effect to
such transaction or series of transactions on a pro forma basis (including,
--- -----
without limitation, any Debt Incurred or anticipated to be Incurred in
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connection with or in respect of such transaction or series of transactions),
no Default or Event of Default shall have occurred and be continuing or would
result therefrom;
(iii) immediately after giving effect to any such transaction or
series of transactions on a pro forma basis (including, without limitation, any
--- -----
Debt Incurred or anticipated to be Incurred in connection with or in respect of
such transaction or series of transactions) as if such transaction or series of
transactions had occurred on the first day of the determination period, the
Company (or the Surviving Entity if the Company is not continuing) would be
permitted to Incur $1.00 of additional Debt pursuant to Section 1008(a); and
(iv) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any Debt
--- -----
Incurred or anticipated to be Incurred in connection with or in respect of
such transaction or series of transactions)(without giving effect to the fees
and expenses incurred in respect of such transaction),the Company (or the
Surviving Entity if the Company is not continuing) shall have a Net Worth
equal to or greater than the Net Worth of the Company immediately prior to
such transaction.
In connection with any consolidation, merger, sale, assignment,
conveyance, transfer, lease or other disposition contemplated by the foregoing
provisions of this Section 801, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, sale, conveyance, assignment, transfer, lease or
other disposition and the indenture supplemental hereto in respect thereof (to
the extent required under clause (i) of this Section 801) comply with the
requirements of this Indenture. Each such Officers' Certificate shall set forth
the ability to Incur Debt in accordance with clause (iii) of Section 801.
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 this Indenture in advance of or in connection with such merger.
For all purposes of this Indenture and the Securities (including this
Section 801 and Sections 1008, 1009 and 1012), Subsidiaries of any Surviving
Entity shall,
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upon such transaction or series of transactions, become Restricted
Subsidiaries or Unrestricted Subsidiaries as provided pursuant to this Indenture
and all Debt, and all Liens on Property or assets, of the Surviving Entity and
its Subsidiaries that was not Debt, or were not Liens on Property or assets, of
the Company and its Subsidiaries immediately prior to such transaction or series
of transactions shall be deemed to have been Incurred upon such transaction or
series of transactions.
Section 802. Successor Substituted.
---------------------
Upon any transaction or series of transactions that are of the type
described in, and are effected in accordance with, Section 801, the Surviving
Entity shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Indenture with the same effect as if such
Surviving Entity had been named as the Company herein; and when a Surviving
Person duly assumes all of the obligations and covenants of the Company pursuant
to this Indenture and the Securities, except in the case of a lease, the
predecessor Person shall be relieved of all such obligations.
ARTICLE NINE
Supplemental Indentures
Section 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, may, and subject to Section 903, the Trustee, at any time and
from time to time, shall, enter into one or more indentures supplemental hereto,
in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company
and the assumption by any such successor of the covenants of the Company
herein and in the Securities; or
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(2) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon the
Company; or
(3) to add additional Events of Default; or
(4) to provide for uncertificated Securities in addition to or
in place of the certificated Securities; or
(5) to change or eliminate any of the provisions of this
Indenture, provided that any such change or elimination shall become effective
--------
only when there is not Outstanding any Security created prior to the execution
of such supplemental indenture that is entitled to the benefit of such
provision; or
(6) to evidence and provide for the acceptance of appointment
under this Indenture by a successor Trustee; or
(7) to secure the Securities pursuant to the requirements of
Section 1012 or otherwise; or
(8) to cure any ambiguity, to correct or supplement any
provision herein that may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or questions
arising under this Indenture (8), provided that such actions pursuant to this
--------
clause shall not adversely affect the interests of the Holders; or
(9) to comply with any requirements of the Commission in order
to effect and maintain the qualification of this Indenture under the Trust
Indenture Act.
Section 902. Supplemental Indentures with Consent of Holders.
------------------------------------------------
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, may, and (subject to Section 903) the Trustee shall, enter
into an indenture or indentures
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supplemental hereto, in form satisfactory to the Trustee, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders under this Indenture; provided that no such supplemental indenture
--------
shall, without the consent of the Holder of each Outstanding Security affected
thereby,
(1) change the Stated Maturity of the principal of or any
installment of interest on, any Security, or reduce the principal amount thereof
at or the rate of interest thereon or any premium payable thereon, reduce the
rate or extend the time of accretion of original issue discount thereon beyond
July 15, 1997 or the time of payment of any cash interest thereon, reduce any
amount payable on redemption or purchase thereof, or reduce the Default Amount
that would be due and payable on acceleration of the Stated Maturity thereof
pursuant to Section 502, or change the place of payment where, or the coin or
currency in which, any Security or any premium or interest thereon is payable,
or impair the right to institute suit for the enforcement of any such payment on
or after the Stated Maturity thereof, or
(2) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture, or
(3) modify the obligations of the Company to make Offers to
Purchase from the Excess Proceeds of Asset Sales or to modify the related
definitions, or
(4) subordinate a right of payment, or otherwise subordinate,
the Securities to any other indebtedness, or
(5) modify any provisions of this Indenture relating to the
calculation of Accreted Value, or
(6) modify any of the provisions of this Section 902, Section
513 or Section 1020, except to in-
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crease any such percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of
each Outstanding Security affected thereby.
It shall not be necessary for any Act of Holders under this Section
902 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
After a supplemental indenture under this Section becomes effective,
the Company shall mail to the Holders affected thereby a notice briefly
describing the supplemental indenture. Any failure of the Company to mail such
notice, or any default therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
In connection with any supplemental indenture or waiver under this
Article Nine, the Company may, but shall not be obligated to, offer to any
Holder who consents to such supplemental indenture, or to all Holders,
consideration for such Holder's consent to such supplemental indenture.
Section 903. Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 601) shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture that
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
Section 904. Effect of Supplemental Indentures.
---------------------------------
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<PAGE>
Upon the execution of any supplemental indenture under this Article
Nine, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby, unless it makes a change described in any of
clauses (1) through (6) of Section 902, in which case, the supplemental
indenture shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same Debt as the consenting Holder's Security; provided that any such waiver
--------
shall not impair or affect the right of any Holder to receive payment of
principal and premium of and interest on a Security, on or after the respective
dates set for such amounts to become due and payable, or to bring suit for the
enforcement of any such payment on or after such respective dates.
Section 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article Nine
shall conform to the requirements of the Trust Indenture Act.
Section 906. Reference in Securities to Supplemental Indentures.
---------------------------------------------------
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article Nine may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Company shall
so determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared
and executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities. Any failure to make the appropriate
notation on a new Security shall not affect the validity of such Security.
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<PAGE>
ARTICLE TEN
Covenants
Section 1001. Payment of Principal, Premium and Interest.
------------------------------------------
The Company shall duly and punctually pay the principal of (and
premium, if any) and interest on the Securities in accordance with the terms of
the Securities and this Indenture.
Section 1002. Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in the Borough of Manhattan, The City of
New York, an office or agency where Securities may be presented or surrendered
for payment, where Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The Company shall give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations,
surrenders, notices and demands. In the event any such notice or demands are
so made or served on the Trustee, the Trustee shall promptly forward copies
thereof to the Company.
The Company may also from time to time designate one or more other
offices or agencies (in or outside the Borough of Manhattan, The City of New
York) where the Securities may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided that no
--------
such designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of Manhattan, The City
of New York, for such purposes. The Company shall give prompt written notice to
the Trustee of any such designation or rescission and of any
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change in the location of any such other office or agency. The Company hereby
initially designates the Corporate Trust Office of the Trustee as such office
of the Company.
Section 1003. Money for Security Payments to be Held in Trust.
-----------------------------------------------
If the Company shall at any time act as its own Paying Agent, it
shall, on or before each due date of the principal of (and premium, if any) or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and shall promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it shall,
prior to each due date of the principal of (and premium, if any) or interest on
any Securities, deposit with a Paying Agent a sum sufficient to pay the
principal (and premium, if any) or interest so becoming due, such sum to be held
as provided by the Trust Indenture Act, and (unless such Paying Agent is the
Trustee) the Company shall promptly notify the Trustee of its action or failure
so to act.
The Company shall cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section 1003,
that such Paying Agent shall (i) comply with the provisions of the Trust
Indenture Act applicable to it as Paying Agent, (ii) give the Trustee notice of
any default by the Company (or other obligor upon the Securities) in the making
of any payment of principal of (and premium, if any) or interest in respect of
the Securities and (iii) during the continuance of any default by the Company
(or any other obligor upon the Securities) in the making of any payment in
respect of the Securities, upon the written request of the Trustee, forthwith
pay to the Trustee all sums held in trust by such Paying Agent as such.
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The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Security and remaining unclaimed for two years after
such principal (and premium, if any) or interest has become due and payable
shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money shall thereupon cease; provided that the Trustee or
--------
such Paying Agent, before being required to make any such repayment, may at
the expense of the Company cause to be published once, in a newspaper
published in the English language, customarily published on each Business Day
and of general circulation in The City of New York, or mail to such Holder, or
both, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining shall be
repaid to the Company.
Section 1004. Existence.
---------
Subject to Article Eight, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (charter and statutory) and material franchises; provided
--------
that the Company shall not be required to preserve any such right or franchise
if the Board of Directors in good faith shall determine that the preservation
thereof is no longer desirable in the conduct of the
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business of the Company and that the loss thereof is not disadvantageous in
any material respect to the Holders.
Section 1005. Maintenance of Properties.
-------------------------
The Company shall cause all material properties used or useful in the
conduct of its business or the business of any Restricted Subsidiary and any
Eligible Joint Venture to be maintained and kept in good condition, repair and
working order and supplied with all necessary equipment and shall cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided that nothing in this Section 1005 shall prevent
--------
the Company from discontinuing the operation or maintenance of any of such
material or properties or, subject to the provisions of Section 1015, disposing
of any of them if such discontinuance or disposal is, as determined by the Board
of Directors in good faith, desirable in the conduct of its business or the
business of any Restricted Subsidiary and not disadvantageous in any material
respect to the Holders, provided that the Restricted Subsidiaries and the
--------
Eligible Joint Ventures of the Company shall not be required to comply with the
foregoing provisions of this Section 1005 if they are prevented or restricted in
doing so by the terms of any loan or financing agreement, any charter document
or any other agreement or instrument.
Section 1006. Payment of Taxes and Other Claims.
---------------------------------
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any of its Restricted
Subsidiaries or upon the income, profits or property of the Company or any of
its Restricted Subsidiaries, and (2) all lawful claims for labor, materials and
supplies that, if unpaid, might by law become a Lien upon the property of the
Company or any of its Restricted Subsidiaries; provided that the Company shall
--------
not be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings and for which disputed
amounts adequate reserves have been accrued to the extent required by GAAP.
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Section 1007. Maintenance of Insurance.
------------------------
The Company shall, and shall cause its Restricted Subsidiaries and the
Eligible Joint Ventures to, keep at all times all of their Properties that are
of an insurable nature insured against loss or damage with insurers believed by
the Company to be responsible to the extent that Property of similar character
is usually so insured by Persons similarly situated and owning like Properties
in accordance with good business practice. The Company shall, and shall cause
its Restricted Subsidiaries and the Eligible Joint Ventures to, use the proceeds
from any such insurance policy to repair, replace or otherwise restore all
material Properties to which such proceeds relate, provided that the Company
--------
shall not be required to repair, replace or otherwise restore any such material
Property if the Board of Directors in good faith determines that such inaction
is desirable in the conduct of the business of the Company or any Restricted
Subsidiary and not disadvantageous in any material respect to the Holders, and
provided further that the Restricted Subsidiaries and the Eligible Joint
- -------- -------
Ventures of the Company shall not be required to apply insurance proceeds to
repair, replace or restore any material Property if they are prevented or
restricted in doing so by the terms of any loan or financing agreement, any
charter document or any other agreement or instrument.
The Company may adopt such other plan or method of protection, in lieu
of or supplemental to insurance with insurers, whether by the establishment of
an insurance fund or reserve to be held and applied to make good losses from
casualties, or otherwise, conforming to the system of self-insurance maintained
by corporations similarly situated and owning like Properties and not
disadvantageous to the Holders in any material respect, as may be determined by
the Board of Directors in good faith.
Section 1008. Limitation on Debt.
------------------
(a) The Company shall not Incur any Debt, including Acquisition Debt,
unless, after giving effect to the Incurrence of such Debt and the receipt and
application
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of the proceeds therefrom, the Fixed Charge Ratio of the Company
would be equal to or greater than 2.0 to 1.
(b) Notwithstanding the provisions of Section 1008(a), 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 Securities,
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), shall be deemed
to be an Incurrence of Debt that is subject to the provisions of this Section
1008 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 Securities and other
Debt outstanding as of the Issue Date of the Securities (other than Debt to
the extent that it is extinguished, retired, defeased or repaid in connection
with the original issuance of the Securities), 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 Issue Date of the Securities and (viii) Debt in an
aggregate principal amount not to exceed $50 million outstanding at any one
time.
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<PAGE>
Section 1009. Limitation on Subsidiary Debt.
-----------------------------
(a) The Company shall not permit any of its Restricted Subsidiaries
or any Eligible Joint Venture, to Incur any Debt.
(b) Notwithstanding the provisions of Section 1009(a), 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 Issue Date of the
Securities, (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 indirect interest (which may include Construction
Financing provided by the Company to the extent permitted under Section 1010
as a "Permitted Investment"), (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.
Section 1010. Limitation on Restricted Payments.
---------------------------------
(a) The Company shall not, and shall 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 Section 1008(a) and (c) the aggregate amount of all
Restricted Payments made by the
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Company, its Restricted Subsidiaries 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 Issue Date of the Securities, 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 Issue Date of the
Securities 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 Securities
are rated Investment Grade by S&P and Moody's (or if both do not make a rating
of the Securities 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 shall 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 Issue Date of the
Securities 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
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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 shall 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 or an Eligible Joint Venture,
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) shall 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 Section
1010(a).
(b) None of the Company, any of its Restricted Subsidiaries or any
Eligible Joint Venture shall 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 a Restricted Subsidiary being designated as an
Unrestricted Subsidiary), although any subsequent Investment made by the
Company, its Restricted Subsidiaries and Eligible Joint Ventures in such Person
shall be Investments that shall be subject to the foregoing paragraph unless and
until such time as such Person becomes a Restricted
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<PAGE>
Subsidiary or an Eligible Joint Venture. Notwithstanding the foregoing, (i)
the designation of a Restricted Subsidiary as an Unrestricted Subsidiary, in
the manner provided in the definition of "Unrestricted Subsidiary," shall be
an Investment that shall be subject to the foregoing paragraph and (ii) the
transfer of the Company's interest (or portion thereof) in an entity that has
been deemed to be an Eligible Joint Venture directly or indirectly to an
Unrestricted Subsidiary shall be an Investment (to the extent of the interest
transferred) that shall be subject to the foregoing paragraph.
Section 1011. Limitation on Transactions with Affiliates.
------------------------------------------
The Company shall not, and shall 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 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, 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
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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.
Section 1012. Limitation on Liens.
--------------------
The Company may not Incur any Debt that is secured, directly or
indirectly, with, and the Company shall not, and shall 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 Securities 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 Section 1012,
(iii) Liens that are granted in good faith to secure Debt (A) contemplated by
clause (iv) of Section 1008(b) or (B) contemplated by clauses (ii), (iii) and
(vi) of Section 1009(b), 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
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in the applicable jurisdiction, (iv) Liens existing on the Issue Date of the
Securities, (v) Liens incurred to secure Debt incurred by the Company as
permitted by clause (vi) of Section 1008(b), 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
shall 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 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
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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.
Section 1013. Purchase of Securities Upon a Change of Control.
-------------------------------------------------
(a) Upon the occurrence of a Change of Control , each Holder of the
Securities shall have the right to require that the Company repurchase such
Holder's Securities 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.
(b) Within 30 days following a Change of Control, the Company shall
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 Securities at the purchase price described
in Section 1013(a) (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 shall be
not earlier than 30 days nor later than 60 days from the date such notice is
mailed) (the "Change of Control Purchase Date"), (4) that original issue
discount on any Security not tendered or purchased shall continue to accrete
until January 15, 1997, and thereafter interest on any such Security shall
continue to accrue, (5) any Security properly tendered pursuant to the Change
of Control Offer shall cease to accrete original issue discount or accrue
interest, as
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the case may be, after the Change of Control Purchase Date (assuming
sufficient moneys for the purchase thereof are deposited with the Trustee),
(6) that Holders electing to have a Security purchased pursuant to a Change of
Control Offer shall be required to surrender the Security, with the form
entitled "Option of Holder To Elect Purchase" on the reverse of the Security
completed, to the paying agent at the address specified in the notice prior to
the close of business on the fifth Business Day prior to the Change of Control
Purchase Date, (7) that a Holder shall 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 Change of Control Purchase Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the Holder,
the principal amount of Securities the Holder delivered for purchase, and a
statement that such Holder is withdrawing his election to have such Securities
purchased and (8) that Holders that elect to have their Securities purchased
only in part shall be issued new Securities having a principal amount equal to
the portion of the Securities that were surrendered but not tendered and
purchased.
On the Change of Control Purchase Date, the Company shall (i) accept
for payment all Securities or portions thereof tendered pursuant to the Change
of Control Offer, (ii) deposit with the Trustee money sufficient to pay the
purchase price of all Securities or portions thereof so tendered for purchase
and (iii) deliver or cause to be delivered to the Trustee the Securities
properly tendered together with an Officers' Certificate identifying the
Securities or portions thereof tendered to the Company for purchase. The
Trustee shall promptly mail, to the Holders of the Securities properly
tendered and purchased, payment in an amount equal to the purchase price, and
promptly authenticate and mail to each Holder a new Security having a
principal amount equal to any portion of such Holder's Securities that were
surrendered but not tendered and purchased. The Company shall publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Purchase Date.
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If the Company is prohibited by applicable law from making the Change
of Control Offer or purchasing Securities thereunder, the Company need not make
a Change of Control Offer pursuant to this Section 1013 for so long as such
prohibition is in effect.
The Company shall 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.
Section 1014. Limitation on Dividends and Other Payment Restrictions Affecting
----------------------------------------------------------------
Subsidiaries.
------------
The Company shall not, and shall 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 Issue Date of the Securities, (ii) pursuant to this
Indenture, (iii) in connection with the Incurrence of any Debt permitted under
the provisions described in clause (iii) of Section 1009(b), provided that,
--------
in the case of Debt owed to Persons other than the
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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) of this Section 1014 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, (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) of this Section 1014 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
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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 Section 1009(b), 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 Property of such Restricted Subsidiary or
such Eligible Joint Venture that are permitted by Section 1012 but only with
respect to transfers referred to in clause (d) of this Section 1014 or (x) in
connection with the Incurrence of any Debt permitted under clause (ii) of
Section 1009(b).
Section 1015. Limitation on Dispositions.
---------------------------
(a) Subject to the provisions of Article Eight, the Company shall
not make and shall 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 sen-
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tence of Section 1022, 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 or of any of its Restricted Subsidiaries or any Eligible Joint Venture
(or as otherwise required under the terms of such Debt), provided that, no
--------
such payment of Debt (x) under Permitted Working Capital Facilities or any
other revolving credit agreement shall count for this purpose unless the
related loan commitment, standby facility or the like shall be permanently
reduced by an amount equal to the principal amount so repaid and (y) owed to
the Company, a Restricted Subsidiary thereof or an Eligible Joint Venture
shall count for this purpose, 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 shall
constitute "Excess Proceeds." Excess Proceeds shall be applied, as described
below, to make an offer (an "Excess Proceeds Offer") to purchase Securities at a
purchase price equal to 100% of Accreted Value thereof, plus accrued interest,
if any, to the date of purchase.
(b) Notwithstanding the provisions of Section 1015(a), 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
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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 shall be subject to
Section 1010. Notwithstanding anything in the foregoing to the contrary, the
Company may not, and shall 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 three geothermal facilities located together at
the Naval Weapons Center at China Lake, California, sometimes referred to as the
"Coso Project," other than for consideration consisting solely of cash.
(c) 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 shall not be required to be applied at the time
provided above but may be retained 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 shall 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 shall be
effected immediately and the repatriated Net Cash Proceeds shall be applied in
the manner set forth in this Section 1015(c) as if such Asset Disposition had
occurred on the
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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
this Section 1015(a), the Company may apply such Net Cash Proceeds pursuant
to such provision.
(d) If the Securities tendered pursuant to an Excess Proceeds Offer
have an aggregate purchase price that is less than the Excess Proceeds available
for the purchase of the Securities, the Company may use the remaining Excess
Proceeds for general corporate purposes without regard to the provisions of
this Section 1015(d). The Company shall not be required to make an Excess
Proceeds Offer pursuant to this Section 1015 if the Excess Proceeds available
therefor are less than $10 million, provided that the lesser amounts of such
--------
Excess Proceeds shall be carried forward and cumulated for each
36 consecutive month period for purposes of determining whether an Excess
Proceeds 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 shall not reduce the amount of cumulated Excess
--------
Proceeds or relieve the Company of its obligation hereunder to make an Excess
Proceeds Offer with respect thereto.
(e) The Company shall make an Excess Proceeds Offer by mailing to
each Holder, with a copy to the Trustee, within 30 days after the receipt of
Excess Proceeds that cause the cumulated Excess Proceeds to exceed $10 million,
a written notice that shall specify the
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purchase date, which shall not be less than 30 days nor more than 60 days
after the date of such notice (the "Excess Proceeds Purchase Date"), that
shall contain certain information concerning the business of the Company that
the Company believes in good faith shall enable the Holders to make an
informed decision and that shall contain information concerning the procedures
applicable to the Excess Proceeds Offer (including, without limitation, the
right of withdrawal) and the effect of such offer on the Securities tendered.
Holders that elect to have their Securities purchased shall be required to
surrender such Notes at least one Business Day prior to the Excess Proceeds
Purchase Date. If at the expiration of the Excess Proceeds Offer period the
aggregate purchase price of the Securities properly tendered by Holders
pursuant to the Excess Proceeds Offer exceeds the amount of such Excess
Proceeds, the Securities or portions of Securities to be accepted for purchase
shall be selected by the Trustee in such manner as the Trustee deems to be
fair and appropriate in the circumstances.
On the Excess Proceeds Purchase Date, the Company shall (i) accept
for payment on a pro rata basis Securities or portions thereof tendered pursuant
--- ----
to the Excess Proceeds Offer, (ii) deposit with the Paying Agent money in
immediately available funds sufficient to pay the aggregate purchase price of
all the Securities or portions thereof so accepted and (iii) deliver to the
Trustee Securities so accepted together with an Officers' Certificate stating
the Securities or portions thereof tendered to the Company. The Paying Agent
shall promptly mail to the Holders of each Security so accepted payment in an
amount equal to the aggregate purchase price, and the Trustee shall promptly
authenticate and mail to the Holders of each Security so accepted payment in
an amount equal to the purchase price thereof, and the Trustee shall promptly
authenticate and mail to such Holders new Securities equal in principal amount
to any portion of the Security surrendered that was not purchased. The Company
shall make a public announcement of the results of the Excess Proceeds Offer
as soon as practicable after the Excess Proceeds Purchase Date. For the
purposes of this Section 1015, the Trustee shall act as the Paying Agent.
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If the Company is prohibited by applicable law from making the Excess
Proceeds Offer or purchasing Securities thereunder, the Company need not make an
Excess Proceeds Offer pursuant to this Section 1015 for so long as such
prohibition is in effect.
The Company shall comply with all applicable tender offer rules,
including, without limitation, Rule 14e-1 under the Exchange Act, in connection
with an Excess Proceeds Offer.
Section 1016. Limitation on Certain Sale-Leasebacks.
--------------------------------------
The Company shall not, and shall 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 Section 1008 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 Section
1009(b), assuming for the purpose of this Section 1016 and Section 1008 and
1009 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 Section 1012 of this
Indenture, (iii) the proceeds of such sale-leaseback are at least equal to the
fair market value of the property sold (determined in good faith as evidenced
by an Officers' Certificate delivered to the Trustee in respect of a
transaction involving less than $25 million, or, if equal to or in excess of
$25 million, 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
Section 1015.
Section 1017. Provision of Financial Information.
----------------------------------
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Whether or not the Company is subject to Section 13(a) or 15(d) of
the Exchange Act, or any successor provision thereto, the Company shall file
with the Commission the annual reports, quarterly reports and other documents
that the Company would have been required to file with the Commission pursuant
to such Section 13(a) or 15(d) or any successor provision thereto if the
Company were subject thereto, such documents to be filed with the Commission
on or prior to the respective dates by which the Company would have been
required to file them. The Company shall also in any event (a) within 15 days
of each such date (i) transmit by mail to all Holders, as their names and
addresses appear in the Security Register, without cost to such Holders, and
(ii) file with the Trustee copies of the annual reports, quarterly reports and
other documents (without exhibits) which the Company would have been required
to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange
Act or any successor provisions thereto if the Company were subject thereto
and (b) if filing such documents by the Company with the Commission is not
permitted under the Exchange Act, promptly upon written request, supply copies
of such documents (without exhibits) to any prospective Holder.
Section 1018. Limitation on Sale of Subsidiary Preferred Stock.
-------------------------------------------------
The Company shall 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 this 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 Issue Date of the Securities,
(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
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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 and (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 of 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.
Section 1019. Statement by Officers as to Default; Compliance Certificates.
------------------------------------------------------------
(a) The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company, its Restricted Subsidiaries and the
Eligible Joint Ventures (signed by a signatory prescribed under the Trust
Indenture Act) during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture and whether the Restricted Subsidiaries and the Eligible Joint
Ventures are in compliance with all covenants of this Indenture appli-
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cable to them and further stating, as to each such Officer signing such
certificate, that to the best of his knowledge each has kept, observed,
performed and fulfilled each and every covenant contained in this Indenture
and is not in default in the performance or observance of any of the terms,
provisions, and conditions hereof (or, if a Default or Event of Default shall
have occurred, describing all such Defaults or Events of Default of which he
may have knowledge and what action each is taking or proposes to take with
respect thereto).
(b) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of (i) any Default or Event of Default or (ii) any event of default under any
other mortgage, indenture or instrument referred to in Section 501(6), an
Officers' Certificate specifying such Default, Event of Default or other event
of default and what action the Company is taking or proposes to take with
respect thereto.
Section 1020. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Section 801, provided pursuant to Section
901(2) and set forth in Sections 1004 to 1012, inclusive, Section 1014 and
Sections 1016 through 1018, inclusive, and Section 1022 if before the time for
such compliance the Holders of at least a majority in principal amount at Stated
Maturity of the Outstanding Securities shall, by Act of such Holders, either
waive such compliance in such instance or generally waive compliance with such
covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such covenant or condition shall remain in full
force and effect.
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Section 1021. Company to Supply Information Concerning Original Issue
--------------------------------------------------------
Discount.
- --------
The Company shall provide to the Trustee on a timely basis such
information as the Trustee requires to enable the Trustee to prepare and file
any form required to be filed with the Internal Revenue Service or to the
Holders of the Securities relating to original issue discount, including
without limitation, Form 1099-OID or any successor form.
Section 1022. Limitation on Business.
----------------------
The Company shall, and shall 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 shall not, and shall 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 and 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
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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.
ARTICLE ELEVEN
Redemption of Securities
Section 1101. Right of Redemption.
-------------------
The Securities may be redeemed at the election of the Company, in the
amounts, at any time on or after January 15, 1999, at the Redemption Prices
specified in the form of Security hereinbefore set forth (together with any
applicable accrued and unpaid interest to the Redemption Date) and subject to
the conditions specified in the form of Security hereinbefore set forth.
Section 1102. Applicability of Article.
------------------------
Redemption of Securities at the election of the Company, as permitted
by this Indenture and the provisions of the Securities, shall be made in
accordance with such provisions and this Article Eleven.
Section 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company pursuant to Section 1101 of less than
all the Securities, the Company shall, at least 60 days prior to the Redemption
Date fixed by the Company (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee of such Redemption Date and of the principal amount
of Securities to be redeemed.
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Section 1104. Selection by Trustee of Securities to Be Redeemed.
--------------------------------------------------
If less than all the outstanding Securities are to be redeemed, the
Securities or portions of Securities to be redeemed or accepted shall be
selected by the Trustee pro rata or otherwise in such manner as the Trustee
deems to be fair and appropriate in the circumstances, provided that the
--------
Trustee shall redeem Securities only in denominations of $1,000 principal
amount and integral multiples thereof.
The Trustee shall promptly notify the Company and each Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected for partial redemption, the principal amount thereof
to be redeemed.
For all purposes of this Indenture and or the Securities, unless the
context otherwise requires, all provisions relating to the redemption of
Securities shall relate, in the case of any Securities redeemed or to be
redeemed only in part, to the portion of the principal amount of such Securities
that has been or is to be redeemed.
Section 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given as provided in Section 106 not
less than 30 nor more than 60 days prior to the Redemption Date, to each Holder
of Securities to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities are to be
redeemed, the identification (and, in the case of partial redemption, the
principal amounts) of the particular Securities to be redeemed, including
CUSIP Numbers,
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(4) that on the Redemption Date the Redemption Price shall
become due and payable upon each such security to be redeemed and that, unless
the Company shall default in the payment of the Redemption Price and any
applicable accrued interest, (i) in the case of a Redemption Date on or after
January 15, 1999, interest thereon shall cease to accrue on and after said
Redemption Date and (ii) in the case of a Redemption Date prior to January 15,
1999, the Accreted Value thereof shall not increase after said Redemption Date,
and
(5) the name of the Paying Agent or Agents and the place or
places where such Securities are to be surrendered for payment of the
Redemption Price.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall be irrevocable.
Section 1106. Deposit of Redemption Price.
---------------------------
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) any applicable accrued and unpaid
interest on, all the Securities that are to be redeemed on that date.
Section 1107. Securities Payable on Redemption Date.
-------------------------------------
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and any applicable
accrued and unpaid interest) such Securities shall not bear interest and the
Accreted Value of such Securities shall thereupon and thereafter conclusively be
deemed to be their Accreted Value determined on and as of such Redemption Date
and
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<PAGE>
shall not increase. Upon surrender of any such Security for redemption in
accordance with said notice, such Security shall be paid by the Company at the
Redemption Price, together with any applicable accrued and unpaid interest to
the Redemption Date; provided that installments of interest whose Stated
--------
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as such
at the close of business on the relevant Record Dates according to their terms
and the provisions of Section 307.
If any Security called for redemption in accordance with the election
of the Company made pursuant to Section 1101 shall not be so paid upon surrender
thereof for redemption, the unpaid Redemption Price thereof shall, until paid,
bear interest or accrete from the Redemption Date at the rate or manner provided
by the Security.
Section 1108. Securities Redeemed in Part.
---------------------------
Any Security that is to be redeemed only in part shall be surrendered
at an office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal amount of the Security so surrendered.
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<PAGE>
ARTICLE TWELVE
Defeasance and Covenant Defeasance
Section 1201. Company's Option to Effect Defeasance or Covenant Defeasance.
-------------------------------------------------------------
The Company may elect, at its option at any time, to have Section 1202
or Section 1203 applied to the Outstanding Securities (as a whole and not in
part) upon compliance with the conditions set forth below in this Article
Twelve. Any such election shall be evidenced by a Board Resolution.
Section 1202. Defeasance and Discharge.
------------------------
Upon the Company's exercise of its option to have this Section 1202
applied to the Outstanding Securities (as a whole and not in part), the
Company shall be deemed to have been discharged from its obligations with
respect to such Securities as provided in this Section 1202 on and after the
123rd day after the conditions set forth in Section 1204 are satisfied
(hereinafter called "Defeasance") (or immediately if an Opinion of Counsel is
delivered to the effect described in clause (C)(y) of paragraph (2) of Section
1204). For this purpose, such Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by such
Securities and to have satisfied all its other obligations under such
Securities and this Indenture insofar as such Securities are concerned (and
the Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), subject to the following which shall survive until
otherwise terminated or discharged hereunder: (1) the rights of Holders of
such Securities to receive, solely from the trust fund described in Section
1204 and as more fully set forth in such Section, payments in respect of the
principal of and any premium and interest on such Securities when payments are
due, (2) the Company's obligations with respect to such Securities under
Sections 304, 305, 306, 1002, 1003 and 1004 (only with respect to the
corporate existence and rights of the Company), (3) the rights, powers,
trusts, duties and immunities of the Trustee under this Indenture, (4) Article
Eleven and (5) this
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<PAGE>
Article Twelve. Subject to compliance with this Article Twelve, the Company
may exercise its option to have this Section 1202 applied to the Outstanding
Securities (as a whole and not in part) notwithstanding the prior exercise of
its option to have Section 1203 applied to such Securities.
Section 1203. Covenant Defeasance.
-------------------
Upon the Company's exercise of its option to have this Section applied
to the Outstanding Securities (as a whole and not in part), (i) the Company, its
Restricted Subsidiaries and its Eligible Joint Ventures shall be released from
its obligations under Section 801(iii), Sections 1005 through 1018, inclusive,
Section 1022, and any covenant provided pursuant to Section 901(2) and (ii) the
occurrence of any event specified in Section 501(1) (solely with respect to
Offers to Purchase), Section 501(3), Section 501(4) (with respect to any of
Section 801(iii) and Sections 1005 through 1018, inclusive, Section 1022, and
any such covenants provided pursuant to Section 901(2)), Section 501(5) or
Section 501(6) shall be deemed not to be or result in an Event of Default, in
each case with respect to such Securities as provided in this Section on and
after the date the conditions set forth in Section 1204 are satisfied
(hereinafter called "Covenant Defeasance"). For this purpose, such Covenant
Defeasance means that, with respect to such Securities, the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such specified Section (to the extent so specified
in the case of Sections 501(1) and 501(4)), whether directly or indirectly by
reason of any reference elsewhere herein to any such Section or by reason of any
reference in any such Section to any other provision herein or in any other
document; but the remainder of this Indenture and such Securities shall be
unaffected thereby.
Section 1204. Conditions to Defeasance or Covenant Defeasance.
-----------------------------------------------
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<PAGE>
The following shall be the conditions to the application of Section
1202 or Section 1203 to the Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee that satisfies the requirements
contemplated by Section 609 and agrees to comply with the provisions of this
Article applicable to it) as trust funds in trust for the purpose of making
the following payments, specifically pledged as security for, and dedicated
solely to the benefits of the Holders of such Securities, (A) money in an
amount, or (B) U.S. Government Obligations that through the scheduled payment
of principal and interest in respect thereof in accordance with their terms
shall provide, not later than one day before the due date of any payment,
money in an amount, or (C) a combination thereof, in each case sufficient, in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to pay
and discharge, and which shall be applied by the Trustee (or any such other
qualifying trustee) to pay and discharge, the principal of, premium if any and
any installment of accrued interest on such Securities on the respective
Stated Maturities thereof or, if the Company makes arrangements satisfactory
to the Trustee for the redemption of the Securities prior to their Stated
Maturity, on any earlier Redemption Date, in accordance with the terms of this
Indenture and such Securities.
(2) In the event of an election to have Section 1202 apply to the
Outstanding Securities, the Company shall have delivered to the Trustee (A)
either (X) an Opinion of Counsel to the effect that Holders shall not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit, defeasance and discharge and shall 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 Securities 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
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<PAGE>
federal income tax law or related Treasury regulations after the date of the
Indenture or (y) a ruling directed to the Trustee or the Company received from
the Internal Revenue Service to the same effect as the aforementioned Opinion
of Counsel, (B) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and (C)
an Opinion of Counsel to the effect that either (x) after the passage of 123
days following the deposit, the trust fund shall 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
manner were properly briefed, a court should hold that the deposit of moneys
and/or U.S. Government Obligations as provided in Section 1204(1) 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.
(3) In the event of an election to have Section 1203 apply to the
Outstanding Securities, the Company shall have delivered to the Trustee (i) an
Opinion of Counsel to the effect that the Holders of such Outstanding
Securities shall not recognize income, gain or loss for Federal income tax
purposes as a result of the deposit and Covenant Defeasance to be effected
with respect to such Securities and shall be subject to Federal income tax on
the same amount, in the same manner and at the same times as would be the case
if such deposit and Covenant Defeasance were not to occur and the Company had
paid or redeemed such Securities on the applicable dates, (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 shall 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 manner were
properly briefed, a court should hold that the deposit of moneys and/or U.S.
Government Obligations as provided in Section 1204(1) 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.
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<PAGE>
(4) Immediately after giving effect to such deposit on a pro forma
--- -----
basis, no Default or Event of Default or event that after the giving of notice
or lapse of time or both would become an Event of Default, with respect to the
Outstanding Securities shall have occurred and be continuing at the time of such
deposit or (unless an Opinion of Counsel is delivered to the effect described in
Section 1204(2)(C)(y) or 1204(3)(iii)(y)) during the period ending on the 123rd
day after the date of such deposit.
(5) Such Defeasance or Covenant Defeasance shall not cause the
Trustee to have a conflicting interest within the meaning of the Trust Indenture
Act (assuming all Securities are in default within the meaning of such Act).
(6) Such Defeasance or Covenant Defeasance shall 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 it is bound.
(7) Such Defeasance or Covenant Defeasance shall not result in the
trust arising from such deposit constituting an investment company within the
meaning of the Investment Company Act of 1940, as amended, unless such trust
shall be registered under such Act or exempt from registration thereunder.
(8) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Defeasance or Covenant Defeasance have been
complied with.
(9) If the Securities are listed on a national securities exchange,
the Company shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Securities shall not be delisted as a result of such deposit,
defeasance and discharge.
Section 1205. Deposited Money and U.S. Government Obligations to Be Held in
-------------------------------------------------------------
Trust; Miscellaneous Provisions.
-------------------------------
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<PAGE>
Subject to the provisions of the last paragraph of Section 1003,
all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee or other qualifying trustee (solely for purposes of
this Section 1205 and Section 1206, the Trustee and any such other trustee are
referred to collectively as the "Trustee") pursuant to Section 1204 or
otherwise in respect of the Outstanding Securities shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Securities
and this Indenture, to the payment, either directly or through any such Paying
Agent (other than the Company acting as its own Paying Agent) as the Trustee
may determine, to the Holders of such Securities, of all sums due and to
become due thereon in respect of principal and any premium and interest, but
money so held in trust need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 1204 or the principal and interest received in
respect thereof other than any such tax, fee or other charge that by law is for
the account of the Holders of Outstanding Securities.
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1204 that, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof that would then
be required to be deposited to effect the Defeasance or Covenant Defeasance, as
the case may be, with respect to the Outstanding Securities.
Section 1206. Reinstatement.
-------------
If the Trustee or the Paying Agent is unable to apply any money in
accordance with this Article Twelve with respect to any Securities by reason
of any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such applica-
-138-
<PAGE>
tion, then the obligations under this Indenture and such Securities from which
the Company has been discharged or released pursuant to Section 1202 or 1203
shall be revived and reinstated as though no deposit had occurred pursuant to
this Article Twelve with respect to such Securities, until such time as the
Trustee or Paying Agent is permitted to apply all money held in trust pursuant
to Section 1205 with respect to such Securities in accordance with this
Article Twelve; provided that if the Company makes any payment of principal
--------
of or any premium or interest on any such Security following such
reinstatement of its obligations, the Company shall be subrogated to the
rights (if any) of the Holders of such Securities to receive such payment from
the money so held in trust.
----------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
-139-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
CALIFORNIA ENERGY COMPANY,
INC.
By:
---------------------------
Attest: Name:
Title:
- -------------------------
IBJ SCHRODER BANK & TRUST
COMPANY
By:
---------------------------
Attest: Name:
Title:
- -------------------------
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<PAGE>
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On the __th day of _____, 1994, before me personally came __________, to
me known, who, being by me duly sworn, did depose and say that he is __________
of California Energy Company, Inc., one of the corporations described in and
that executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
------------------------------
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On the ____ day of _________, 19__, before me personally came
__________________________, to me known, who, being by me duly sworn, did
depose and say that [he -- she] is ________________________ of IBJ Schroder Bank
& Trust Company, one of the corporations described in and that executed the
foregoing instrument; that [he -- she] knows the seal of said corporation; that
the seal affixed to said instrument is such corporate seal; that it was so
affixed by authority of the Board of Directors of said corporation, and that [he
- -- she] signed [his -- her] name thereto by like authority.
------------------------------
-141-
<PAGE>
EXHIBIT A
---------
PROMISSORY NOTE
---------------
Date of Issue: as of ____________
FOR VALUE RECEIVED, the undersigned, [Borrower], a ______________________
corporation ("Borrower"), hereby promises to pay to the order of [Lender], a
___________ corporation ("Lender"), $ __________ (the "Principal") and any
interest accrued thereon, upon demand by the Lender at any time six months
subsequent to the date on which the __% Senior Discount Notes due 2004 (the
"Senior Notes") of California Energy Company, Inc. that were issued pursuant to
an Indenture dated as of ______, 1994 between California Energy Company, Inc.
and IBJ Schroeder Bank and Trust Company shall have been repaid in full or such
earlier date as may be permitted under the terms of such Indenture.
Section 1 Accrual and Payment of Interest
-------------------------------
under this Promissory Note
--------------------------
(a) The Principal shall accrue interest from the date hereof at an annual
rate (computed on the basis of a 360 day year) of ___% which, to the extent
permitted by applicable law, shall be compounded semi-annually on each _____ and
______ and added to the Principal hereof.
Section 2 Subordination
-------------
Payment of Principal of and interest on this Promissory Note shall be
subordinated to the fullest extent permitted by applicable law to the prior
payment in full of the principal of, premium, if any, and interest on any other
indebtedness for money borrowed of the Borrower, to the extent that the same is
thus due and owing whether at its stated maturity, upon acceleration or
otherwise.
Section 3 Notices
-------
All notices required or permitted hereunder shall be given by telex where
appropriate and confirmed in writing
-142-
<PAGE>
or by prepaid registered mail to the addresses of the parties set forth in
this Section 3 or to such other address as either party shall duly specify by
written notice to the other.
If to Borrower to:
-----------------------
-----------------------
-----------------------
-----------------------
If to Lender, to the trustee:
-----------------------
-----------------------
-----------------------
-----------------------
-----------------------
Section 4 No Waiver
---------
No failure or delay of either party hereto exercise any power under this
Promissory Note or to insist upon strict compliance by either party hereto of
any obligations hereunder shall constitute a waiver of either party's rights to
demand exact compliance with the terms hereof.
Section 5 Governing Law
-------------
This Promissory Note is made under and in accordance with the laws of the
________________, and the rights of the parties in the construction and effect
of each and every provision hereof shall be subject to the exclusive
jurisdiction of and shall be construed and regulated according to the laws of
_____________________.
[Borrower]
By
-----------------------
Name:
Title:
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<PAGE>
EXHIBIT 5.1
WILLKIE FARR & GALLAGHER
March 18, 1994
California Energy Company, Inc.
10831 Old Mill Road
Omaha, Nebraska 68154
Ladies and Gentlemen:
We have acted as counsel to California Energy Company, Inc. (the "Company"), a
corporation organized under the laws of the State of Delaware, in connection
with the preparation of a Registration Statement on Form S-3 (Registration No.
33-52439) (as amended, the "Registration Statement") relating to the offer and
sale of Senior Discount Notes due 2004 of the Company (the "Notes") to be
issued under an Indenture (the "Indenture") to be entered into by the Company
and IBJ Schroder Bank & Trust Company, as Trustee, and sold pursuant to the
terms of an underwriting agreement to be executed by the Company and Lehman
Brothers Inc., Salomon Brothers Inc, Donaldson, Lufkin & Jenrette Securities
Corporation and Bear, Stearns & Co. Inc. (the "Underwriters").
We have examined copies of the Certificate of Incorporation and By-Laws of the
Company, and the amendments thereto, the Registration Statement, all
resolutions adopted by the Company's Board of Directors and other records and
documents that we have deemed necessary for the purpose of this opinion. We
have also examined such other documents, papers, statutes and authorities as we
have deemed necessary to form a basis for the opinions hereinafter expressed.
In our examination, we have assumed the genuineness of all signatures and the
conformity to original documents of all copies submitted to us. As to various
questions of fact material to our opinions, we have relied on statements and
certificates of officers and representatives of the Company and public
officials.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Notes have been duly authorized by all necessary corporate action of
the Company, and when duly executed, authenticated and delivered by or
on behalf of the Company and paid for by the Underwriters, will be valid
and binding obligations of the Company and will be entitled to the
benefits of the Indenture; and
2. The Indenture, when duly executed and delivered by the Company and the
Trustee, will constitute a valid and binding instrument of the Company.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus included as
part of the Registration Statement.
Very truly yours,
<PAGE>
EXHIBIT 8.1
WILLKIE FARR & GALLAGHER
March 18, 1994
California Energy Company, Inc. 10831 Old Mill Road Omaha, Nebraska 68154
Ladies and Gentlemen:
We have acted as counsel to California Energy Company, Inc. (the "Company"), a
corporation organized under the laws of the State of Delaware, in connection
with the preparation of a Registration Statement on Form S-3 (Registration No.
33-52439) (as amended, the "Registration Statement") relating to the offer and
sale of Senior Discount Notes due 2004 of the Company (the "Notes") to be
issued under an Indenture to be entered into by the Company and IBJ Schroder
Bank & Trust Company, as Trustee, and sold pursuant to the terms of an
underwriting agreement to be executed by the Company and Lehman Brothers Inc.,
Salomon Brothers Inc, Donaldson, Lufkin & Jenrette Securities Corporation and
Bear, Stearns & Co. Inc. (the "Underwriters"). We have been asked to provide an
opinion concerning the anticipated material United States federal income tax
consequences of the purchase, ownership and disposition of the Notes in support
of the discussion that appears under the caption "Certain Federal Income Tax
Considerations" in the Registration Statement (the "Tax Discussion").
We have examined copies of the Certificate of Incorporation and By-Laws of the
Company, and the amendments thereto, the Registration Statement, all
resolutions adopted by the Company's Board of Directors and other records and
documents that we have deemed necessary for the purpose of this opinion. We
have also examined such other documents, papers, statutes and authorities as we
have deemed necessary to form a basis for the opinion hereinafter expressed.
In our examination, we have assumed the genuineness of all signatures and the
conformity to original documents of all copies submitted to us. As to various
questions of fact material to our opinion, we have relied on statements and
certificates of officers and representatives of the Company and public
officials.
Based on the foregoing, we are of the opinion that the anticipated material
United States federal income tax consequences of the purchase, ownership and
disposition of the Notes should be as described in the Tax Discussion, and we
hereby incorporate such discussion as if it were set forth in full herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus included as
part of the Registration Statement.
Very truly yours,
<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 17, 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>
