<PAGE>
As filed with the Securities and Exchange Commission on February 28, 1994
Registration No. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
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 (I.R.S. Employer
of incorporation) Identification No.)
----------------------------
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. [ ]
----------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================================
Proposed Maximum
Title of Each Class of Securities to be Amount to be Proposed Maximum Aggregate Offering Amount of
Registered Registered Offering Price(1) Price(1) Registration Fee
===========================================================================================================================
<S> <C> <C> <C> <C>
__% Senior Discount Notes due 2004 $ $400,000,000 $400,000,000 $137,931.03
===========================================================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457 solely for purposes of calculating the
registration fee.
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>
Subject To Completion, Date February 28, 1994
PROSPECTUS
[LOGO OF CALIFORNIA ENERGY APPEARS HERE]
$
California Energy Company, Inc.
____% Senior Discount Notes due 2004
-------------------------
Interest Payable January 15 and July 15
-------------------------
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 semiannual 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
amount thereof plus accrued and unpaid interest, if any. See "Description of
the Notes--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 Proceeds to
at Maturity Public(1) Underwriting 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. See
"Underwriting."
(3) Before deducting expenses payable by the Company estimated at $0,000,000.
_________________________
The Notes offered by this Prospectus are offered by the Underwriters subject
to prior sale, withdrawal, cancellation or modification of the offer without
notice, to delivery to and acceptance by the Underwriters and to certain other
conditions. It is expected that delivery of the Notes will be made at the
office of Lehman Brothers Inc., New York, New York, on or about March __, 1994.
_________________________
Lehman Brothers
Salomon Brothers Inc
Donaldson, Lufkin & Jenrette
Securities Corporation
Bear, Stearns & Co. Inc.
March __, 1994
[Red Herring Language for Front Cover Page of Prospectus]
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.
<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.
2
<PAGE>
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.
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 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% shareholder (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 these 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 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 power sales contract. Pursuant to a
memorandum of understanding, the Company has commenced early stage site work on
a proposed 30 MW geothermal project in Newberry, Oregon, 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,
4
<PAGE>
the Company has diversified into other environmentally responsible sources of
power generation. The Company is currently constructing a 50 MW gas fired
facility in Yuma, Arizona (the "Yuma Project") to sell electricity to San Diego
Gas & Electric Company (SDG&E") under a 30-year power sales contract, which
project is expected to be completed by mid-year 1994. The Company expects
future diversification through the selected 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.
International Projects and Development Opportunities
The Company presently believes that the international independent power market
holds the majority of the 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 and finance international 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 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 "Business--International Projects and Development
Opportunities."
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 the construction loan agreement
for the Upper Mahiao Project will be executed in March 1994 and that the notice
to proceed will be issued promptly thereafter under the construction contract,
which was itself 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 contribution to the
5
<PAGE>
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."
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 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
<TABLE>
<S> <C>
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 semiannual 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 semiannually on January 15 and July 15,
commencing on July 15, 1997 to holders of record on the
immediately preceding January 1 and July 1. See
"Description of the Notes--General."
NYSE Listing.......... The Company intends to make application to the New York
Stock Exchange to have the Notes listed for trading
thereon.
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 (as defined),
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, plus accrued interest, if any, as of the
repurchase date in accordance with the procedures set
forth in the Indenture. See "Description of the Notes--
Purchase of Notes Upon a Change of Control."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
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. Accordingly, the Notes will
effectively be subordinated to debt at the project or
subsidiary level. The Notes will rank senior to all
other existing and future subordinated indebtedness of
the Company.
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 and
its Eligible Joint Ventures to incur additional Debt
(other than Non-Recourse Debt (as defined)), to pay
dividends and make certain other Restricted Payments, to
encumber or sell assets, to enter into transactions with
Affiliates, 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."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
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 receipt of notice thereof,
(iv) the failure of the Company or any Significant
Subsidiary 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, and (v) the occurrence of certain events of
bankruptcy, insolvency or reorganization.
</TABLE>
9
<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........................................ 19,620 20,349 39,525 60,883 83,703
Consolidated Fixed Charges (6)............................. 3.46 1.87 4.59 5.57 5.80
<CAPTION>
At December 31,
----------------------------------------------------------------
1989 1990 1991 1992 1993
-------- -------- -------- -------- --------
As
Actual Adjusted(7)
------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and investments....................................... $ 11 $ 316 $ 49,279 $ 54,671 $127,756 $ 476,756
Properties and plants, net................................. 302,514 321,303 373,948 389,646 458,974 458,974
Total assets............................................... 349,282 393,853 517,994 580,550 715,984 1,076,984
Project finance loans...................................... 224,390 229,008 221,308 263,604 246,880 246,880
Senior notes (8)........................................... 35,730 35,730 35,730 35,730 35,730 N/A
Senior discount notes (7).................................. N/A N/A N/A N/A N/A 400,000
Convertible subordinated debentures........................ N/A N/A N/A N/A 100,000 100,000
Total liabilities.......................................... 305,265 331,134 298,146 336,272 425,393 789,663
Redeemable preferred stock................................. N/A 4,705 54,705 54,350 58,800 58,800
Total stockholders' equity................................. 42,163 55,088 143,128 168,764 211,503 208,233
- ---------------------------
</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.
(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."
(6) The "Consolidated EBITDA" and "Consolidated Fixed Charges" is calculated in
accordance with the respective definitions of such terms in the Indenture
and set forth herein under "Description of Senior 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 Senior 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 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 expenses payable by the
Company estimated at $250,000. 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 senior notes
outstanding.
10
<PAGE>
INVESTMENT CONSIDERATIONS
In addition to the other information contained in this Prospectus and the
documents incorporated herein by reference, prospective investors should
consider the factors set forth below prior to deciding whether to invest in the
Notes offered hereby.
Development Uncertainty
The Company is actively seeking to develop, construct, own and operate new
power projects utilizing geothermal and other technologies, both domestically
and internationally, the completion of any of which is subject to substantial
risk. Development can require the Company to expend significant sums for
preliminary engineering, permitting, legal and other expenses in preparation for
competitive bids which the Company may not win or before it can be determined
whether a project is feasible, economically attractive or capable of being
financed. Successful development is contingent upon, among other things,
negotiation of construction, fuel supply and power sales contracts with other
project participants on terms satisfactory to the Company, and receipt of
required governmental permits and consents. Further, there can be no assurance
that the Company will obtain access to the substantial debt and equity capital
required to develop and construct electric power projects or to refinance
projects for which the Company has provided initial construction financing from
the proceeds of the Notes. See "Business--International Projects and
Development Opportunities--Funding for International Projects." The Company's
future growth is dependent, in large part, upon the demand for significant
amounts of additional electrical generating capacity and the Company's ability
to obtain contracts to supply portions of this capacity. There can be no
assurance that development efforts on any particular project, or the Company's
efforts generally, will be successful. See "Business--The Independent Power
Production Market."
Development Uncertainty Outside the United States
The Company believes that the international independent power market holds the
majority of new opportunities for financially attractive private power
development in the next several years. The financing and development of
projects outside the United States entails significant political and financial
risks (including, without limitation, uncertainties associated with first time
privatization efforts in the countries involved, currency exchange rate
fluctuations, currency repatriation restrictions, political instability, civil
unrest and expropriation) and other structuring issues that have the potential
to cause substantial delays or material impairment of value to the project being
developed which the Company may not be fully capable of insuring against. The
uncertainty of the legal environment in certain foreign countries in which the
Company may develop or acquire projects could make it more difficult for the
Company to enforce its rights under agreements relating to such projects. In
addition, the laws and regulations of certain countries may limit the ability of
the Company to hold a majority interest in some of the projects that it may
develop or acquire. The Company's international projects may, in certain cases,
be terminated by the government. See "Business--The Independent Power
Production Market" and "--International Projects and Development
Opportunities."
Holding Company Structure; Notes are Unsecured Obligations
The Company is a holding company which derives substantially all of its
operating income from its subsidiaries' ownership interests in the Coso Joint
Ventures 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
11
<PAGE>
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 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--
Domestic Projects and Development Opportunities --The Coso Project--Non-
Recourse Coso Project Refinancing."
High Leverage; Additional Debt Permitted at Subsidiary or Project Level;
Priority of Project Debt
After giving effect to the Offering, the Company will be highly leveraged. As
of December 31, 1993, the Company's total consolidated indebtedness was $382.6
million (excluding deferred income and redeemable preferred stock), its total
consolidated assets were $716.0 million and its stockholders' equity was $211.5
million. At such date, on a pro forma basis, after giving effect to the
completion of this Offering and the Company's planned defeasance of its senior
notes, the Company's total consolidated indebtedness (excluding deferred income
and redeemable preferred stock) would have been $746.9 million, its total
consolidated assets would have been $1,077.0 million and its stockholders'
equity would have been $208.2 million. See "Capitalization" and "Selected
Historical Consolidated Financial and Operating Data."
The Indenture does not limit the amount of non-recourse indebtedness which may
be incurred 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 the 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."
12
<PAGE>
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--Domestic
Projects and Development Opportunities--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 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 owned by the Coso Joint Ventures
(which facilities are sometimes referred to as the "Navy I Project," the "BLM
Project" and the "Navy II Project") 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% 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--Domestic
Projects and Development Opportunities--The Coso Project--Certain Material
Contracts" and "--Non-Recourse Coso Project Financing."
13
<PAGE>
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 CPUC), 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--Domestic Projects and
Development Opportunities--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--Domestic Projects and
Development Opportunities--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. 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--Domestic Projects and Development Opportunities--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."
14
<PAGE>
Many of the Company's competitors have more extensive and more diversified
developmental or operating experience (including international experience) and
greater financial resources than the Company. In the domestic market, the
Energy Policy Act of 1992 is expected to increase competition.
Original Issue Discount; Effect on the Holders of the Notes and the Company
The Notes will be issued at a substantial discount from their principal amount
at maturity. Consequently, purchasers of the Notes should be aware that,
although cash interest will not accrue on the Notes prior to January 15, 1997,
and there will be no periodic payments of cash interest on the Notes prior to
July 15, 1997, original issue discount (that is, the difference between the
stated redemption price at maturity and the issue price of the Notes) will
accrue from the issue date of the Notes and will be includable as interest
income periodically (including for periods ending prior to January 15, 1997) in
a Holder's gross income for U.S. federal income tax purposes in advance of
receipt of the cash payments to which the income is attributable. See "Certain
Federal Income Tax Considerations" for a more detailed discussion of the federal
income tax consequences to the Holders regarding the purchase, ownership and
disposition of the Notes. Further, the Notes may be subject to the high yield
discount obligation rules, in which case the Company would not be able to deduct
the original issue discount attributable to the Notes until paid in cash or
property. As explained in, and subject to, the discussion under "Certain
Federal Income Tax Considerations--Certain Federal Income Tax Considerations to
the Company and to Corporate Holders," the Notes will be subject to these rules
if their yield to maturity equals or exceeds a Treasury-based interest rate in
effect for the month of their issuance plus five percentage points. For long-
term debt instruments with an average life of ______ issued on _______ __, 1994,
such Treasury-based interest rate plus five percentage points is _____%
compounded semiannually. If these high yield discount rules apply, the
Company's after tax cash flow may be less than if such original issue discount
were deductible when accrued. In addition, if a bankruptcy case were to be
commenced by or against the Company under the U.S. Bankruptcy Code after the
issuance of the Notes, the claim of a Holder with respect to the principal
amount thereof may be limited to an amount equal to the sum of (i) the initial
offering price and (ii) that portion of the original issue discount that is not
deemed to constitute "unmatured interest" for purposes of the U.S. Bankruptcy
Code. Any original issue discount that was not amortized as of any such
bankruptcy filing would constitute "unmatured interest."
No Prior Public Market; Possible Volatility Of Note Price
Prior to the Offering, there has been no public market for the Notes. The
Company intends to make application to the New York Stock Exchange to have the
Notes listed for trading thereon, but there can be no assurance that 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.
15
<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 $34
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--Definitions."
16
<PAGE>
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of the
Company as of December 31, 1993 and (ii) the consolidated pro forma
capitalization of the Company as adjusted to reflect the sale by the Company of
the Notes offered hereby and the Company's planned defeasance of the entire
aggregate principal amount of its senior notes.
<TABLE>
<CAPTION>
At December 31, 1993
------------------------
Actual As Adjusted
---------- ------------
(dollars in thousands)
<S> <C> <C>
Debt:
Project finance loans (1)......................... $246,880 $ 246,880
Senior notes (2).................................. 35,730 N/A
Senior discount notes............................. N/A 400,000
Convertible subordinated debentures............... 100,000 100,000
-------- ----------
382,610 746,880
Deferred income (3).................................. 20,288 20,288
Redeemable preferred stock (4)....................... 58,800 58,800
Stockholders' equity:
Preferred stock, no par value, 2,000,000 shares
authorized, no shares issued and outstanding
(other than redeemable preferred stock) - -
Common stock, $.0675 par value, 60,000,000 shares
authorized, 35,446,000 shares issued and
outstanding (5).................................. 2,404 2,404
Additional paid-in capital........................ 100,965 100,965
Retained earnings................................. 111,031 107,761
Treasury stock, 157,000 common shares at cost (2,897) (2,897)
-------- ----------
Total stockholders' equity....................... 211,503 208,233
-------- ----------
Total capitalization........................... $673,201 $1,034,021
======== ==========
</TABLE>
_________________________
(1) Represents the Company's proportionate share of non-recourse debt incurred
in connection with the refinancing of 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 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 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.
17
<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.
18
<PAGE>
<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................... 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......... .38 .44 .75 .92 1.00
Extraordinary item per share............ N/A N/A N/A (.13) N/A
Cumulative effect of change in
accounting principle per share......... 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..................... 19,620 20,349 39,525 60,883 83,703
Consolidated fixed
charges(6)............................. 3.46 1.87 4.59 5.57 5.80
</TABLE>
- ---------------
(1) The Navy I Plant commenced operations 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 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) The "Consolidated EBITDA" and "Consolidated Fixed Charges" is calculated
with respect to the respective definitions of such terms in the
Indenture and set forth herein under "Description of Senior 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 Senior 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 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.
19
<PAGE>
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------
1989 1990 1991 1992 1993
------- ------- -------- -------- ---------------------
As
(in thousands) Actual Adjusted
------ --------
(3)
---
<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 (1).................... 224,390 229,008 221,308 263,604 246,880 246,880
Senior notes (2)............................. 35,730 35,730 35,730 35,730 35,730 N/A
Senior discount notes (3).................... N/A N/A N/A N/A N/A 400,000
Convertible subordinated debentures (4)...... N/A N/A N/A N/A 100,000 100,000
Total liabilities............................ 305,265 331,134 298,146 336,272 425,393 789,663
Deferred income.............................. 1,854 2,926 22,015 21,164 20,288 20,288
Redeemable preferred stock (5)............... N/A 4,705 54,705 54,350 58,800 58,800
Total stockholders' equity................... 42,163 55,088 143,128 168,764 211,503 208,233
</TABLE>
- -------------------------
(1) See Note 5 of Notes to the Consolidated Financial Statements.
(2) 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.
(3) As adjusted to give effect to the Offering and the transaction described in
Note 2, before deducting expenses payable by the Company estimated at
$250,000 See "Use of Proceeds."
(4) See Note 7 of Notes to the Consolidated Financial Statements.
(5) See Note 10 of Notes to the Consolidated Financial Statements.
20
<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% 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.
21
<PAGE>
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 by 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 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 1.94 12.05
- -------------------------------------------------------------------
Average fiscal 1992 9.23 2.10 11.33
- -------------------------------------------------------------------
Average fiscal 1991 8.58 2.24 10.82
- -------------------------------------------------------------------
</TABLE>
22
<PAGE>
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* were as follows (in cents):
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <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 *Cost per kWh includes
- -------------------------------------------------------- electrical production from the
Royalties .65 .61 .49 Desert Peak facility and the
- -------------------------------------------------------- electrical production equivalent
Depreciation and of the Company's share of
amortization 1.39 1.33 1.31 geothermal steam produced at the
- -------------------------------------------------------- Roosevelt Hot Springs field,
Interest, less amounts acquired in March and January
capitalized 1.82 1.17 2.16 1991, respectively.
- --------------------------------------------------------
Total 6.53 5.80 6.84
- --------------------------------------------------------
</TABLE>
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> <C>
- -----------------------------------------------------------
Plant operations (net of
Company's operator fees) 15.8% 17.7% 18.8%
- -----------------------------------------------------------
General and administration 10.0 11.1 11.7 *Expenses as a percentage of
- ----------------------------------------------------------- electricity sales and steam
Royalties 6.3 6.6 5.2 sales include electricity
- ----------------------------------------------------------- sales from the Desert Peak
Depreciation and facility and steam sales from
amortization 13.5 14.3 13.9 the Roosevelt Hot Springs
- ----------------------------------------------------------- field, acquired in March and
Interest, less amounts January 1991, respectively.
capitalized 17.7 12.7 23.0
- -----------------------------------------------------------
Total 63.3% 62.4% 72.6%
- -----------------------------------------------------------
</TABLE>
23
<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 MPE settlement, 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
variable rate debt on the Coso Project was refinanced in 1992 with 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 109.
24
<PAGE>
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.
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 O&M and capital costs and semiannually to each
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 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.
25
<PAGE>
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.
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 of 1993, the Company issued $100.0 million 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 each year, commencing
on July 31, 1993. The 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 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., a thirty person engineering firm for a
26
<PAGE>
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
aggregate. 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 statement). In
addition, in 1991 the Company issued one thousand shares of its Series C
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, 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
27
<PAGE>
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 Activities."
In addition to the 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 of 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
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.
28
<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 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%
shareholder (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.
Three of these 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.
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 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 power sales contract. Pursuant to a
memorandum of understanding, the Company has commenced early stage site work on
a proposed 30 MW geothermal project in Newberry, Oregon, 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 gas fired facility in Yuma, Arizona (the "Yuma
Project") to sell electricity to San Diego Gas & Electric Company (SDG&E") under
a 30-year power sales contract, which project is expected to be completed by
mid-year 1994. The Company expects future diversification through
29
<PAGE>
the selected 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 the 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 and finance international 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 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 Projects
and Development Opportunities."
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 the construction loan agreement
for the Upper Mahiao Project will be executed in March 1994 and that the
notice to proceed will be issued promptly thereafter under the construction
contract, which was itself 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 contribution 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
30
<PAGE>
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."
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 Power Projects and
Development Opportunities."
31
<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.]
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.
Domestic Projects and Development Opportunities
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 (sometime the "Navy I
Project," the BLM Project" and the "Navy II project" and sometimes the "Navy I
Plant," the "BLM Plant" and the "Navy II Plant") is owned by a separate
partnership (the "Navy I Joint Venture," the "BLM Joint Venture" and the "Navy
II Joint Venture," or, collectively, the "Coso Joint Ventures"). 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
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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.
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 29 3 96 MW
BLM 18 3 96 MW
Navy II 20 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
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
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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 S04 Agreements for 1993 for the Navy I Plant,
BLM Plant and Navy II Plant were approximately 12.0 cents/kWh. For the period
of January 10, 1994 through February 13, 1994, SCE's Avoided Cost was 2.9
cents/kWh (weighted average of mid-peak, off-peak and super off-peak).
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 S04 Agreement for the Navy I Plant specifies
a contract
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<PAGE>
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.
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.
35
<PAGE>
<TABLE>
<CAPTION>
1991 1992 1993
-------- -------- --------
<S> <C> <C> <C>
Navy I:
Capacity Factor 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, $47,916,000 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 Coso Notes Indenture, (ii) certain financial ratios
must be met, and (iii) certain thresholds must be met regarding the
availability of adequate geothermal resource
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<PAGE>
for each Plant and for the 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 a
limited partnership interest in Caithness CEA Geothermal L.P. ("CCG"), a
partnership which is, in turn, a limited partner in Caithness Coso Holdings,
L.P., the Caithness Partnership which is a partner in the BLM Project. In
addition, certain cash flows of four Caithness affiliates have been pledged to
CEGC-Mojave which relate in part to cash received as a result of distributions
from the Navy I, BLM and Navy II Projects. 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, including all of the cash flows related to the interest in
CCG, 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 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 $19,097,000 in principal amount of notes due to the
Company 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
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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.
Other Domestic Projects and Development Opportunities
Desert Peak
The Company is the owner and operator of a 10 MW generating facility 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/kWh, comprising an
energy payment of 1.8 cents/kWh (which is adjustable pursuant to an inflation-
based index) and a capacity payment of 4.5 cents/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 power 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
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<PAGE>
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 late 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 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.
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
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<PAGE>
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 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 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. In
pursuing international projects, the Company intends to maintain a significant
equity ownership position in, and to operate, the projects that it develops or
acquires.
[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
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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 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
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<PAGE>
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% 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 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, that each of the Company and Kiewit will provide 50% of the equity
required for financing a project developed by the joint venture and that 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
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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.
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Until 1987, NAPOCOR had a monopoly on power generation and transmission in the
Philippines. In 1987, then President Aquino issued 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.
Upper Mahiao Project
The Company is negotiating the final terms of the construction and term
project financing for a 120 MW geothermal project to be located in the Greater
Tongonan area of the island of Leyte, Republic of the Philippines (the "Upper
Mahiao Project"). The Upper Mahiao Project will be built, owned and operated
by CE Cebu Geothermal Power Company, Inc. ("CE Cebu"), a Philippine
corporation that will be more than 95% indirectly owned by the Company. It
will sell 100% of its capacity on a "take-or-pay" basis (described below) to
PNOC-EDC, which will in turn sell the power to NAPOCOR for distribution to the
island of Cebu, located about 40 miles west of Leyte.
The Company estimates that Upper Mahiao will have a total project cost of
approximately $226 million, including interest during construction, project
contingency costs and a debt service reserve fund. A consortium of
international banks is expected to provide an approximately $170 million
project-financed, nonrecourse construction loan, supported by political risk
insurance from ExIm Bank. The Company expects that the term loan for the
project will also be provided by ExIm
44
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Bank, and that both the construction and the term loan agreements will be
executed in March 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
"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 EPC Contract
provides liquidated damage protection of 30% of the EPC Contract price.
Ormat's performance under the EPC Contract will be backed by a completion
guaranty of Ormat, by letters of credit, and by a guaranty of Ormat
Industries, Ltd., an Israeli corporation and the parent of Ormat, in each case
for the benefit of, and satisfactory to, the Project lenders.
Under the terms of the Energy Conversion Agreement, executed on September
6, 1993 (the "Upper Mahiao ECA"), CE Cebu will build, own and operate the
Project during the two-year construction period and the ten-year cooperation
period, after which ownership will be transferred to PNOC-EDC at no cost. The
effectiveness of the Upper Mahiao ECA is subject to the satisfaction or waiver
of certain conditions prior to March 8, 1994 (subject to extension by
agreement of the parties which is anticipated by the Company to be readily
available through April 1, 1994) including finalization of the principal
project documents (including, a power purchase agreement between PNOC-EDC and
NAPOCOR), posting by Ormat of a construction performance bond in favor of
PNOC-EDC in the amount of approximately $11.8 million, obtaining permits and
approvals from various Philippine governmental authorities and arranging
financing commitments. In the event the parties are unable to satisfy such
conditions before the agreed upon effectivity date, either party may terminate
the Upper Mahiao ECA and such party shall reimburse the other party for its
costs and expenses incurred in connection with such agreement.
The Project will be located on land to be provided by PNOC-EDC at no
cost; it will take geothermal steam and fluid, also provided by PNOC-EDC at no
cost, and convert its thermal energy into electrical energy to be sold to
PNOC-EDC on a "take-or-pay" basis. Specifically, PNOC-EDC will be obligated
to pay for the electric capacity that is nominated each year by CE Cebu,
irrespective of whether PNOC-EDC is willing or able to accept delivery of such
capacity. PNOC-EDC will pay to CE Cebu a fee (the "Capacity Fee") based on
the plant capacity nominated to PNOC-EDC in any year (which, at the plant's
design capacity is approximately 95% of total contract revenues) and a fee
(the "Energy Fee") based on the electricity actually delivered to PNOC-EDC
(approximately 5% of total contract revenues). The Capacity Fee consists of
three 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.
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<PAGE>
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 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 Project
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 10% by another industrial company. It will sell 100% of
its capacity on a take-or-pay basis (as described above for the Upper Mahiao
Project) to PNOC-EDC, which will in turn sell the power to NAPOCOR for
distribution to the island of Luzon.
The Company estimates that Mahanagdong will have a total project cost of
approximately $310 million, including interest during construction, project
contingency costs and a debt service reserve fund. The proposed capital
structure is 75% debt, with a construction and term loan of approximately
$225 million, and 25% equity, or approximately $85 million in equity
contributions. The Company believes that political risk insurance from ExIm
Bank for financing of the procurement of U.S. goods and services and, if
appropriate, will request similar coverage from the Export-Import Bank of
Japan for Japanese goods and services is available. The Company is in the
process of arranging construction financing for the Project from a
consortium of international banks, but may use some of the proceeds of this
Offering to provide all or part of the interim construction debt
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<PAGE>
financing of $225 million. Construction of the Project is expected to
commence in mid-year 1994, with commercial operation 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 contribution from these proceeds,
and to arrange for political risk insurance on this investment through OPIC or
from governmental agencies or commercial sources.
The Manhanagdong 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 "EPC Contract"). The obligations
of the EPC Consortium under the EPC Contracts will be supported by letters of
credit, bonds, guarantees or other acceptable security in an aggregate amount
equal to approximately 30% of the EPC Contracts' 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 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 Hydro Project
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 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.
Indonesia
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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.
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
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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 the
Ben Holt Co. 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 JOC and an 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, 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.
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<PAGE>
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 February 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>
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<PAGE>
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.
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
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<PAGE>
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.
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.
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<PAGE>
HARVEY F. BRUSH. Mr. Brush has been a director of the Company since
July 1990. Mr. Brush served on an interim basis as President and Chief
Operating Officer of the Company from January 25, 1991 until February 19, 1991.
Prior to his retirement in 1986, Mr. Brush was for several years Executive Vice
President of Bechtel Group, Inc., a construction company.
JAMES Q. CROWE. Mr. Crowe has been a director of the Company since
March 1991. Mr. Crowe is Chairman and Chief Executive Officer of MFS
Communications Company, Inc., a wholly-owned subsidiary of Kiewit. Prior to
assuming his current position in 1991, Mr. Crowe was President of Kiewit
Industrial Company, a major subsidiary of Kiewit. Before joining Kiewit in 1986,
Mr. Crowe was Group Vice President, Power Group at Morrison-Knudsen Corporation.
Mr. Crowe is a director of C-Tec Corporation, a publicly traded company in
which Kiewit holds a majority ownership interest.
RICHARD K. DAVIDSON. Mr. Davidson was appointed a Director of the
Company in March 1993. Mr. Davidson has been Chairman and Chief Executive
Officer of Union Pacific Railroad since 1991. From 1989 to 1991 he was Executive
Vice President - Operations of Union Pacific Railroad, and from 1986 to 1989 he
was Vice President - Operations of Union Pacific Railroad.
BEN M. HOLT. Mr. Holt was elected to the Board of Directors in
September 1993. Mr. Holt is the founder, and was Chairman and Chief Executive
Officer of The Ben Holt Co., an engineering firm located in Pasadena,
California, which the Company acquired in September 1993. Mr. Holt retired as
Chairman and CEO of The Ben Holt Co. in December 1993 and is currently a
consultant to the Company.
EVERETT B. LAYBOURNE. Mr. Laybourne has been a director of the
Company since May 1988. For many years he served as counsel for a number of
major publicly-held corporations. He also presently serves as Vice President
and Trustee of The Ralph M. Parsons Foundation and as National Board Chairman of
WAIF, Inc. From 1969 to 1988, Mr. Laybourne was a senior partner in the law
firm of MacDonald, Halsted & Laybourne in Los Angeles, California, whose
successor firm is Baker & McKenzie for which he served as of counsel for five
years. He continues to practice law in Los Angeles.
DANIEL J. MURPHY. Adm. Murphy, USN (RET.), has been a director of the
Company since January 1988. He is Chairman and President of Murphy and
Associates, consultants in domestic and foreign affairs. Prior to forming
Murphy and Associates in September 1992, Admiral Murphy was Chairman and co-
owner of Murphy & Demory, Ltd., a consulting firm in foreign and domestic
affairs. Prior to that, Adm. Murphy was the Vice Chairman of Hill & Knowlton
Public Affairs Worldwide, in charge of the International Division. Prior to
that he was Vice Chairman of Gray & Co., a public relations firm in Washington,
D.C.
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
54
<PAGE>
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.
55
<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 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%
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. (5)............. 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 (6)...................... 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) 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.
(6) Includes 3,748 shares held jointly with Mr. Wit's spouse.
56
<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."
57
<PAGE>
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 CED. Through the year ended
December 31, 1993, the Company's portion of amounts paid by CED to Gilbert
under this contract was approximately $2.5 million.
Aircraft Lease. The Company is subleasing to Midwest Aviation, a division
of a subsidiary of Kiewit, an airplane leased by the Company from an
unaffiliated third-party aircraft lessor (the "Lessor"). The Company pays
monthly lease payments of $38,669 to the Lessor. Midwest Aviation, in turn,
pays monthly sublease payments of $25,000 to the Company. Both the lease and
the sublease terminate on July 31, 1995. Upon termination of the lease, the
Company has the right to purchase the aircraft; Midwest Aviation, in turn, has
the right to purchase the aircraft from the Company for the price paid by the
Company.
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.
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 Murphy and Demory, Ltd. and
Baker & McKenzie are comparable to fees that would be payable in similar
transactions with unaffiliated third parties.
58
<PAGE>
DESCRIPTION OF THE NOTES
The Notes will be issued under an Indenture (hereinafter referred to as the
"Indenture") dated as of [ ], 1994 between the Company and IBJ Schroder
Bank & Trust Company (hereinafter referred to as the "Trustee"). A copy of the
form of the Indenture will be filed as an exhibit to the Registration Statement
of which this Prospectus is a part. The following summary of certain provisions
of the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Indenture,
including the definitions of certain terms therein and those terms made a part
thereof by the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). Wherever particular Sections or defined terms of the Indenture are
referred to, such Sections or defined terms are incorporated herein by
reference. A summary of certain defined terms used in the Indenture and
referred to in the following summary description of the Notes is set forth below
under "Certain Definitions."
GENERAL
The Notes will be senior, unsecured obligations of the Company, will rank
pari passu with all other senior unsecured indebtedness of the Company, will be
limited to $[ ] million aggregate principal amount and will mature on
January 15, 2004.
The principal of, and premium, if any, on, the Notes will be payable, and
the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially will
be the corporate trust office of the Trustee).
The Notes will be issued at an original issue discount to their principal
amount to generate gross proceeds to the Company of approximately $[ ]
million. Discount on the Notes will accrete at a rate of [ ]%, compounded
semi-annually on each January 15 and July 15, to an aggregate principal amount
of $[ ] million by January 15, 1997. Thereafter, cash interest on the Notes
will accrue at the rate of [ ]% per annum and will be payable semi-annually
in arrears on each January 15 and July 15, commencing July 15, 1997, to the
Holders thereof at the close of business on the preceding January 1 and July 1,
respectively, and, unless the Company agrees to make other arrangements, will be
paid by checks mailed to such Holders. Interest on overdue principal and (to
the extent permitted by applicable law) on overdue interest will accrue at a
rate of 1% in excess of the rate per annum borne by the Notes. Interest on the
Notes will be computed on the basis of a 360-day year of 12 30-day months.
The Notes will be issued without coupons and in fully registered form only
in denominations of $1,000 and integral multiples thereof.
59
<PAGE>
The Company is subject to the informational reporting requirements of
Sections 13 and 15(d) under the Exchange Act and, in accordance therewith, files
certain reports and other information with the Commission. See "Available
Information." In addition, if Sections 13 and 15(d) cease to apply to the
Company, the Company will covenant in the Indenture to file comparable reports
and information with the Trustee and the Commission, and mail such reports and
information to Noteholders at their registered addresses, for so long as any
Notes remain outstanding.
OPTIONAL REDEMPTION
The Notes may be redeemed at the Company's option, in whole or in part, at
any time on or after January 15, 1999 and prior to maturity, upon not less than
30 nor more than 60 days' prior notice, at the following redemption prices
(expressed in percentages of principal amount), plus accrued interest (if any)
to the date of redemption, if redeemed during the 12-month period commencing on
or after January 15 of the years set forth below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
1999
2000
2001 and thereafter 100%
</TABLE>
If less than all the outstanding Notes are to be redeemed, the Notes
or portions of Notes to be redeemed will be selected by the Trustee pro rata or
otherwise in such manner as the Trustee deems to be fair and appropriate in the
circumstances.
The Notes will not be subject to any mandatory sinking fund.
RANKING
The Notes will be general, unsecured senior obligations of the Company
and will rank pari passu with all other unsecured senior indebtedness of the
Company. As of December 31, 1993, the Company's total consolidated indebtedness
was $382.6 million (excluding deferred income and redeemable preferred stock),
its total consolidated assets were $716.0 million and its stockholders' equity
was $211.5 million. At such date, on a pro forma basis, after giving effect to
the completion of this Offering and the Company's planned defeasance of its
Senior Notes, the Company's total consolidated indebtedness (excluding deferred
income and redeemable preferred stock) would have been $746.9 million, its
total consolidated assets would have been $1,077.0 million and its
stockholders' equity would have been $208.2 million. See "Capitalization" and
"Selected Historical Consolidated Financial and Operating Data." The Indenture
does not limit the amount of non-recourse indebtedness which may be incurred
at the subsidiary or project level. As a result, the Notes are effectively
subordinated to the indebtedness and other obligations of the
60
<PAGE>
Company's subsidiaries and the partnerships and joint ventures in which the
Company has direct or indirect interests. See "Investment Considerations --
Priority Project Debt."
CERTAIN COVENANTS
The Indenture will contain certain covenants, including the ones
summarized below, which covenants will be applicable (unless they are waived or
amended or unless the Notes are defeased, see "Defeasance" below) so long as any
of the Notes are outstanding.
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 provision set forth in the preceding paragraph,
(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) Debt outstanding as of the date of original
issuance of the Notes (other than Debt that is extinguished, retired, defeased
or repaid in connection with the original issuance of the Notes), including Debt
that is issued as interest in respect of 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.
61
<PAGE>
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 a direct or indirect interest therein owned by such Restricted
Subsidiary or Eligible Joint Venture, (iii) Non-Recourse Debt Incurred in
respect of a Permitted Facility in which such Restricted Subsidiary or such
Eligible Joint Venture has a direct or an indirect interest (which may include
Construction Financing provided by the Company pursuant to clause (ii) of the
definition of "Permitted Investment" below), (iv) Subsidiary Refinancing Debt,
(v) Acquired Debt and (vi) Debt in respect of Currency Protection Agreements or
Interest Rate Protection Agreements.
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
62
<PAGE>
to such fiscal quarter will be included pursuant to this clause (i), and
provided further that if Adjusted Consolidated Net Income for such period is
- -------- -------
less than zero, then minus 100% of the amount of such net loss, plus (ii) 100%
----- ----
of the aggregate net cash proceeds received by the Company from and after the
date of original issuance of the Notes from (A) the issuance and sale (other
than to a Restricted Subsidiary or an Eligible Joint Venture) of its Capital
Stock (excluding Redeemable Stock, but including Capital Stock other than
Redeemable Stock issued upon conversion of, or in exchange for Redeemable Stock
or securities other than its Capital Stock), (B) the issuance and sale or the
exercise of warrants, options and rights to purchase its Capital Stock (other
than Redeemable Stock) and (C) the issuance and sale of convertible Debt upon
the conversion of such convertible Debt into Capital Stock (other than
Redeemable Stock), but excluding the net proceeds from the issuance, sale,
exchange, conversion or other disposition of its Capital Stock (I) that is
convertible (whether at the option of the Company or the holder thereof or upon
the happening of any event) into (x) any security other than its Capital Stock
or (y) its Redeemable Stock or (II) that is Capital Stock referred to in clauses
(ii) and (iii) of the definition of "Permitted Payment", plus (iii) the net
----
reduction in Investments of the types specified in clauses (iv) and (v) of the
definition of "Restricted Payment" that result from payments of interest on
Debt, dividends, or repayment of loans or advances, the proceeds of the sale or
disposition of the Investment or other return of the amount of the original
Investment to the Company, the Restricted Subsidiary or the Eligible Joint
Venture that made the original Investment from the Person in which such
Investment was made, provided that (x) the aggregate amount of such payments
--------
will not exceed the amount of the original Investment by the Company or such
Restricted Subsidiary that reduced the amount available pursuant to this clause
(c) for making Restricted Payments and (y) such payments may be added pursuant
to this clause (iii) only to the extent such payments are not included in the
calculation of Adjusted Consolidated Net Income, provided further that if
-------- -------
Investments of the types specified in clauses (iv) and (v) of the Definition of
"Restricted Payment" have been made in any Person and such Person thereafter
becomes a Restricted Subsidiary, then the aggregate amount of such Investment
(to the extent that they have reduced the amount available pursuant to this
clause (c) for making Restricted Payments), net of the amounts previously added
pursuant to this clause (iii), may be added to the amount available for making
Restricted Payments. The foregoing clause (c) will not prevent the payment of
any dividend within 60 days after the date of its declaration if such dividend
could have been made on the date of its declaration without violation of the
provisions of this covenant.
None of the Company, any of its Restricted Subsidiaries or any Eligible
Joint Venture will be deemed to have made an Investment at the time that a
Person that is a Restricted Subsidiary of the Company or an Eligible Joint
Venture ceases to be a Restricted Subsidiary or an Eligible Joint Venture,
although any subsequent Investment made by the Company, its Restricted
Subsidiaries and Eligible Joint Ventures in such Person will be Investments
that will be subject to the foregoing paragraph unless and until such time as
such Person becomes a Restricted Subsidiary or an Eligible Joint Venture.
Notwithstanding the foregoing, the designation of a Restricted Subsidiary or
an Eligible Joint Venture as an
63
<PAGE>
Unrestricted Subsidiary, as provided in the definition of "Unrestricted
Subsidiary," will be an Investment that will be subject to the foregoing
paragraph.
Restricted Payments are defined in the Indenture to exclude Permitted
Payments, which include Permitted Investments. See "Certain Definitions" below.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
-----------------------------------------------------------------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries or any Eligible Joint Venture to, create or cause to become, or as
a result of the acquisition of any Person or Property or upon any Person
becoming a Restricted Subsidiary or an Eligible Joint Venture, remain subject
to, any consensual encumbrance or consensual restriction of any kind on the
ability of any Restricted Subsidiary or any Eligible Joint Venture to (a) pay
dividends or make any other distributions permitted by applicable law on any
Capital Stock of such Restricted Subsidiary or such Eligible Joint Venture owned
by the Company, any other Restricted Subsidiary or any other Eligible Joint
Venture, (b) make payments in respect of any Debt owed to the Company, any other
Restricted Subsidiary of the Company or any Eligible Joint Venture, (c) make
loans or advances to the Company or to any other Restricted Subsidiary of the
Company or any other Eligible Joint Venture that is directly or indirectly owned
by such Restricted Subsidiary or such Eligible Joint Venture or (d) transfer
any of its Property to the Company or to any other Restricted Subsidiary or any
other Eligible Joint Venture that directly or indirectly owns or is owned by
such Restricted Subsidiary or such Eligible Joint Venture, other than those
encumbrances and restrictions created or existing (i) on the date of the
original issuance of the Notes, (ii) pursuant to the Indenture, (iii) in
connection with the Incurrence of any Debt permitted under the provisions
described in clause (iii) of the second paragraph of "Limitation on Subsidiary
Debt" above, provided that, in the case of Debt owed to Persons other than the
--------
Company, its Restricted Subsidiaries and any Eligible Joint Venture, the
President or the Chief Financial Officer of the Company determines in good
faith, as evidenced by an Officers' Certificate, that such encumbrances or
restrictions are required to effect such financing and are not materially more
restrictive, taken as a whole, on the ability of the applicable Restricted
Subsidiary or the applicable Eligible Joint Venture to make the payments,
distributions, loans, advances or transfers referred to in clauses (a) through
(d) above than encumbrances and restrictions, taken as a whole, customarily
accepted (or, in the absence of any industry custom, reasonably acceptable) in
comparable financings or comparable transactions in applicable jurisdictions,
(iv) in connection with the execution and delivery of an electric power or
thermal energy purchase contract, or other contract related to the output or
product of, or services rendered by a Permitted Facility, to which such
Restricted Subsidiary or such Eligible Joint Venture is the supplying party or
other contracts with customers, suppliers and contractors to which such
Restricted Subsidiary or such Eligible Joint Venture is a party and where such
Restricted Subsidiary or such Eligible Joint Venture is engaged, directly or
indirectly, in the development, design, engineering, procurement, construction,
acquisition, ownership, management or operation of such Permitted Facility,
provided that the President
- --------
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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 do 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
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Business" below, and (iii) unless otherwise required under the terms of Senior
Debt, at the Company's election, the Net Cash Proceeds are either (A) invested
in the business of the Company, any of its Restricted Subsidiaries or any
Eligible Joint Venture or (B) applied to the payment of any Debt of the Company,
such Restricted Subsidiary or such Eligible Joint Venture (or as otherwise
required under the terms of such Debt) (other than Debt owed to the Company,
another Restricted Subsidiary or another Eligible Joint Venture by such
Restricted Subsidiary or such Eligible Joint Venture), provided that, no such
--------
payment of Debt under Permitted Working Capital Facilities or any other
revolving credit agreement will be permitted unless the related loan commitment,
standby facility or the like will be permanently reduced by an amount equal to
the principal amount so repaid, provided further that such investment or such
-------- -------
payment, as the case may be, must be made within 365 days from the later of the
date of such Asset Disposition or the receipt by the Company, such Restricted
Subsidiary or such Eligible Joint Venture of the Net Cash Proceeds related
thereto. Any Net Cash Proceeds from Asset Dispositions that are not applied as
provided in clause (A) or (B) of the preceding sentence will constitute "Excess
Proceeds." Excess Proceeds will be applied, as described below, to make an
offer ("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 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
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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 first sentence of
the first paragraph of this covenant, the Company may apply by such Net Cash
Proceeds pursuant to such provision.
If the Notes tendered pursuant to an Offer have an aggregate purchase
price that is less than the Excess Proceeds available for the purchase of the
Notes, the Company may use the remaining Excess Proceeds for general corporate
purposes without regard to the provisions of this covenant. The Company will
not be required to make an Offer for Notes if the Excess Proceeds available
therefor are less than $10 million, provided, that the lesser amounts of such
--------
Excess Proceeds will be carried forward and cumulated for each 36 consecutive
month period for purposes of determining whether an Offer is required with
respect to any Excess Proceeds of any subsequent Asset Dispositions. Any such
lesser amounts so carried forward and cumulated need not be segregated or
reserved and may be used for general corporate purposes, provided that such use
--------
will not reduce the amount of cumulated Excess Proceeds or relieve the Company
of its obligation hereunder to make an Offer with respect thereto.
The Company will make an Offer by mailing to each Holder, within 30 days
from the receipt of Excess Proceeds that cause the cumulated Excess Proceeds
to exceed $10 million, a written notice that will specify the purchase date,
which will not be less than 30 days nor more than 60 days after the date of
such notice (the "Purchase Date"), and that will contain certain information
concerning the business of the Company that the Company believes in good
faith will enable the Holders to make an informed decision. Holders that elect
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<PAGE>
to have their Notes purchased will be required to surrender such Notes at least
one Business Day prior to the Purchase Date. If at the expiration of the Offer
period the aggregate purchase price of the Notes tendered by Holders and
purchased pursuant to the Offer exceeds the amount of such Excess Proceeds, the
Notes or portions of Notes to be accepted will be selected by the Trustee in
such manner as the Trustee deems to be fair and appropriate in the
circumstances.
If the Company is prohibited by applicable law from making the Offer or
purchasing Notes thereunder, the Company need not make an Offer for so long as
such prohibition is in effect.
The Company will comply with all applicable tender offer rules,
including, without limitation, Rule 14e-1 under the Exchange Act, in
connection with an Offer.
Limitation on Transactions with Affiliates
------------------------------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries or any Eligible Joint Venture to, directly or indirectly, conduct
any business or enter into or permit to exist any transaction or series of
related transactions (including, but not limited to, the purchase, sale or
exchange of Property, the making of any Investment, the giving of any Guarantee
or the rendering of any service) with any Affiliate of the Company, such
Restricted Subsidiary or such Eligible Joint Venture, as the case may be, unless
(i) such business, transaction or series of related transactions is in the best
interest of the Company, such Restricted Subsidiary or such Eligible Joint
Venture, (ii) such business, transaction or series of related transactions is on
terms no less favorable to the Company or such Restricted Subsidiary, or such
Eligible Joint Venture than those that could be obtained in a comparable arm's
length transaction with a Person that is not such an Affiliate and (iii) (a)
with respect to such business, transaction or series of related transactions
that has a fair market value or involves aggregate payments equal to, or in
excess of, $10 million but less than $25 million, the Company delivers to the
Trustee an Officers' Certificate certifying that, in good faith, it is such
officer's belief that such business, transaction or series of related
transactions complies with clauses (i) and (ii) above, and (b) with respect to
such business, transaction or series of related transactions that has a fair
market value or involves aggregate payments equal to, or in excess of, $25
million such business, transaction or series of transactions is approved by a
majority of the Board of Directors (including a majority of the disinterested
directors), which approval is set forth in a Board resolution delivered to the
Trustee certifying that, in good faith, the Board of Directors believes that
such business, transaction or series of transactions complies with clauses (i)
and (ii) above.
Limitation on Liens
-------------------
The Company may not Incur any Debt that is secured, directly or
indirectly, with, and the Company will not, and will not permit any of its
Restricted Subsidiaries or any
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<PAGE>
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 contem-
- --------
plation 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 financing 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,
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(E) deposits to secure public or statutory obligations, or to secure permitted
contracts for the purchase or sale of any currency entered into in the ordinary
course of business, (F) the operation of law in favor of carriers, warehousemen,
landlords, mechanics, materialmen, laborers, employees or suppliers, incurred in
the ordinary course of business for sums that are not yet delinquent or are
being contested in good faith by negotiations or by appropriate proceedings that
suspend the collection thereof, (G) easements, rights-of-way, zoning and similar
covenants and restrictions and other similar encumbrances or title defects that
do not in the aggregate materially interfere with the ordinary conduct of the
business of the Company, any of its Restricted Subsidiaries or any Eligible
Joint Venture or (H) leases and subleases of real property that do not interfere
with the ordinary conduct of the business of the Company, any of its Restricted
Subsidiaries or any Eligible Joint Venture and that are made on customary and
usual terms applicable to similar properties, or (x) Liens, in addition to the
foregoing, that secure obligations not in excess of $5 million in the
aggregate.
Purchase of Notes Upon a Change of Control
------------------------------------------
Upon the occurrence of a Change of Control, each Holder of the Notes will
have the right to require that the Company repurchase such Holder's Notes at a
purchase price in cash equal to 101% of the Accreted Value thereof on the date
of purchase plus accrued interest, if any, to the date of purchase.
The Change of Control provisions may not be waived by the Trustee or
by the Board of Directors, and any modification thereof must be approved by each
Holder. Nevertheless, the Change of Control provisions will not necessarily
afford protection to Holders, including protection against an adverse effect on
the value of the Notes, in the event that the Company or its Subsidiaries Incur
additional Debt, whether through recapitalizations or otherwise.
Within 30 days following a Change of Control, the Company will mail a
notice to each Holder, with a copy to the Trustee, stating (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a 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
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<PAGE>
of business on the Purchase Date, (7) that a Holder will be entitled to withdraw
such Holder's election if the paying agent receives, not later than the close of
business on the third Business Day (or such shorter periods as may be required
by applicable law) preceding the Repurchase Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes the Holder delivered for purchase, and a statement that such
Holder is withdrawing his election to have such Notes purchased and (8) that
Holders that elect to have their Notes purchased only in part will be issued new
Notes having a principal amount equal to the portion of the Notes that were
surrendered but not tendered and purchased.
On the Purchase Date, the Company will (i) accept for payment all Notes
or portions thereof tendered pursuant to the Change of Control Offer, (ii)
deposit with the Trustee money sufficient to pay the purchase price of all
Notes or portions thereof so tendered for purchase and (iii) deliver or cause
to be delivered to the Trustee the Notes properly tendered together with an
Officers' Certificate identifying the Notes or portions thereof tendered to
the Company for purchase. The Trustee will promptly mail to the Holders of the
Notes properly tendered payment in an amount equal to the purchase price, and
promptly authenticate and mail to each Holder a new Note having a principal
amount equal to any portion of such Holder's Notes that were surrendered but
not tendered and purchased, the Company will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Purchase
Date.
If the Company is prohibited by applicable law from making the Change of
Control Offer or purchasing Notes thereunder, the Company need not make a
Change of Control Offer for so long as such prohibition is in effect.
The Company will comply with all applicable tender offer rules,
including, without limitation, Rule 14e-1 under the Exchange Act, in
connection with a Change of Control Offer.
Limitation on Business
----------------------
The Company will, and will cause its Restricted Subsidiaries and the
Eligible Joint Ventures to, engage only in (i) the ownership, design,
engineering, procurement, construction, development, acquisition, operation,
servicing, management or disposition of Permitted Facilities, (ii) the
ownership, creation, development, acquisition, servicing, management or
disposition of Restricted Subsidiaries and Joint Ventures that own, construct,
develop, design, engineer, procure, acquire, operate, service, manage or dispose
of Permitted Facilities, (iii) obtaining, arranging or providing financing
incident to any of the foregoing and (iv) other related activities incident to
any of the foregoing. The Company will not, and will not permit any of its
Restricted Subsidiaries or any Eligible Joint Venture to, make any Investment or
otherwise acquire any Property that is not directly related to the business of
the Company as described in the preceding sentence (collectively, the
"Ineligible
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Investments") other than as a part of an Investment or an acquisition of
Property that is predominantly directly related to the business of the Company
as described above, and if the aggregate fair market value of such Ineligible
Investments in the aggregate exceeds 10% (the "10% Limit") of the total assets
of the Company and its consolidated Restricted Subsidiaries (as determined in
accordance with GAAP) as determined in good faith by the Chief Financial
Officer, as evidenced by an Officers' Certificate, the Company, its Restricted
Subsidiaries and the Eligible Joint Ventures must cease acquiring any additional
Ineligible Investments and, within 18 months of the acquisition that caused the
Ineligible Assets to exceed the 10% Limit, must return to compliance with the
10% Limit by disposing of Ineligible Assets or otherwise, provided that such 18-
--------
month period may be extended up to an additional six months if, despite the
Company's active efforts during such 18-month period to dispose of such
Ineligible Investments or to otherwise come into compliance with such 10% Limit,
the Company is unable to do so because of regulatory restrictions or delays or
adverse market conditions.
Limitation on Certain Sale-Leasebacks
-------------------------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries or any Eligible Joint Venture to, Incur or otherwise become
obligated with respect to any sale-leaseback (other than a sale-leaseback with
respect to a Permitted Facility that is Non-Recourse) unless, (i) (a) if
effected by the Company, the Company would be permitted to Incur such obligation
under the covenant described under "Limitation on Debt" above or, (b) if
effected by a Restricted Subsidiary or an Eligible Joint Venture, such
Restricted Subsidiary or such Eligible Joint Venture would be permitted to Incur
such obligation under the covenant described under "Limitation on Subsidiary
Debt" above, assuming for the purpose of this covenant and the covenants
described under "Limitation on Debt" and "Limitation on Subsidiary Debt" that
(x) the obligation created by such sale-leaseback is a Capitalized Lease and (y)
the Capitalized Lease Obligation with respect thereto is the Attributable Value
thereof, (ii) the Company, such Restricted Subsidiary or such Eligible Joint
Venture is permitted to grant a Lien with respect to the property that is the
subject of such sale-leaseback under the covenant described under "Limitation on
Liens" above, (iii) the proceeds of such sale-leaseback are at least equal to
the fair market value of the property sold (determined in good faith by the
Board of Directors, as evidenced by a Board resolution) and (iv) the Net Cash
Proceeds of the sale-leaseback are applied pursuant to the covenants described
under "Limitation on Dispositions" above.
Limitation on Sale of Subsidiary Preferred Stock
------------------------------------------------
The Company will not permit any of its Restricted Subsidiaries or any
Eligible Joint Venture to create, assume or otherwise cause or suffer to exist
any Preferred Stock except: (i) Preferred Stock outstanding on the date of the
Indenture, including Preferred Stock issued as dividends in respect of such
Preferred Stock pursuant to the terms of the agreement or instrument that
governs such Preferred Stock as in effect on the date of original issuance of
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the Notes, (ii) Preferred Stock held by the Company, a Restricted Subsidiary of
the Company or an Eligible Joint Venture, (iii) Preferred Stock issued by a
Person prior to the time (a) such Person becomes a Restricted Subsidiary or an
Eligible Joint Venture, (b) such Person merges with or into another Restricted
Subsidiary or another Eligible Joint Venture or (c) a Restricted Subsidiary or
an Eligible Joint Venture merges with or into such Person (in a transaction in
which such Person becomes a Restricted Subsidiary or an Eligible Joint Venture),
provided that such Preferred Stock was not issued in anticipation of such Person
- --------
becoming a Restricted Subsidiary or an Eligible Joint Venture or of such merger,
(iv) Preferred Stock issued or agreed to be issued by a Restricted Subsidiary
or an Eligible Joint Venture in connection with the financing of the
construction, design, engineering, procurement, equipping, developing,
operation, ownership, management, servicing or acquisition of a Permitted
Facility or the retirement of Debt or Preferred Stock secured by such Permitted
Facility or the in order to enhance the repatriation of equity, advances or
income or the increase of after-tax funds available for distribution to the
owners of such Permitted Facility, (v) Preferred Stock issued or agreed to be
issued by a Restricted Subsidiary or an Eligible Joint Venture in satisfaction
of legal requirements applicable to a Permitted Facility or to maintain the
ordinary course conduct of such Restricted Subsidiary's or such Eligible Joint
Venture's business in the applicable jurisdiction and (vi) Preferred Stock that
is exchanged for, or the proceeds of which are used to refinance, any Preferred
Stock permitted to be outstanding pursuant to clauses (i) through (v) hereof
(or any extension, renewal or refinancing thereof), having a liquidation
preference not to exceed the liquidation preference of the Preferred Stock so
exchanged or refinanced and having a redemption period no shorter than the
redemption period of the Preferred Stock so exchanged or refinanced.
MERGERS, CONSOLIDATIONS AND SALES OF ASSETS
The Company may not consolidate with, merge with or into, or transfer all
or substantially all its Property (as an entirety or substantially an entirety
in one transaction or a series of related transactions), to any Person unless:
(i) the Company will be the continuing Person, or the Person (if other than
the Company) formed by such consolidation or into which the Company is merged
or to which the Property of the Company is transferred will be a corporation
organized and existing under the laws of the United States or any State
thereof or the District of Columbia and will expressly assume in writing all
the obligations of the Company under the Indenture and the Notes, (ii)
immediately after giving effect to such transaction, no Event of Default and
no event or condition that through the giving of notice or lapse of time or
both would become an Event of Default will have occurred and be continuing and
(iii) immediately after giving effect to such transaction on a pro forma
basis, the Company or the surviving entity would be able to Incur at least $1
of Debt under the provision described in the first paragraph of "Limitation on
Debt" above.
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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.
EVENTS OF DEFAULT
An Event of Default is defined in the Indenture as being: (i) default
as to the payment of principal, or premium, if any, on any Note or as to any
payment required in connection with a Change of Control or an Asset Disposition,
(ii) default as to the payment of interest on any Note for 30 days after payment
is due, (iii) default on any other Debt of the Company or any Significant
Subsidiary (other than Non-Recourse Debt of Significant Subsidiaries) if either
(x) such default results from failure to pay principal of such Debt in excess of
$25 million when due after any applicable grace period or (y) as a result of
such default, the maturity of such Debt has been accelerated prior to its
scheduled maturity and such default has not been cured within the applicable
grace period, and such acceleration has not been rescinded, and the principal
amount of such Debt, together with the principal amount of any other Debt of the
Company and its Significant Subsidiaries (not including Non-Recourse Debt of the
Significant Subsidiaries) that is in default as to principal, or the maturity of
which has been accelerated, aggregates $25 million or more, (iv) default in the
performance, or breach, of any covenant, agreement or warranty contained in the
Indenture and the Notes and such failure continues for 30 days after written
notice is given to the Company by the Trustee or the Holders of at least 25% in
principal amount of the outstanding Notes, as provided in the Indenture, (v)
the entry by a court of one or more judgments or orders against the Company or
any Significant Subsidiary for the payment of money that in the aggregate
exceeds $25 million (excluding the amount thereof covered by insurance or by a
bond written by a third party other than an Affiliate), which judgments or
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orders have not been vacated, discharged or satisfied or stayed pending appeal
within 60 days from the entry thereof, provided, that such a judgment or order
--------
will not be an Event of Default if such judgment or order does not require any
payment by the Company or any Significant Subsidiary, except to the extent that
such judgment is only against Property that secures Non-Recourse Debt that was
permitted under the Indenture, and the Company could, at the expiration of the
applicable 60 day period, after giving effect to such judgment or order and the
consequences thereof, Incur at least $1 of Debt under the provision described in
the first paragraph of "Limitation on Debt" above, and (vi) certain events
involving bankruptcy, insolvency or reorganization of the Company or any of its
Significant Subsidiaries.
The Indenture provides that the Trustee may withhold notice to the
Holders of any default (except in payment of principal of, premium, if any, on
the Notes and any payment required in connection with a Change of Control or
an Asset Disposition) if the Trustee considers it in the interest of Holders
to do so.
The Indenture provides that if an Event of Default (other than an event
of bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary) has occurred and is continuing, either the Trustee or the Holders
of not less than 25% in principal amount of the Notes then outstanding may
declare the Default Amount of all Notes to be due and payable immediately, but
upon certain conditions such declaration may be annulled and past defaults
(except, unless theretofore cured, a default in payment of principal of,
premium, if any, or interest on the Notes or any payment required in
connection with a Change of Control or an Asset Disposition, as the case may
be) may be waived by the Holders of a majority in principal amount 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 will have offered to the Trustee reasonable indemnity
against expenses and liabilities. The Indenture requires the annual filing by
the Company with the Trustee of a written statement as to compliance with the
principal covenants contained in the Indenture.
DEFEASANCE
Legal Defeasance
----------------
The Indenture provides that the Company will be deemed to have paid and
will be discharged from any and all obligations in respect of the Notes, on
the 123rd day after the deposit referred to below has been made (or
immediately if an Opinion of Counsel is
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delivered to the effect described in clause (B)(ii)(y) below), and the
provisions of the Indenture will cease to be applicable with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) the Company has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes, on the Stated Maturity of the Notes or, if the Company
makes arrangements satisfactory to the Trustee for the redemption of the Notes
prior to their Stated Maturity, on any earlier Redemption Date in accordance
with the terms of the Indenture and the Notes, (B) the Company has delivered to
the Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will
not recognize income, gain or loss for federal income tax purposes as a result
of such deposit, defeasance and discharge and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit, defeasance and discharge had not occurred
and the Company had paid or redeemed such Notes on the applicable dates, which
Opinion of Counsel must be based upon a ruling of the Internal Revenue Service
to the same effect or a change in applicable federal income tax law or related
Treasury regulations after the date of the Indenture or (y) a ruling directed to
the Trustee received from the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel, (ii) an Opinion of Counsel to the effect that
the creation of the defeasance trust does not violate the Investment Company Act
of 1940 and (iii) an Opinion of Counsel to the effect that either (x) after the
passage of 123 days following the deposit, the trust fund will not be subject to
the effect of Section 547 or 548 of the U.S Bankruptcy Code or Section 15 of the
New York Debtor and Creditor Law or (y) based upon existing precedents, if the
matter were properly briefed, a court should hold that the deposit of moneys
and/or U.S. Government Obligations as provided in clause (A) would not
constitute a preference voidable under Section 547 or 548 of the U.S. Bankruptcy
Code or Section 15 of the New York Debtor and Creditor Law, (C) immediately
after giving effect to such deposit on a pro forma basis, no Event of Default,
or event that after the giving of notice or lapse of time or both would become
an Event of Default, will have occurred and be continuing on the date of such
deposit or (unless an Opinion of Counsel is delivered to the effect described in
clause (B)(ii)(y) above) during the period ending on the 123rd day after the
date of such deposit, and the deposit will not result in a breach or violation
of, or constitute a default under, any other agreement or instrument to which
the Company is a party or by which the Company is bound and (D) if at such time
the Notes are listed on a national securities exchange, the Company has
delivered to the Trustee an Opinion of Counsel to the effect that the Notes will
not be delisted as a result of such deposit, defeasance and discharge.
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Covenant Defeasance
-------------------
The Indenture further provides that the provisions of clause (iii) under
"Mergers, Consolidations and Sales of Assets" and all the covenants described
herein under "Certain Covenants," clause (iv) under "Events of Default" with
respect to such covenants and with respect to clause (iii) under "Mergers,
Consolidations and Sales of Assets," and clauses (iii) and (v) under "Events
of Default" will cease to be applicable to the Company and its Subsidiaries
upon the satisfaction of the provisions described in clauses (A), B(ii) and
(iii), (C) and (D) of the preceding paragraph and the delivery by the Company
to the Trustee of an Opinion of Counsel to the effect that, among other
things, the Holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and the defeasance of
certain covenants and Events of Default and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred and the
Company had paid or redeemed such Notes on the applicable dates.
Defeasance and Certain Other Events of Default
----------------------------------------------
If the Company exercises its option to omit compliance with certain
covenants and provisions of the Indenture with respect to the Notes as described
in the immediately preceding paragraph and the Notes are declared due and
payable because of the occurrence of an Event of Default that remains
applicable, the amount of money and/or U.S. Government Obligations on deposit
with the Trustee will be sufficient to pay amounts due on the Notes at the time
of their Stated Maturity or scheduled redemption, but may not be sufficient to
pay amounts due on the Notes at the time of acceleration resulting from such
Event of Default. The Company will remain liable for such payments.
THE TRUSTEE
IBJ Schroder Bank & Trust Company is the Trustee under the Indenture.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in
accordance with, the law of the State of New York, including Section 5-1401 of
the New York General Obligations Law, but otherwise without regard to conflict
of laws rules.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in
the covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definitions of all such terms as well as any other
capitalized terms used herein for which no definition is provided.
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"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 Pension 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 by the Company pursuant
to the provision described in the first paragraph of "Limitation on Debt" above,
and provided further that such Debt was not Incurred in connection with, or in
-------- -------
contemplation of, such merger or such Person becoming a Restricted Subsidiary of
the Company or an Eligible Joint Venture.
"Acquisition Debt" is defined to mean Debt of any Person existing at
the time such Person is merged into the Company or assumed in connection with
the acquisition of Property from any such Person (other than Property acquired
in the ordinary course of business), including Debt Incurred in connection with,
or in contemplation of, such Person being merged into the Company (but excluding
Debt of such Person that is extinguished, retired or repaid in connection with
such merger or acquisition).
"Adjusted Consolidated Net Income" is defined to mean for any period,
for any Person (the "Referenced Person") the aggregate Net Income (or loss) of
the Referenced Person and its consolidated Subsidiaries for such period
determined in conformity with GAAP, provided that the following items will be
--------
excluded in computing Adjusted
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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 of any
Subsidiary of the Referenced Person, except to the extent that (A) such Net
Income (if positive) is actually paid in cash to the Referenced Person during
such period, or after such period and on or before the date of determination,
and (B) such Net Income (if negative) is actually paid in cash to such
Subsidiary during such period, on or after such period and on or before the date
of determination, (iv) any gains or losses (on an after-tax basis) attributable
to Asset Sales, (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. For the purpose of this definition, as applied to
the Company, cash balances held by 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 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 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 Net Income pursuant to
- -------
this sentence may not be used to enable the recognition of Net Income 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 Net
-------- -------
Income as a result of this sentence will be determined in good faith by the
Chief Financial Officer, as evidenced by an Officers' Certificate that will set
forth in reasonable detail the relevant facts and assumptions supporting such
recognition. When the "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
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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 Restricted Subsidiaries or any Eligible Joint Venture in any other
Person pursuant to which such Person will become a direct or indirect
Restricted Subsidiary of the Company or an Eligible Joint Venture or will be
merged into or consolidated with the Company, any of its Restricted
Subsidiaries or any Eligible Joint Venture or (ii) an acquisition by the
Company, any of its Restricted Subsidiaries or any Eligible Joint Venture of
the Property of any Person other than the Company, any of its Restricted
Subsidiaries or any Eligible Joint Venture that constitutes substantially all
of an operating unit or business of such Person.
"Asset Disposition" is defined to mean any sale, transfer, conveyance,
lease or other disposition (including by way of merger, consolidation or sale-
leaseback) by the Company, any of its Restricted Subsidiaries or any Eligible
Joint Venture to any Person (other than to the Company, a Restricted Subsidiary
of the Company or an Eligible Joint Venture and other than in the ordinary
course of business) of any Property of the Company, any of its Restricted
Subsidiaries or any Eligible Joint Venture other than any shares of Capital
Stock of the Unrestricted Subsidiaries. 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 transaction in the applicable
jurisdiction, (ii) any sale, transfer, conveyance, lease or other disposition of
Property governed by the covenant described under "Mergers,
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Consolidations and Sales of Assets" above, (iii) any sale, transfer, conveyance,
lease or other disposition of any Cash Equivalents, or (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. 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 and 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 and provided that any Asset Disposition that
--------
results from the bona fide exercise by any governmental authority of its
claimed or actual power of eminent domain need not comply with the provisions
of clauses (i) and (ii) of the covenant described under "Limitation on
Dispositions" above.
"Asset Sale" is defined to mean the sale or other disposition by the
Company, any of its Restricted Subsidiaries or any Eligible Joint Venture (other
than to the Company, another Restricted Subsidiary of the Company or another
Eligible Joint Venture) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary of the Company or any Eligible Joint Venture or (ii)
all or substantially all of the Property that constitutes an operating unit or
business of the Company, any of its Restricted Subsidiaries or any Eligible
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
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liquidation value payment by (ii) the sum of all such principal or involuntary
liquidation value payments.
"Board of Directors" is defined to mean either the Board of Directors of
the Company or any duly authorized committee of such Board.
"Business Day" is defined to mean a day that, in the city (or in any of
the cities, if more than one) where amounts are payable in respect of the
Notes, is neither a legal holiday nor a day on which banking institutions are
authorized or required by law or regulation to close.
"Capital Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) in, or interests (however
designated) in, the equity of such Person that is outstanding or issued on or
after the date of Indenture, including, without limitation, all Common Stock
and Preferred Stock and partnership and joint venture interests in such
Person.
"Capitalized Lease" is defined to mean, as applied to any Person, any
lease of any Property of which the discounted present value of the rental
obligations of such Person as lessee, in conformity with GAAP, is required to be
capitalized on the balance sheet of such Person, and "Capitalized Lease
Obligation" means the rental obligations, as aforesaid, under such lease.
"Cash Equivalent" is defined to mean any of the following: (i)
securities issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in support
thereof), (ii) time deposits and certificates of deposit of any commercial bank
organized in the United States having capital and surplus in excess of
$500,000,000 or a commercial bank under the laws of any other country having
total assets in excess of $500,000,000 with a maturity date not more than two
years from the date of acquisition, provided that at no time will the weighted
--------
Average Life of all such Investments be more than two year from the respective
dates of acquisition, (iii) repurchase obligations with a term of not more than
30 days for underlying securities of the types described in clauses (i) or (v)
that was entered into with any bank meeting the qualifications set forth in
clause (ii) or another financial institution of national reputation, (iv) direct
obligations issued by any state or other jurisdiction of the United States of
America or any other country or any political subdivision or public
instrumentality thereof maturing, or subject to tender at the option of the
holder thereof, within 90 days after the date of acquisition thereof and, at the
time of acquisition, having a rating of A from Standards & Poor's Corporation
("S&P") or A-2 from Moody's Investors Service, Inc. ("Moody's") (or, if at any
time neither S&P nor Moody's may be rating such obligations, then from such
other nationally recognized rating services acceptable to the Trustee), (v)
commercial paper issued by the parent corporation of any commercial bank
organized in the United States having capital and surplus in excess of
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$500,000,000 or a commercial bank organized under the laws of any other country
having total assets in excess of $500,000,000, and commercial paper issued by
others having one of the two highest ratings obtainable from either S&P or
Moody's (or, if at any time neither S&P nor Moody's may be rating such
obligations, then from such other nationally recognized rating services
acceptable to the Trustee) and in each case maturing within one year after the
date of acquisition, (vi) overnight bank deposits and bankers' acceptances at
any commercial bank organized in the United States having capital and surplus in
excess of $500,000,000 or a commercial bank organized under the laws of any
other country having total assets in excess of $500,000,000, (vii) deposits
available for withdrawal on demand with a commercial bank organized in the
United States having capital and surplus in excess of $500,000,000 or a
commercial bank organized under the laws of any other country having total
assets in excess of $500,000,000, (viii) investments in money market funds
substantially all of whose assets comprise securities of the types described in
clauses (i) through (vi) and (ix), and (ix) auction rate securities or money
market preferred stock having one of the two highest ratings obtainable from
either S&P or Moody's (or, if at any time neither S&P nor Moody's may be rating
such obligations, then from such other nationally recognized rating services
acceptable to the Trustee).
"Change of Control" is defined to mean the occurrence of one or more of
the following events:
(i) for so long as $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
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of this clause (ii), any person will be deemed to beneficially own any
Voting Stock of any corporation (the "specified corporation") held by any
other corporation (the "parent corporation"), if such person "beneficially
owns" (as so defined), directly or indirectly, more than 35% of the voting
power of the Voting Stock of such parent corporation and Kiewit
"beneficially owns" (as so defined), directly or indirectly, in the
aggregate a lesser percentage of the voting power of the Voting Stock of
such parent corporation and does not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the board of directors of such parent corporation);
(iii) during any one-year period, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together
with any new directors elected by such Board of Directors or nominated for
election by the shareholders of the Company by a vote of at least a
majority of the directors of the Company then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office, unless a
majority of such new directors were elected or appointed by Kiewit; or
(iv) the Company or its Restricted Subsidiaries sell, convey, assign,
transfer, lease or otherwise dispose of all or substantially all the
Property of the Company and the Restricted Subsidiaries taken as a whole;
provided that with respect to the foregoing subparagraphs (ii), (iii) and (iv),
- --------
a Change of Control will not be deemed to have occurred unless and until a
Rating Decline has occurred as well.
"Common Stock" is defined to mean with respect to any Person, Capital Stock
of such Person that does not rank prior, as to the payment of dividends or as to
the distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Company Refinancing Debt" is defined to mean Debt issued in exchange for,
or the proceeds of which are used to refinance (including to purchase),
outstanding Notes or other Debt of the Company Incurred pursuant to clauses (i),
(iv), and (vii) of "Limitation on Debt" and Debt Incurred pursuant to the first
paragraph under "Limitation on Debt" in an amount (or, if such new Debt provides
for an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration thereof, with an original issue price) not to
exceed the amount so exchanged or refinanced (plus accrued interest and all
fees, premiums (in excess of the accreted value) and expenses related to such
exchange or refinancing), for which purpose the amount so exchanged or
refinanced will be deemed
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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 (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, (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 (v) the aggregate amount actually received in cash by
such Person during such period relating to non-cash items increasing Adjusted
Consolidated Net Income for prior periods, and less (i) all non-cash items
----
increasing Adjusted Consolidated Net Income during such period and (ii) the
aggregate amount actually paid in cash by such Person during such period
relating to non-cash items reducing Adjusted Consolidated Net Income, 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. 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
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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.
"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
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similar instruments or obligations (or reimbursement obligations with respect
thereto) (except, in each case, to the extent incurred in the ordinary course of
business), (iv) all obligations of such Person to pay the deferred purchase
price of property or services, except Trade Payables, (v) the Attributable Value
of all obligations of such Person as lessee under Capitalized Leases, (vi) all
Debt of others secured by a Lien on any Property of such Person, whether or not
such Debt is assumed by such Person, provided that, for purposes of determining
--------
the amount of any Debt of the type described in this clause, if recourse with
respect to such Debt is limited to such Property, the amount of such Debt will
be limited to the lesser of the fair market value of such Property or the amount
of such Debt, (vii) all Debt of others Guaranteed by such Person to the extent
such Debt is Guaranteed by such Person, (viii) all Redeemable Stock valued at
the greater of its voluntary or involuntary liquidation preference plus accrued
and unpaid dividends and (ix) to the extent not otherwise included in this
definition, all net obligations of such Person under Currency Protection
Agreements and Interest Rate Protection Agreements.
For purposes of determining any particular amount of Debt that is or would
be outstanding, Guarantees of, or obligations with respect to letters of credit
or similar instruments supporting (to the extent the foregoing constitutes
Debt), Debt otherwise included in the determination of such particular amount
will not be included. For purposes of determining compliance with the
Indenture, in the event that an item of Debt meets the criteria of more than one
of the types of Debt described in the above clauses, the Company, in its sole
discretion, will classify such item of Debt and only be required to include the
amount and type of such Debt in one of such clauses.
"Default Amount" is defined to mean, prior to January 15, 1997, the
Accreted Value, and from and including January 15, 1997 the principal amount
plus accrued interest.
"Eligible Joint Venture" is defined to mean a Joint Venture (other than a
Subsidiary) (i) that is or will be formed with respect to the construction,
development, acquisition, servicing, ownership, operation or 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
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Joint Venture if (x) Kiewit disposes of any securities issued by the Company
and, as a result of such disposition, Kiewit becomes the beneficial owner (as
such term is defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of less than 25% of the outstanding shares
of Voting Stock of the Company or (y) (I) as a result of any action other than a
disposition of securities by Kiewit, Kiewit becomes the beneficial owner of less
than 25% of the outstanding shares of Voting Stock of the Company and (II)
thereafter Kiewit disposes of any securities issued by the Company as a result
of which the beneficial ownership by Kiewit of the outstanding Voting Stock of
the Company is further reduced, provided that thereafter such Joint Venture may
--------
become an Eligible Joint Venture if Kiewit becomes the beneficial owner of at
least 25% of the outstanding shares of Voting Stock of the Company and the other
conditions set forth in this definition are fulfilled.
"Fixed Charge Ratio" is defined to mean the ratio, on a pro forma basis, of
(i) the aggregate amount of Consolidated EBITDA of any Person for the Reference
Period immediately prior to the date of the transaction giving rise to the need
to calculate the Fixed Charge Ratio (the "Transaction Date") to (ii) the
aggregate Consolidated Fixed Charges of such Person during such Reference
Period, provided that for purposes of such computation, in calculating
--------
Consolidated EBITDA and Consolidated Fixed Charges, (1) the Incurrence of the
Debt giving rise to the need to calculate the Fixed Charge Ratio and the
application of the proceeds therefrom (including the retirement or defeasance of
Debt) will be assumed to have occurred on the first day of the Reference Period,
(2) Asset Sales and Asset Acquisitions that occur during the Reference Period
or subsequent to the Reference Period and prior to the Transaction Date (but
including any Asset Acquisition to be made with the Debt Incurred pursuant to
(1) above) and any related retirement of Debt pursuant to an Offer (in the
amount of the Excess Proceeds with respect to which such Offer has been made or
would be made on the Transaction Date if the purchase of Notes pursuant to such
Offer has not occurred on or before the Transaction Date) will be assumed to
have occurred on the first day of the Reference Period, (3) the Incurrence of
any Debt during the Reference Period or subsequent to the Reference Period and
prior to the Transaction Date and the application of the proceeds therefrom
(including the retirement or defeasance of other Debt) will be assumed to have
occurred on the first day of such Reference Period, (4) Consolidated Interest
Expense attributable to any Debt (whether existing or being Incurred) computed
on a pro forma basis and bearing a floating interest rate will be computed as if
the rate in effect on the date of computation had been the applicable rate for
the entire period unless the obligor on such Debt is a party to an Interest Rate
Protection Agreement (that will remain in effect for the twelve month period
after the Transaction Date) that has the effect of fixing the interest rate on
the date of computation, in which case such rate (whether higher or lower) will
be used and (5) there will be excluded from Consolidated Fixed Charges any
Consolidated Fixed Charges related to any amount of Debt that was outstanding
during or subsequent to the Reference Period but is not outstanding on the
Transaction Date, except for Consolidated Fixed Charges actually incurred with
respect to Debt borrowed (as adjusted pursuant to clause (4)) (x) under a
revolving credit or similar arrangement to the extent the commitment thereunder
remains in effect on the Transaction Date or (y) pursuant to the
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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.
"Holder", "holder of Notes", "Noteholder" and other similar terms are
defined to mean the registered holder of any Note.
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"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
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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 which must
by its terms or by applicable law or in order to obtain a required consent or
waiver be repaid out of the proceeds from or in connection with such Asset
Disposition, and (v) all distributions and other payments made to holders of
Capital Stock of Restricted Subsidiaries or Eligible Joint Ventures (other than
the Company or its Restricted Subsidiaries) as a result of such Asset
Disposition.
"Net Income" of any Person for any period is defined to mean the net income
(loss) of such Person for such period, determined in accordance with GAAP,
except that extraordinary and non-recurring gains and losses as determined in
accordance with GAAP will be excluded.
"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
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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
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(i) the Property that constitutes such Permitted Facility, (ii) the income from
and proceeds of such Permitted Facility, (iii) the Capital Stock of the Person
that owns the Property that constitutes such Permitted Facility and of any
Subsidiary or Joint Venture (that is a Restricted Subsidiary or an Eligible
Joint Venture) of the Person obligated of such Subsidiary or Joint Venture owns
a direct or indirect interest in the Permitted Facility and (iv) the Capital
Stock of the Person obligated with respect to such financing, and provided
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further that an increase in the amount of Debt with respect to a Permitted
- -------
Facility pursuant to the financing provided pursuant to the terms of this
definition (except for the first refinancing of Construction Financing) may not
be Incurred to fund or enable the funding of any dividend or other distribution
in respect of Capital Stock. The fact that a portion of financing with respect
to a Permitted Facility is not Non-Recourse will not prevent other portions of
the financing with respect to such Permitted Facility from constituting Non-
Recourse Debt if the foregoing requirements of this definition are fulfilled
with respect to such other portions. Notwithstanding anything in this definition
to the contrary, (i) Non-Recourse Debt in respect of any Permitted Facility that
uses thermal energy drawn from a single localized geothermal reservoir may be
cross-collateralized with the Property, income, proceeds and Capital Stock in
respect of any other Permitted Facility that uses thermal energy drawn from the
same localized geothermal reservoir, (ii) Acquired Debt of a Person that was
Incurred with respect to, and that is jointly secured by, two or more Permitted
Facilities (all of which need not use thermal energy drawn from the same
localized geothermal reservoir) (and other Property related to such Permitted
Facilities) will be deemed to be Non-Recourse if, upon such Person, becoming a
Restricted Subsidiary or an Eligible Joint Venture, such Acquired Debt would
fulfill the requirements of the first sentence of this definition if such
Permitted Facilities constituted a single Permitted Facility and (iii) for the
purpose of the Indenture, (a) the Permitted Facilities that jointly secure a
single Non-Recourse Debt pursuant to clause (i) of this sentence will be deemed
to be a single Permitted Facility and (b) the Permitted Facilities that jointly
secure a single Acquired Debt will be deemed to be a single Permitted Facility.
"Officers' Certificate" is defined to mean a certificate signed by the
Chairman of the Board of Directors, the President or any Vice President and by
the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the
Controller, the Assistant Controller, the Secretary or any Assistant Secretary
of the Company and delivered to the Trustee. Each such certificate will comply
with Section 314 of the Trust Indenture Act and include the statements provided
for in the Indenture if and to the extent required thereby.
"Opinion of Counsel" is defined to mean an opinion in writing signed by
legal counsel who may be an employee of or counsel to the Company or who may be
other counsel satisfactory to the Trustee. Each such opinion will comply with
Section 314 of the Trust Indenture Act and include the statements provided for
in the Indenture, if and to the extent required thereby.
"Permitted Facility" is defined to mean (i) an electric power or thermal
energy generation or cogeneration facility or related facilities (including
residual waste management
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and facilities that use thermal energy from a cogeneration facility), and it or
their related electric power transmission, fuel supply and fuel transportation
facilities, together with its or their related power supply, thermal energy and
fuel contracts and other facilities, services or goods that are ancillary,
incidental, necessary or reasonably related to the marketing, development,
construction, management, servicing, ownership or operation of the foregoing,
owned by a utility or otherwise, as well as other contractual arrangements with
customers, suppliers and contractors or (ii) any infrastructure facilities
related to (A) the treatment of water for municipal and other uses, (B) the
treatment and/or management of waste water, (C) the treatment, management and/or
remediation of waste, pollution and/or potential pollutants and (D) any other
process or environmental purpose.
"Permitted 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 described in clause (ii)(C) of the definition of
"Permitted Joint Venture") up to 100% of the Construction Financing required by
such Restricted Subsidiary and (B) to any Eligible Joint Venture (which is an
Eligible Joint Venture described in clause (ii)(C) of the definition of
"Permitted Joint Venture") a portion of the Construction Financing required by
such Eligible Joint Venture does not exceed the ratio of the Capital Stock in
such Permitted Joint Venture that is owned directly or indirectly by the Company
to the total amount of the Capital Stock in such Eligible Joint Venture that is
owned directly and indirectly by the Company and Kiewit together (provided
--------
that the Company may provide such Construction Financing to such Eligible Joint
Venture only if Kiewit provides the balance of such Construction Financing or
otherwise causes it to be provided), if, in either case, (x) the aggregate
proceeds of all the Construction Financing provided is not more than 85% of the
sum of the aggregate proceeds of such Construction Financing and the aggregate
owners' equity investment in such Restricted Subsidiary or such Eligible Joint
Venture, as the case may be, (y) the Company receives a pledge or assignment of
all the Capital Stock of such Restricted Subsidiary or such Eligible Joint
Venture, as the case may be, that is owned by non-governmental Person (other
than the Company, its Subsidiaries or the Eligible Joint Ventures) that is
permitted to be pledged for such purpose under applicable law and (z) neither
the Company nor Kiewit reduces its beneficial ownership in such Restricted
Subsidiary or such Eligible Joint Venture, as the case may be, prior to the
repayment in full of the Company's portion of the Construction Financing, (iii)
any Cash Equivalents, (iv) prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance and other
similar deposits in the ordinary
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course of business consistent with past practice, (v) loans and advances to
employees made in the ordinary course of business and consistent with past
practice, (vi) Debt incurred pursuant to Currency Protection Agreements and
Interest Rate Protection Agreements as otherwise permitted by the Indenture,
(vii) bonds, notes, debentures or other debt securities and instruments
received as a result of Asset Dispositions to the extent permitted by the
covenants described under "Limitation on Dispositions" above and "Limitation on
Business" above, (viii) any Lien permitted under the provisions described under
"Limitation on Liens" above and (ix) bank deposits and other Investments (to the
extent they do not constitute Cash Equivalents) required by lenders in
connection with any Non-Recourse Debt, provided that the President or the Chief
--------
Financial Officer of the Company determines in good faith, as evidenced by an
Officers' Certificate, that such bank deposits or Investments are required to
effect such financings and are not materially more restrictive, taken as a
whole, than comparable requirements in comparable financings.
"Permitted Joint Venture" is defined to mean a Joint Venture (i) that is or
will be formed with respect to the construction, development, acquisition,
servicing, ownership, operation or management of one or more Permitted
Facilities and (ii) in which (A) the Company or (B) the Company and Kiewit
together, directly or indirectly, own at least 70% of the Capital Stock therein
(of which the Company must own at least half (in any event not less than 35% of
the total outstanding Capital Stock)), provided that if applicable non-U.S. law
--------
restricts the amount of Capital Stock that the Company may own, the Company must
own at least 70% of the amount of Capital Stock that it may own pursuant to such
law, which in any event must be not less than 35% of the total outstanding
Capital Stock therein, or (C) an Eligible Joint Venture 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 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
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securities issued by the Company as a result of which the beneficial ownership
by Kiewit of the outstanding Voting Stock of the Company is further reduced,
provided that thereafter such Joint Venture may become a Permitted Joint Venture
- --------
if Kiewit becomes the beneficial owner of at least 25% of the outstanding shares
of Voting Stock of the Company and the other conditions set forth in this
definition are fulfilled.
"Permitted Payments" is defined to mean, with respect to the Company, any
of its Restricted Subsidiaries or any Eligible Joint Venture, (i) any dividend
on shares of Capital Stock of the Company payable (or to the extent paid) solely
in Capital Stock (other than Redeemable Stock) or in options, warrants or other
rights to purchase Capital Stock (other than Redeemable Stock) of the Company
and any distribution of Capital Stock (other than Redeemable Capital Stock) of
the Company in respect of the exercise of any right to convert or exchange any
instrument (whether Debt or equity and including Redeemable Capital Stock) into
Capital Stock (other than Redeemable Capital Stock) of the Company, (ii) the
purchase or other acquisition or retirement for value of any shares of the
Company's Capital Stock, or any option, warrant or other right to purchase
shares of the Company's Capital Stock with additional shares of, or out of the
proceeds of a substantially contemporaneous issuance of, Capital Stock other
than Redeemable Stock, (iii) any defeasance, redemption, purchase or other
acquisition for value of any Debt that by its terms ranks subordinate in right
of payment to the Notes with the proceeds from the issuance of (x) Debt that is
subordinate to the Notes a least to the extent and in the manner as the Debt to
be defeased, redeemed, purchased or otherwise acquired is subordinate in right
of payment to the Notes, provided that such subordinated Debt provides for no
--------
mandatory payments of principal by way of sinking fund, mandatory redemption or
otherwise (including defeasance) by the Company (including, without limitation,
at the option of the holder thereof other than an option given to a holder
pursuant to a "change of control" or an "asset disposition" covenant that is no
more favorable to the holders of such Debt than comparable covenants for the
Debt being defeased, redeemed, purchased or acquired or, if none, the covenants
described under "Limitation on Dispositions" and "Purchase of Notes Upon a
Change of Control" above and such Debt is not in an amount (net of any original
issue discount) greater than, any Stated Maturity of the Debt being replaced and
the proceeds of such subordinated Debt are utilized for such purpose within 45
days of issuance or (y) Capital Stock (other than Redeemable Stock), (iv)
Restricted Payments in an amount not to exceed $50 million in the aggregate
provided that no payment may be made pursuant to this clause (iv) if an Event of
- --------
Default, or an event that, after giving notice or lapse of time or both, would
become an Event of Default, has occurred and is continuing, (v) any payment or
Investment required by applicable law in order to conduct business operations in
the ordinary course, (vi) a Permitted Investment and (vii) Investments in
Unrestricted Subsidiaries and other Persons that are not Restricted Subsidiaries
or Eligible Joint Ventures in an amount not to exceed $50 million in the
aggregate, provided that no payment or Investment may be made pursuant to this
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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.
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"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.
"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
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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
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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 "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 "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, (ii) any payment on
account of the purchase, redemption, retirement or acquisition for value of the
Company's Capital Stock, (iii) any defeasance, redemption, purchase or other
acquisition or retirement for value prior to the scheduled maturity of any Debt
ranked subordinate in right of payment to the Notes, (iv) any Investment made in
a Person (other than the Company or any Restricted Subsidiary) and (v)
designating a Restricted Subsidiary as an Unrestricted Subsidiary (the
Restricted Payment made upon such a designation to be determined as the fair
market value of the Capital Stock of such Restricted Subsidiary owned directly
or indirectly by the Company at the time of the designation, but in no event
less than the amount of the Investment made in such Restricted Subsidiary
directly or indirectly by the Company). Notwithstanding the foregoing, "Re-
stricted 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.
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"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
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Debt will not include (i) Debt that, when Incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, was without
recourse to the Company, (ii) Debt of the Company to any Affiliate and (iii) any
Debt of the Company that, by the terms of the instrument creating or evidencing
the same, is specifically designated as not being senior in right of payment to
the Notes.
"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 (including as a result of the
Company's election to cause the Interest Commencement Date to occur prior to the
Scheduled Interest Commencement Date).
"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
Funding Corp., 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
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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
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that (A) such Debt will be Non-Recourse if the Debt so exchanged or refinanced
is Non-Recourse and (B) the Average Life of the new Debt will be equal to or
greater than the Average Life of the Debt to be exchanged or refinanced,
provided further that upon the first refinancing of any Construction Financing
- -------- -------
of a Restricted Subsidiary or an Eligible Joint Venture, (i) the amount of the
Subsidiary Refinancing Debt issued in exchange for or to refinance such Con-
struction Financing will not be limited by this provision and (ii) the
Subsidiary Refinancing Debt issued in exchange for or to refinance such
Construction Financing will not be subject to the provisions of the foregoing
clause (B) of this provision.
"Trade Payables" is defined to mean, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors Incurred, created, assumed or Guaranteed by such Person or any of its
Subsidiary arising in the ordinary course of business.
"Unrestricted Subsidiary" is defined to mean any Subsidiary of the Company
that becomes an Unrestricted Subsidiary in accordance with the requirements set
forth in the next sentence. The Company may designate any Restricted Subsidiary
as an Unrestricted Subsidiary if (a) such designation is in compliance with the
first paragraph of the covenant described under "Limitation on Restricted
Payments" above and (b) after giving effect to such designation, such Subsidiary
does not own, directly or indirectly, a majority of the Capital Stock or the
Voting Shares of any other Restricted Subsidiary unless such other Restricted
Subsidiary is designated as an Unrestricted Subsidiary at the same time. Any
such designation will be effected by filing with the Trustee an Officers'
Certificate certifying that such designation complies with the requirements of
the immediately preceding sentence. No Debt or other obligation of an
Unrestricted Subsidiary may be with recourse to the Company, any of its
Restricted Subsidiaries, any Eligible Joint Venture or any of their respective
Property. An Unrestricted Subsidiary may be designated as a Restricted
Subsidiary if, (i) all the Debt of such Unrestricted Subsidiary could be
Incurred under the provision described under "Limitation 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
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custodian for the account of the holder of a depository receipt, provided that
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(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of interest on or principal of the U.S.
Government Obligation evidenced by such depository receipt.
"Voting Stock" is defined to mean, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote for the election
of directors (or person fulfilling similar responsibilities) of such Person.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary, based on the opinion of Willkie Farr &
Gallagher, counsel to the Company, of the anticipated material United States
federal income tax consequences of the purchase, ownership and disposition of
the Notes. This summary is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), its legislative history, existing and proposed regulations
thereunder, published rulings and court decisions, all as in effect and existing
on the date of this Prospectus and all of which are subject to change at any
time, which change may be retroactive. In particular, the discussion below of
"Original Issue Discount" is based in part on proposed regulations released on
December 22, 1992, but not yet effective (the "Proposed OID Regulations").
While the 1992 Proposed OID Regulations are proposed to be effective for debt
instruments issued sixty or more days after final regulations are issued and
therefore may not be applicable to the Notes, the 1992 Proposed OID Regulations
are the most current indication of the views of the Internal Revenue Service
(the "Service") with respect to the federal income tax treatment of debt
instruments having original issue discount ("OID").
Unless otherwise specified, the discussion below assumes that the rules set
forth in the Proposed OID Regulations will control the tax treatment of the
Notes. However, changes may be made to the Proposed OID Regulations or final
OID regulations may be adopted that would apply to the Notes and that may be
contrary to the interpretations of the Proposed OID Regulations discussed below.
Because of the lack of definitive regulatory authority, no assurance can be
given that the Service will agree with the interpretations of the Proposed OID
Regulations discussed below or that the final OID regulations will not differ
materially from the Proposed OID Regulations or subsequent versions thereof.
This summary applies only to those persons who are the initial Holders of
the Notes and who hold Notes as capital assets and does not address the tax
consequences to taxpayers who are subject to special rules (such as financial
institutions, tax-exempt organizations and insurance companies) or aspects of
federal income taxation that may be relevant to a prospective investor based
upon such investor's particular tax situation. Accordingly, purchasers of Notes
should consult their own tax advisors with respect to the particular
consequences to them of the purchase, ownership and disposition of the Notes,
including the applicability of any state, local or foreign tax laws to which
they may be subject as well as with respect to the possible effects of changes
in federal and other tax laws.
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.
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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 _______________, 1997, the interest
payments on the Notes will not constitute qualified stated interest and thus
will be included along with principal in the stated redemption price at maturity
of the Notes. As a result, each Note will bear OID in an amount equal to the
excess of (i) the sum of its principal amount and all stated interest payments
over (ii) its issue price.
A Holder will be required to include OID in income periodically over the
term of a Note before receipt of the cash or other payment attributable to such
income. In general, a Holder must include in gross income for federal income
tax purposes the sum of the daily portions of OID with respect to the Note for
each day during the taxable year or portion of a taxable year on which such
Holder holds the Note ("Accrued OID"). The daily portion is determined by
allocating to each day of any accrual period within a taxable year a pro rata
portion of an amount equal to the adjusted issue price of the Note at the
beginning of the accrual period multiplied by the yield to maturity of the Note.
For purposes of computing OID, the Company will use six-month accrual periods
that end on the days in the calendar year corresponding to the maturity date of
the Notes and the date six months prior to such maturity date, with the
exception of an initial short accrual period. The adjusted issue price of a
Note at the beginning of any accrual period is the issue price of the Note
increased by the Accrued OID for all prior accrual periods (less any cash
payments on the Notes). Under these rules, Holders may have to include in gross
income increasingly greater amounts of OID in each successive accrual period.
Optional Redemption. If the Company exercises its rights to redeem the
Notes (See "Description of the Notes -- Optional Redemption), the tax treatment
of the redemption would be governed by the rules for dispositions generally.
See "Disposition of the Notes." However, if the Company were found to have an
intention at the time the Notes were issued to redeem them before maturity, any
taxable income arising from such redemption would be treated as ordinary income
to the extent of any unamortized OID.
If a Holder tenders Notes for redemption as a result of a Change of Control
(See "Description of the Notes -- Change of Control"), the Holder may be
required to include as ordinary income any amount the Holder is entitled to
receive in excess of the Accreted Value of a Note on the date of the redemption.
Holders should consult their own tax advisors regarding the treatment of
payments upon optional redemptions.
DISPOSITION OF THE NOTES
Generally, any sale or redemption of the Notes will result in taxable gain
or loss equal to the difference between the amount of cash or other property
received and the Holder's adjusted tax basis in the Note. A Holder's adjusted
tax basis for determining gain or loss on the sale or other disposition of a
Note will initially equal the cost of the Note to such Holder and will be
increased by any Accrued OID (and, as described below, any market discount)
includible
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in such Holder's gross income and decreased by the amount of any cash payments
received by such Holder regardless of whether such payments are denominated as
principal or interest. Except to the extent that the market discount rules
described below apply, any gain or loss upon a sale or other disposition of a
Note will generally be capital gain or loss, which will be long term if the Note
has been held by the Holder for more than one year.
Market Discount. Generally, market discount will exist to the extent the
purchase price paid by a Holder for a Note is less than the issue price of the
Note at the time of purchase, subject to a statutory de minimis exception.
Generally, a Holder of a Note who acquires the Note with market discount will be
required to treat any gain realized upon the disposition of such Note as
ordinary income to the extent of the market discount that accrued (but was not
previously included in income) during the period such Holder held the Note.
Furthermore, the Code requires that partial principal payments on a market
discount bond be included in gross income to the extent that such payments do
not exceed the accrued market discount on such bond. Thus, if a cash payment is
received by a Holder, such Holder will be required to include in income at the
time such cash payment is received the portion of the unrecognized market
discount that accrued prior to the receipt of such cash payment (up to the
amount of such payment). A Holder of a Note who has acquired the Note with
market discount may also be required to defer deduction of a portion of interest
on debt incurred or continued to purchase or carry the Note until disposition of
the Note in a taxable transaction.
A Holder may elect to include market discount in income as such discount
accrues with a corresponding increase in the Holder's tax basis in the Note. If
a Holder so elects, the rules in the preceding paragraph regarding the treatment
of income or gain upon the disposition of a Note and upon receipt of certain
cash payments as ordinary income or gain, and regarding the deferral of interest
deductions on indebtedness related to a Note, would not apply. Once made, such
an election applies to all debt obligations that are purchased by the Holder at
a market discount during the taxable year for which the election is made, and
all subsequent taxable years of the Holder, unless the Service consents to a
revocation of the election.
Acquisition Premium. A Holder of a Note who acquires such Note at a cost
in excess of its issue price will be considered to have purchased such Note at
an "acquisition premium." Under the acquisition premium rules contained in the
Code, generally, such Holder would be entitled to a reduction in the amount of
OID otherwise includible in income with respect to such Note.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND TO CORPORATE HOLDERS
The Notes will constitute "applicable high yield discount obligations"
("AHYDOs") if the yield to maturity of such Notes is equal to or greater than
the sum of the relevant applicable federal rate (the "AFR"), plus five
percentage points. The AFR applicable to the Notes is ___%, compounded
semiannually. Accordingly, if the yield to maturity of the Notes is equal to or
greater than ____%, the Notes will constitute AHYDOs. If the Notes are AHYDOs,
as described below, a portion of the tax deductions that would otherwise be
available to the Company in respect of the Notes will be deferred or disallowed,
which, in turn, might reduce the after-tax
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cash flows of the Company. More particularly, if the Notes constitute AHYDOs,
the Company will not be entitled to deduct OID that accrues with respect to such
Notes until amounts attributable to OID are paid in cash. In addition, if the
yield to maturity of the Notes exceeds the sum of the relevant AFR plus six
percentage points (the "Excess Yield"), the "disqualified portion" of the OID
accruing on the Note will be characterized as a non-deductible dividend with
respect to the Company and also may be treated as a dividend distribution solely
for purposes of the dividends received deduction of Sections 243, 246 and 246A
of the Code with respect to Holders that are U.S. corporations.
In general, the "disqualified portion" of OID for any accrual period will
be equal to the product of (i) a percentage determined by dividing the Excess
Yield by the yield to maturity and (ii) the OID for the accrual period. Subject
to otherwise applicable limitations, such a corporate Holder will be entitled to
a dividends received deduction (generally at a 70% rate) with respect to the
disqualified portion of the Accrued OID if the Company has sufficient current or
accumulated "earnings and profits." To the extent that the Company's earnings
and profits are insufficient, any portion of the OID that otherwise would have
been recharacterized as a dividend for purposes of the dividends received
deduction will continue to be taxed as ordinary OID income in accordance with
the rules described above in "Original Issue Discount." Treatment of the Notes
as AHYDOs will not disqualify interest or OID with respect to the Notes from the
portfolio interest exception described below under "Foreign Holders," provided
all applicable requirements for the exception are otherwise satisfied.
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
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corporation or partnership created or organized in the United States or under
the law of the United States or any state or (iii) an estate or trust, the
income of which is includable in gross income for United States federal income
tax purposes regardless of its source, but only if the income or gain on the
Note is not effectively connected with the conduct of a trade or business within
the United States by such Holder. If the income or gain on the Note is
effectively connected with the conduct of a trade or business within the United
States, then the nonresident alien individual or foreign corporation will be
subject to tax on such income or gain in essentially the same manner as a U.S.
citizen or resident or a domestic corporation, as discussed above, and in the
case of a foreign corporation, may also be subject to the branch profits tax
(unless such branch profits tax is reduced or eliminated under an applicable
treaty).
Under the "portfolio interest" exception to the general rules for the
withholding of tax on interest and OID paid to a Foreign Person, a Foreign
Person will not be subject to U.S. tax (or to withholding) on interest or OID on
a Note, provided that (i) the Foreign Person does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock of
the Company entitled to vote and is not a controlled foreign corporation with
respect to the United States that is related to the Company through stock
ownership, and (ii) the Company, its paying agent or the person who would
otherwise be required to withhold tax receives either (A) a statement (an
"Owner's Statement") signed under penalties of perjury by the beneficial owner
of the Note in which the owner certifies that the owner is not a U.S. person and
which provides the owner's name and address, or (B) a statement signed under
penalties of perjury by the Financial Institution holding the Note on behalf of
the beneficial owner, together with a copy of the Owner's Statement. The term
"Financial Institution" means a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business and that holds a Note on behalf of the owner of the Note.
A Foreign Person who does not qualify for the "portfolio interest" exception
would, under current law, generally be subject to U.S. withholding tax at a flat
rate of 30% (or a lower applicable treaty rate) on interest payments and
payments (including redemption proceeds) attributable to OID on the Notes.
In general, gain recognized by a Foreign Person upon the redemption, sale
or exchange of a Note (including any gain representing accrued market discount)
will not be subject to U.S. tax. However, a Foreign Person may be subject to
U.S. tax at a flat rate of 30% (unless exempt by an applicable treaty) on any
such gain if the Foreign Person is an individual present in the United States
for 183 days or more during the taxable year in which the Note is redeemed, sold
or exchanged, and certain other requirements are met.
105
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions of the Underwriting Agreement (the form of
which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part), to purchase from the Company, and the Company has agreed
to sell to the Underwriters, the principal amount of the Notes set forth
opposite their respective names below:
<TABLE>
<CAPTION>
Principal
Amount of
Underwriters Notes
------------ ---------
<S> <C>
Lehman Brothers Inc. $
Salomon Brothers Inc $
Donaldson, Lufkin & Jenrette Securities Corporation $
--------
Bear, Stearns & Co. Inc. $
Total $
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the Notes are subject to the approval of certain legal
matters by their counsel and certain other conditions, and that if any of the
Notes are purchased by the Underwriters pursuant to the Underwriting Agreement,
all of the Notes agreed to be purchased by the Underwriters pursuant to the
Underwriting Agreement must be so purchased.
The Company has been advised that the Underwriters propose to offer the
Notes initially at the public offering price set forth on the cover page of this
Prospectus plus accrued original issue discount, if any, to the date of delivery
and to certain selected dealers (who may include Underwriters) at such public
offering price less a selling concession not to exceed ____% of the principal
amount of the Notes. The selected dealers may reallow a concession to certain
other dealers not to exceed ____% of the principal amount of the Notes. After
the initial public offering of the Notes, the public offering price, the
concession to selected dealers and the reallowance to other dealers may be
changed by the Underwriters.
The Company intends to list the Notes for trading on the New York Stock
Exchange. 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.
106
<PAGE>
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.
107
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA ENERGY COMPANY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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>
ASSETS 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C>
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>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three years ended December 31, 1993
dollars and shares in thousands, except per share amounts
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 stock-
holders $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>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the three years ended December 31, 1993
dollars and shares in thousands
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>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three years ended December 31, 1993
dollars in thousands
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 operating 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 liabilities (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 preferred
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 refinancing --- (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 or CECI) 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 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 these 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 Joint Ventures after payout. Payout
is achieved when a Joint Venture has returned the initial capital to the
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 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 CECI'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>
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 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 Joint Ventures in which the
Company has invested is deferred until each Joint Venture commences
operations. Revenue previously deferred is amortized over the lives of the
related assets of the Joint Ventures as each 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 with a maturity of three months or less to
be cash equivalents. Restricted cash is not considered a cash equivalent.
F-8
<PAGE>
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 international 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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
4. PROPERTIES AND PLANTS
Properties and plants comprise the following at December 31:
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>
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 or
CFP), Coso Energy Developers (BLM or CED), and Coso Power Developers (Navy
II or CPD). 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 PLANT I
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
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 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 CED's 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 7.6% 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.
The Company has three contracts for terms of 24, 30 and 20 years, expiring
in 2011, 2019 and 2010, respectively. Delivery of electricity by CFP, CED
and CPD commenced under those contracts in 1987, 1989 and 1990,
respectively.
See Note 13 for a description of litigation involving SCE.
F-10
<PAGE>
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.
The property acquired from Chevron includes a 9MW power plant at Desert
Peak, Nevada ("Desert Peak"), and a 70% interest in a steam field at
Roosevelt Hot Springs, Utah ("Roosevelt"). 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 6.3 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 Roosevelt Hot Springs site has a
contract to sell steam to a 25MW 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
F-11
<PAGE>
Roosevelt 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 through an equity
offering, a $20,317 pre-sale of steam from the Roosevelt field to the
utility-owned power plant located at the site, and seller financing. The
acquisition of Roosevelt 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); 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,
collectively the "Joint Ventures". Pursuant to separate credit agreements
executed between Funding Corp. and each Joint Venture on December 16, 1992,
the proceeds from Funding Corp.'s note offering were loaned to the Joint
Ventures. The proceeds of $560,245 were used by the 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 Joint Ventures to third
parties to discharge all liens of record and other contract claims
encumbering the 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
Coso Funding Corp., and such establishment did not reflect the Joint
Ventures' view as to the merits or likely disposition of such litigation or
other contingencies. On June 9, 1993, MPE and the 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 Joint Ventures' revenues which
will be applied against the payment of obligations of each Joint Venture,
including the project loans. Each Joint Venture's assets will secure only
its own project loan, and will not be cross-collateralized with assets
pledged under other Joint Venture's
F-12
<PAGE>
credit agreements. The project loans are non-recourse to any partner in the
Joint Ventures and Funding Corp. shall solely look to such Joint Venture's
pledged assets for satisfaction of such project loans. However, the loans
are cross-collateralized by the available cash flow of each Joint Venture.
Each 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 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 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
F-13
<PAGE>
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 is 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.
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.
F-14
<PAGE>
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>
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.
F-15
<PAGE>
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 (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.
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, 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.
F-16
<PAGE>
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
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 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; see Note 12.
F-17
<PAGE>
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 exercisable 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 options. See Note 12.
F-18
<PAGE>
<TABLE>
<CAPTION>
WARRANTS
The Company has granted warrants in connection with various financing activities
to purchase shares of common stock as follows:
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>
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 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 signed a Stock Purchase Agreement and related
agreements, dated as of February 18, 1991. Kiewit 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 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
also entered into certain other agreements pursuant to which (i) Kiewit
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 became entitled to nominate at least three of the Company's
directors, and (iii) the Company and Kiewit 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 the rights to develop the
Nevada and Utah properties, and Kiewit 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 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 of one thousand shares of Series C Preferred Stock for $50,000, as
described in Note 10 above. In connection with the sale of the Series C
Preferred
F-19
<PAGE>
Stock to Kiewit, 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 Joint 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 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 Joint
Ventures' maximum exposure for the cost of the construction of a new 220kV
electric transmission line (Line) on the SCE transmission system. The
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 Joint Ventures' share would be approximately
$7,000. The 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 Joint Ventures and deducted amounts from revenues
payable under the power purchase contracts. The 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 geothermal 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.
F-20
<PAGE>
SETTLEMENT OF ANTI-TRUST LAWSUIT
On January 31, 1991, the Company filed an antitrust lawsuit in San
Francisco Federal Court against SCECorp., its subsidiaries (Mission
Energy, Mission Power, Southern California Edison) 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.
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 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 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 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 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
F-21
<PAGE>
private power projects and related facilities, (iii) for corporate or
project acquisitions permitted under the Indenture, and (iv) for general
corporate purposes.
- --------------------------------------------------------------------------------
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>
<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 1,195 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 income taxes 7,601 12,003 20,554 10,574
and extraordinary item
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
extraordinary 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 authorized
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
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has not been any change in the
information set forth in this Prospectus or in the affairs of the Company since
the date hereof.
_________
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Available Information......................................... ii
Incorporation of Certain Documents
by Reference................................................. iii
Prospectus Summary............................................ 1
Investment Considerations..................................... 8
Use of Proceeds............................................... 13
Capitalization................................................ 14
Selected Historical Consolidated
Financial and Operating Data................................. 15
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.................................... 18
Business...................................................... 26
Management.................................................... 49
Security Ownership of Significant
Stockholders and Management.................................. 54
Certain Transactions and Relationships........................ 55
Description of the Notes...................................... 57
Certain Federal Income
Tax Considerations.......................................... 58
Underwriting.................................................. 63
Legal Matters................................................. 64
Experts....................................................... 64
Index to Financial Statements................................. F-1
</TABLE>
================================================================================
$000,000,000
CALIFORNIA ENERGY
COMPANY, INC.
__% Senior Discount Notes
due 2004
--------------
PROSPECTUS
March __, 1994
--------------
LEHMAN BROTHERS
SALOMON BROTHERS INC
DONALDSON LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
-------------------------------------------
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered which will be paid
solely by the Company. All the amounts shown are estimates, except the
Securities and Exchange Commission registration fee:
<TABLE>
<S> <C>
SEC Registration Fee....................................... $137,931.03
Trustee Fees and Expenses.................................. *
Printing and Engraving Expenses............................ *
Legal Fees and Expenses.................................... *
Accounting Fees and Expenses............................... *
Blue Sky Fees and Expenses................................. *
Miscellaneous Expenses..................................... *
-----------
Total $ *
-----------
- ------------------
</TABLE>
*To be provided by amendment.
Item 15. Indemnification of Directors and Officers
-----------------------------------------
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") grants each corporation organized thereunder, such as the Company, the
power to indemnify its directors and officers against liabilities for certain of
their acts. Article EIGHTH of the Company's Restated Certificate of
Incorporation and Article V of the Company's By-Laws provides for
indemnification of directors and officers of the Company to the extent permitted
by the DGCL. Article V of the Company's By-Laws further provides that the
Registrant may enter into contracts providing indemnification to the full extent
authorized or permitted by the DGCL and that the Company may create a trust
fund, grant a security interest and/or use other means to ensure the payment of
such amounts as may become necessary to effect indemnification pursuant to such
contracts or otherwise.
Section 102(b)(7) of the DGCL permits a provision in the certificate of
incorporation of each corporation organized thereunder, such as the Company,
eliminating or limiting, with certain exceptions, the personal liability of a
director to the corporation or its stockholders for monetary damages for certain
breaches of fiduciary duty as a director. Article EIGHTH of the Company's
Restated Certificate of Incorporation eliminates the personal liability of
directors to the full extent permitted by the DGCL.
II-1
<PAGE>
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.
<TABLE>
<CAPTION>
Item 16. Exhibits
--------
<S> <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 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
Financial Statement Schedules
-----------------------------
II Annual 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>
*To be filed by amendment.
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.
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
II-2
<PAGE>
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 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-3
<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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on February 28, 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 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 Executive February 28, 1994
- --------------------------- Officer and Director
David L. Sokol (Principal Executive Officer)
/s/ John G. Sylvia
- --------------------------- Vice President, Chief February 28, 1994
John G. Sylvia Financial Officer and
Treasurer (Principal Financial
Officer and Principal
Accounting Officer)
* Director February 28, 1994
- ---------------------------
Edgar D. Aronson
* Director February 28, 1994
- ---------------------------
Judith E. Ayres
* Director February 28, 1994
- ---------------------------
Harvey F. Brush
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
* Director February 28, 1994
- ---------------------------
James Q. Crowe
* Director February 28, 1994
- ---------------------------
Richard K. Davidson
* Chairman of the February 28, 1994
- --------------------------- Board of Directors
Richard R. Jaros
* Director February 28, 1994
- ---------------------------
Benjamin M. Holt
* Director February 28, 1994
- ---------------------------
Everett B. Laybourne
* Director February 28, 1994
- ---------------------------
Daniel J. Murphy
* Director February 28, 1994
- ---------------------------
Herbert L. Oakes, Jr.
* Director February 28, 1994
- ---------------------------
Walter Scott, Jr.
* Director February 28, 1994
- ---------------------------
Barton W. Schackelford
* Director February 28, 1994
- ---------------------------
David E. Wit
</TABLE>
*By /s/ Steven A. McArthur
-----------------------
Steven A. McArthur
Attorney-in-Fact
II-5
<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 Concurrent
<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
<TABLE>
<CAPTION>
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)
- --------------------------------------------------------------------------------
ASSETS 1993 1992
---- ----
<S> <C> <C>
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 ventures 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>
Revenues: 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Equity in earnings of subsidiary $61,412 $53,685 $38,364
companies and joint ventures
before extraordinary items
Interest and other income 15,992 4,557 4,923
------- ------- -------
Total revenues 77,404 58,242 43,287
------- ------- -------
Expenses:
General and administration 13,800 6,796 5,585
Interest, net of capitalized interest 2,346 714 2,836
------- ------- -------
Total expenses 16,146 7,510 8,421
------- ------- -------
Income before provision for income taxes 61,258 50,732 34,866
Provision for income taxes 18,184 11,922 8,284
------- ------- -------
Income before change in accounting
principle and extraordinary 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 in progress (22,844) (4,218) (3,458)
Decrease (increase) in advances
to and investments 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 preferred 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 investment at end of period $126,824 $ 53,321 $ 47,036
======== ======== ========
Interest paid (net of amount
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>
CALIFORNIA ENERGY COMPANY, INC. SCHEDULE III
PARENT COMPANY ONLY
SUPPLEMENTAL NOTES TO FINANCIAL STATEMENT
(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>
CALIFORNIA ENERGY COMPANY, INC. SCHEDULE V
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 gathering system $235,924 $10,295 $ -- $ -- $246,219
Wells and resource development costs 144,595 16,542 -- -- 161,137
-------- ------- ----- ------- --------
Total operating facilities 380,519 26,837 -- -- 407,356
Wells and resource construction in progress 916 23 -- -- 939
-------- ------- ----- ------- --------
Total project costs 381,435 26,860 -- -- 408,295
Pacific Northwest properties costs 25,882 15,657 -- -- 41,539
Nevada and Utah properties 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 gathering system $229,213 $ 6,711 $ -- $ -- $235,924
Wells and resource development costs 124,216 19,029 -- 1,150/(1)/ 144,595
-------- ------- ----- ------- --------
Total operating facilities 353,629 25,740 -- 1,150/(1)/ 380,519
Wells and resource construction in progress 1,892 174 -- (1,150)/(1)/ 916
-------- ------- ----- ------- --------
Total project costs 355,521 25,914 -- -- 381,435
Pacific Northwest properties costs 22,627 3,255 -- -- 25,882
Nevada and Utah properties 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 gathering system $221,991 $ 7,784 $ -- $ (562)/(1)/ $229,213
Wells and resource development costs 92,280 31,574 -- 562/(1)/ 124,416
-------- ------- ----- ------- --------
Total operating facilities 314,271 39,358 -- -- 353,629
Wells and resource construction in progress 1,812 80 -- -- 1,892
-------- ------- ----- ------- --------
Total project costs 316,083 39,438 -- -- 355,521
Pacific Northwest properties costs 18,761 3,866 -- -- 22,627
Nevada and Utah properties 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>
CALIFORNIA ENERGY COMPANY, INC. SCHEDULE VI
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 Balance 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 gathering system $21,947 $ 6,844 $ -- $(276)/(1)/ $28,515
Wells and resource development costs 29,107 10,191 -- -- 39,298
---------- ---------- ---------- ---------- ----------
Total operating facilities 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 gathering system $15,812 $ 6,135 $ -- $-- $21,947
Wells and resource development costs 19,587 9,520 -- -- 29,107
---------- ---------- ---------- ---------- ----------
Total operating facilities 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 gathering system $ 9,885 $ 5,927 $ -- $-- $15,812
Wells and resource development costs 11,684 7,903 -- -- 19,587
---------- ---------- ---------- ---------- ----------
Total operating facilities 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>
CALIFORNIA ENERGY COMPANY, INC. SCHEDULE IX
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>
CALIFORNIA ENERGY COMPANY, INC. SCHEDULE X
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>
$______________
CALIFORNIA ENERGY COMPANY, INC.
__% Senior Discount Notes due __________, 2004
UNDERWRITING AGREEMENT
----------------------
____________, 1994
LEHMAN BROTHERS INC.
SALOMON BROTHERS INC
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
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 ________, 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 with respect to the Notes
has (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 and Regulations") of the
<PAGE>
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 ____, 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 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 Commis-
sion; "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; "Registra-
tion Statement" means such registration statement, as amended at the Effective
Time, including 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 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
document 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 reference in such Preliminary Prospectus or the Prospec-
tus, as the case may be; and any reference to any amendment to the Registration
Statement shall be deemed to
2
<PAGE>
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. 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 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 not misleading; provided that no representation or warranty is made as
--------
to information contained in or omitted from the Registration Statement or the
Prospectus 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 state a material fact required to be
stated therein or necessary to make the statements therein not misleading, 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 Com-
3
<PAGE>
mission 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.
(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 and its Subsidiaries taken as a whole; and the Company has all
requisite 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"), each a California general partnership, it being
understood that such term means the general partnership entity and not the
individual general partners 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.
(e) The Company has an authorized and outstanding capitalization as
set forth in the Prospectus; all the issued and outstanding shares of capital
4
<PAGE>
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 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 conform in all
material respects to the descriptions thereof contained in the Prospectus.
(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 conforms in all material respects to the descriptions thereof
contained in the Prospectus.
5
<PAGE>
(h) This Agreement has been duly authorized, executed and delivered
by the Company, and constitutes 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 affect-
ing creditors' rights generally and by equitable principles generally.
(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 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 aggregate, would have a material adverse effect on the financial condition
or results of operations of the Company and its Subsidiaries taken as a whole.
Except for the registration of the Notes under the Securities Act and 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,
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,
6
<PAGE>
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) 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
securities of the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Securities Act.
(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) None of the Company, any Subsidiary or any Joint Venture has
sustained, since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus, any material loss or interference
with its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Prospectus; and,
since such date, there has not been any change in the capital stock or long-term
debt of the Company, any Subsidiary or any Joint Venture or any material
adverse change, or any development involving a prospective material adverse
change, in or affecting the general affairs, management, financial position,
stock-holders' equity or results of operations of the Company and its
Subsidiaries taken as a whole.
7
<PAGE>
(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 re-
ferred to in Section 7(e) hereof, are and were independent public accountants
as required by the Securities Act and the Rules and Regulations during the
periods covered by the financial statements on which they reported contained or
incorporated in the Prospectus.
(p) The Company, each Subsidiary and each Joint Venture holds, as
applicable, good and marketable 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) 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 and its Subsidiaries taken as a whole.
8
<PAGE>
(r) 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 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 taken as
a whole.
(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 that, if
determined adversely to the Company, any Subsidiary or any Joint Venture, would
(i) have a material adverse effect on the financial condition or re-sults of
operations of the Company and its Subsidiaries taken as a whole and (ii)
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
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,
9
<PAGE>
that is required 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 operations of the Company and its Subsidiaries taken as
a whole.
(y) The Company, the Subsidiaries and the Joint Ventures are in
compliance in all material respects with all presently applicable provisions of
the Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"), no "reportable
event" (as defined in ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) for which the Company, any Subsidiary or any Joint Venture
would have any liability; the Company, the Subsidiaries and the Joint Ventures
have not incurred and do not expect to incur liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the "Code");
and each "pension plan" for which the Company, any Subsidiary, or any Joint
Venture would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(z) 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 and has paid all taxes due thereon, and no tax
deficiency has been determined adversely to the Company, any Subsidiary or any
Joint Venture that has had (nor does the Company have any knowledge of any tax
deficiency which, if determined adversely to the Company, any Subsidiary or any
Joint Venture might have) a material adverse effect on the financial condition
or results of operations of the Company and its Subsidiaries taken as a whole.
10
<PAGE>
(aa) Since the respective dates as of which information is given in
the Preliminary Prospectus and the Prospectus (i) there have not been any
transactions entered into by the Company, any Subsidiary or any Joint Venture,
other than those in the ordinary course of business, that are material to the
Company and its Subsidiaries taken as a whole and (ii) 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.
(ab) The Company (i) makes and keeps accurate books and records
and (ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with management's
authorization, (B) transactions are recorded as necessary to permit preparation
of its financial statements and to maintain accountability for its assets, (C)
access to its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is compared
with existing assets at reasonable intervals.
(ac) 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 and its Subsidiaries 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 and its
Subsidiaries taken as a whole.
11
<PAGE>
(ad) None of the Company, any Subsidiary or any Joint Venture, nor
any director, officer, agent, employee or other person associated with or acting
on behalf of the Company, any Subsidiary or any Joint Venture (i) has used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expense relating to political activity, (ii) has made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds, (iii) has violated or is in violation of any pro-
vision of the Foreign Corrupt Practices Act of 1977 or (iv) has made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment.
(ae) (i) The Company, the Subsidiaries and the Joint Ventures are in
full compliance with all applicable local, state, federal and foreign laws,
ordinances, rules, regulations, orders, judgments, decrees, and permits
relating to pollution or protection of human health or the environment
(collectively, "Environmental Laws"), except for any noncompliance as would not,
either singularly or in the aggregate, be reasonably likely to have a material
adverse effect on the financial condition or results of operations of the
Company and its Subsidiaries taken as a whole, and, to the best of the
Company's knowledge after due inquiry, there are no circumstances that may
prevent or interfere with such full compliance in the future. (ii) There has
not been any storage, disposal, generation, manufacture, refinement,
transportation, handling or treatment of toxic wastes, medical wastes, solid
wastes, hazardous wastes, hazardous substances, or petroleum or petroleum
products (collectively, "Materials of Environmental Concern") by the Company,
any Subsidiary or any Joint Venture (or, to the best of the Company's knowledge,
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 Environmental Laws or which would require remedial
action under any Environmental Laws, except for any violation or remedial action
that would not, either singularly or in the aggregate, be reasonably likely to
have a material adverse effect on the financial condition or results of
operations of the Company and its Subsidiaries taken as a whole; and there has
not been any spill, discharge, leak, emission, injection, escape, dumping or
release of any kind (collectively, "Environmental Releases") onto such
12
<PAGE>
property or into the environment surrounding such property of any Materials of
Environmental Concern due to or caused by the Company, any Subsidiary or any
Joint Venture, or with respect to which the Company has knowledge, except for
any such Environmental Release that would not either singularly or in the
aggregate, be reasonably likely to have a material adverse effect on the
financial condition or results of operations of the Company and its Subsidiaries
taken as a whole. (iii) The Company has not received any notice or
communication (written or oral) from any person or entity alleging that the
Company, any Subsidiary or any Joint Venture is not in full compliance with any
Environmental Laws. (iv) There is no claim, action, cause of action, or
investigation by any person or entity pending or threatened against the Company,
any Subsidiary or any Joint Venture or, to the best of the Company's knowledge
after due inquiry, against any person or entity whose liability the Company has
retained or assumed either contractually or by operation of law, alleging
potential liability arising out of, based on or resulting from (a) Environmental
Releases of Materials of Environmental Concern or (b) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Laws, except
as would not, either singularly or in the aggregate, be reasonably likely to
have a material adverse effect on the financial condition or results of
operations of the Company and its Subsidiaries taken as a whole. The terms
"solid waste," "hazardous wastes," "toxic wastes," "hazardous substances,"
"medical wastes," "petroleum" and "petroleum products" shall have the meanings
specified in any Environmental Laws.
(af) 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 a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended (the
"1940 Act").
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
13
<PAGE>
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.
3. Offering of Notes by the Underwriters. Upon authorization by the
-------------------------------------
Representatives of the release of the Notes, the several Underwriters propose to
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) 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.
14
<PAGE>
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
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;
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(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall 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 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, upon
their request, 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 request of an amended or supplemented
Prospectus which shall correct such statement or omission or effect such
compliance;
(d) 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, 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;
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(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 five years following the Effective Date, to
furnish to the Representatives copies of all materials furnished by the Company
to its shareholders and all public reports and all 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
request and to comply with such laws so as to permit the continuance of sales
and dealings therein in such jurisdictions for as long as may be necessary to
complete the distribution of the Notes;
(i) For a period of 180 days from the date of the Prospectus, not to
offer for sale, sell or otherwise dispose of, directly or indirectly, any debt
securities of the Company, or to sell or grant options, rights or warrants with
respect to any debt securities of the Company, without the prior written consent
of the Representatives;
(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;
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(k) To apply the net proceeds from the sale of the Notes being
sold by the Company as set forth in the Prospectus; and
(l) 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 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, (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) the
costs of distributing the terms of agreement relating to the organization of the
underwriting syndicate and selling group to the members thereof by mail, telex
or other means of communications, (f) any applicable listing or other fees, (g)
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 related fees and expenses of
counsel to the Underwriters), (h) the fees paid to rating agencies in
connection with the rating of the Notes; and (i) 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 advertising any offering of the Notes made
by the Underwriters.
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<PAGE>
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 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 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
opinions of Willkie Farr & Gallagher, Special Counsel to the Company, and
Steven A. McArthur, General Counsel to the Company, addressed to the
Underwriters and dated the Delivery Date, in form and
19
<PAGE>
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 power and authority to own, lease and 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 and its
Subsidiaries taken as a whole;
(iii) The Company has the authorized and outstanding
capitalization as set forth 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;
20
<PAGE>
(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 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 the best of such counsel's knowledge, 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 the best of 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 authoriza-
21
<PAGE>
tions are in full force and effect, and the Company, the Subsidiaries and
the Joint Ventures are in compliance therewith, 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 taken as a
whole, (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 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 Registration Statement was declared effective under the
Securities Act and the Indenture was qualified under the Trust Indenture
Act as of the date and time specified in such opinion, the Prospectus was
filed with the Commission pursuant to the subparagraph of Rule 424(b) of
the Rules and Regulations specified in such opinion on the date specified
therein and no stop order suspending the effectiveness of the
Registration Statement has been issued and, to the knowledge of such
counsel, no proceeding for that purpose is pending or threatened by the
Commission;
(x) 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 and related schedules
therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Securities Act
and the Rules and Regulations, and the documents incorporated by reference
in the Prospectus and any further amendment or supplement
22
<PAGE>
to any such incorporated document made by the Company prior to the
Delivery Date (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion), when they
became effective or were filed with the Commission, as the case may be,
complied as to form in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the Commission thereunder; and the Indenture conforms in all
material respects to the requirements of the Trust Indenture Act and the
applicable rules and regulations thereunder;
(xi) The statements in the Prospectus under the captions (A)
"Description of the Notes" insofar as they purport to summarize the
provisions of the Indenture, the Certificate of Incorporation of the
Company and the Notes, (B) "The Business of the Company -- Legal
Proceedings" to the extent that they constitute matters of law or legal
conclusions and (C) "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 present the information described therein;
(xii) The opinion of such counsel filed as Exhibit 8.1 to the
Registration Statement is confirmed and the Underwriters may rely upon such
opinion as if it were addressed to them;
(xiii) To the best of 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;
(xiv) This Agreement has been duly authorized, executed and
delivered by the Company;
23
<PAGE>
(xv) 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);
(xvi) The Notes have been (A) duly authorized by the Company,
(B) duly authenticated by the Trustee, and (C) duly executed, issued and
delivered by the Company, 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);
(xvii) None of the Company, any Subsidiary or any Joint Venture
is in violation of its respective charter, by-laws or partnership
agreement; to the best of 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 taken as a whole;
(xviii) The execution, delivery and performance of this
Agreement, the Indenture and the
24
<PAGE>
Notes, and the issuance and delivery by the Company of the Notes pursuant
to the Indenture do not and shall not result in any violation of the
charter or by-laws of the Company, and do not and shall not conflict with,
violate 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);
(xix) 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 securities laws in connection with the
purchase and distribution of the Notes by the Underwriters;
(xx) To the best of such counsel's knowledge, 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
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in
25
<PAGE>
the securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement
filed by the Company under the Securities Act; and
(xxi) 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 of such counsel's
knowledge, a company "controlled" by an "investment company," within the
meaning of the 1940 Act.
In the rendering of such opinion, 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 and the General
Corporation Law of the State of Delaware and that such counsel is not admitted
in the State of Delaware and (ii) in giving the opinion referred to in Section
7(d)(v), state that no examination of record titles for the purpose of such
opinion has been made and that they are relying upon a general review of the
titles of the Company and its Subsidiaries and the Joint Ventures, upon
opinions of local counsel and abstracts, reports and policies of title
companies rendered or issued at or subsequent to the time of acquisition of such
property by the Company, the Subsidiaries or the Joint Ventures, upon opinions
of counsel to the lessors of such property and, in respect of matters of fact,
upon certificates of officers of the Company, the Subsidiaries or the Joint
Ventures, provided that such counsel shall state that they believe that both
--------
the Underwriters and they are justified in relying upon such opinions,
abstracts, reports, policies and certificates. Such counsel shall also have
furnished to the Representatives a written statement, addressed to the
Underwriters and dated the Delivery Date, in form and substance satisfactory to
the Representatives to the effect that (i) such counsel has either acted as
counsel to the Company on a regular basis, or has acted as its General Counsel,
as the case may be (although the Company is also represented by other counsel as
to certain other matters), has acted as counsel to the Company in connection
with previous financing transactions and has acted as counsel to the Company in
connection with the preparation of the Registration Statement, and (ii) based on
the foregoing, no facts have come to the atten-
26
<PAGE>
tion of such counsel which lead them to believe that (except for the financial
statements and other financial data included 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 statement therein not misleading, or that the
Prospectus 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 light of the circumstances under which they were made,
not misleading or (II) 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 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 Commission, 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.
(e) 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
27
<PAGE>
letter, and (iii) confirming in all material respects the conclusions and
findings set forth in the initial letter.
(f) 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(g) 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 not misleading,
and (B) since the Effective Date no event has occurred which should have
been set forth in a supplement or amendment to the Registration Statement
or the Prospectus.
(g) All the outstanding 12% Senior Notes with Contingent Interest due
1995, issued by the Company pursuant to the Note Purchase Agreement, dated
March 15, 1988, between Principal Mutual Life Insurance Company and the Company,
shall have been defeased;
(h) [All the outstanding shares of the Company's Series C Redeemable
Preferred Stock have been converted into the Company's common stock];
(i) None of the Company, any Subsidiary or any Joint Venture has
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus (i) any loss or interference with
its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree or (ii) since such date there shall not have been any change in
the capital stock or long-term debt of the Company or any of its Subsidiaries or
any change, or
28
<PAGE>
any development involving a prospective change, in or affecting the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its Subsidiaries taken as a whole, the effect of
which, in any such case described in clause (i) or (ii), is, in the judgment of
the Representatives, so material and adverse as to 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.
(j) Subsequent to the execution and delivery of this Agreement (i) no
downgrading shall have occurred in the rating accorded the Company's debt
securities or preferred stock 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 possible
negative implications, its rating of any of the Company's debt securities or
preferred stock.
(k) 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 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 deliv-
29
<PAGE>
ery 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, or any action in
respect thereof (including, but not limited to, any loss, claim, damage,
liability or 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 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 as
such expenses are incurred; 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
30
<PAGE>
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, unless such failure resulted from non-compliance by the Company with
Section 5(c). 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
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, each of its officers who
signed the Registration Statement 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, or any action in respect thereof,
to which the Company or any such director, officer 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 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 that Underwriter
specifically for inclusion therein, and shall reimburse the Company and
31
<PAGE>
any such director, officer or controlling person for any legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses are
incurred. 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.
(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; 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 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 Representatives shall have the right to employ counsel to represent jointly
the Representatives and those other Underwriters 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 Underwriters against the
Company under this Section 8 if, in the reasonable judgment of the
Representatives, it is advisable for the Representatives and those Underwriters
and controlling persons to be jointly represented by
32
<PAGE>
separate counsel, and in that event the fees and expenses of such separate
counsel shall be paid by the Company.
(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, on the one hand, and the total underwriting
discounts and commissions received by the Underwriters with respect to the Notes
purchased under this Agreement, on the other hand, bear to the total gross
proceeds from the offering of the Notes under this Agreement, in each case as
set forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to whether the untrue or alleged untrue state-
ment 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 treat-
33
<PAGE>
ed 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 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.
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 fraud-
ulent 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; pro-
----
34
<PAGE>
vided, 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 9.09% of the aggregate principal amount of the
Notes to be purchased on the Delivery Date, and any remaining non-defaulting
Underwriter shall not be obligated to purchase more than 110% of the principal
amount of the Notes which it agreed to purchase on the Delivery Date pursuant to
the terms of Section 2. If the foregoing maximums are 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
35
<PAGE>
prior to delivery of and payment for the Notes if, prior to that time, any of
the events described in Section 7(h) or 7(i) 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 Company
---------------------------------------
shall fail to tender the Notes for delivery to the Underwriters or (b) the
Underwriters shall decline to purchase the Notes for any reason permitted
under this Agreement (including the termination of this Agreement pursuant to
Section 10), the Company shall reimburse the Underwriters for the fees and
expenses of their counsel and for such other 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. 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 address of the Company set forth in
the Registration Statement, Attention: General Counsel;
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
36
<PAGE>
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
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 of the Company, officers of the Company who have signed the
Registration Statement 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.
37
<PAGE>
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 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.
38
<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
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
For themselves and as Representatives
of the several Underwriters named in
Schedule 1 hereto
By LEHMAN BROTHERS INC.
By
----------------------------
Name:
Title:
39
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Principal
Underwriters Amount of Notes
- ------------ ---------------
<S> <C>
Lehman Brothers Inc........................... $[ ]
Salomon Brothers Inc.......................... [ ]
Bear, Stearns & Co. Inc....................... [ ]
Donaldson, Lufkin & Jenrette
Securities Corporation...................... [ ]
-----------
Total.................................... $
===========
</TABLE>
40
<PAGE>
SCHEDULE 2
SUBSIDIARIES OF CALIFORNIA ENERGY COMPANY, INC.
California Energy Development Corporation
California Energy General Corporation
California Energy Yuma Corporation (formerly, Bonneville-
Yuma Corporation)
CE Exploration Company (formerly, American Pacific Power
Company)
CE Newberry, Inc.
Intermountain Geothermal Company (formerly, Philips
Petroleum Company Latin America)
Western States Geothermal (formerly, Philips Petroleum
Company Germany)
41
<PAGE>
------------------------------------
CALIFORNIA ENERGY COMPANY, INC.
TO
----------------
Indenture
Dated as of _________, 1994
----------------
$__________________
______% Senior Discount Notes due 2004
IBJ SCHRODER BANK & TRUST COMPANY
Trustee
------------------------------------------
<PAGE>
California Energy Company, Inc.
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of ____________, 1994
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- ---------
<S> <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
(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
1004
(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
(a)(1)(A)........................................... 502
512
(a)(1)(B)........................................... 513
(a)(2)................................... Not Applicable
(b)................................................. 508
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
(c)................................................. 104
(S) 317 (a)(1).............................................. 503
(a)(2).............................................. 504
(b)................................................ 1003
(S) 318 (a)................................................. 107
(b)...................................... Not Applicable
(c)................................................. 107
</TABLE>
___________________
Note: This reconciliation and tie shall not, for any purpose, be deemed
to be a part of the Indenture.
-ii-
<PAGE>
TABLE OF CONTENTS/*/
<TABLE>
<CAPTION>
Page
<S> <C>
Parties..................................................... 1
Recitals of the Company..................................... 1
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions................................... 1
SECTION 102. Compliance Certificates and Opinions.......... 37
SECTION 103. Form of Documents Delivered to Trustee........ 38
SECTION 104. Acts of Holders; Record Dates................. 38
SECTION 105. Notices, Etc., to Trustee and Company......... 42
SECTION 106. Notice to Holders; Waiver..................... 42
SECTION 107. Conflict with Trust Indenture Act............. 43
SECTION 108. Effect of Headings and Table of Contents...... 43
SECTION 109. Successors and Assigns........................ 44
SECTION 110. Separability Clause........................... 44
SECTION 111. Benefits of Indenture......................... 44
SECTION 112. Governing Law................................. 44
SECTION 113. Legal Holidays................................ 45
SECTION 114. No Recourse Against Others.................... 45
SECTION 115. Duplicate Originals........................... 45
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally............................... 46
SECTION 202. Form of Face of Security...................... 46
SECTION 203. Form of Reverse of Security................... 49
SECTION 204. Form of Trustee's Certificate
</TABLE>
- -----------------
/*/Note: This table of contents shall not, for any purpose, be deemed to be
a part of the Indenture.
-iii-
<PAGE>
<TABLE>
<S> <C>
of Authentication.......................... 56
ARTICLE THREE
The Securities
SECTION 301. Title and Terms............................... 57
SECTION 302. Denominations................................. 58
SECTION 303. Execution, Authentication,
Delivery and Dating........................ 58
SECTION 304. Temporary Securities.......................... 59
SECTION 305. Registration, Registration
of Transfer and Exchange................... 59
SECTION 306. Mutilated, Destroyed, Lost
and Stolen Securities...................... 61
SECTION 307. Payment of Interest; Interest
Rights Preserved........................... 62
SECTION 308. Persons Deemed Owners......................... 64
SECTION 309. Cancellation.................................. 64
SECTION 310. Computation of Interest....................... 65
SECTION 311. CUSIP Numbers................................. 65
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge
of Indenture............................... 65
SECTION 402. Application of Trust Money.................... 67
ARTICLE FIVE
Remedies
SECTION 501. Events of Default............................. 68
SECTION 502. Acceleration of Maturity;
Rescission and Annulment................... 72
SECTION 503. Collection of Indebtedness and Suits
for Enforcement by Trustee................. 74
SECTION 504. Trustee May File Proofs of Claim.............. 75
SECTION 505. Trustee May Enforce Claims Without
Possession of Securities................... 76
SECTION 506. Application of Money Collected................ 76
SECTION 507. Limitation on Suits........................... 77
SECTION 508. Unconditional Right of Holders to
</TABLE>
-iv-
<PAGE>
<TABLE>
<S> <C>
Receive Principal, Premium
and Interest............................... 78
SECTION 509. Restoration of Rights and Remedies............ 78
SECTION 510. Rights and Remedies Cumulative................ 78
SECTION 511. Delay or Omission Not Waiver.................. 79
SECTION 512. Control by Holders............................ 79
SECTION 513. Waiver Of Past Defaults....................... 79
SECTION 514. Undertaking for Costs......................... 80
SECTION 515. Waiver of Stay or Extension Laws.............. 80
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and
Responsibilities........................... 81
SECTION 602. Notice of Defaults; Notice of
Acceleration............................... 83
SECTION 603. Certain Rights of Trustee..................... 83
SECTION 604. Not Responsible for Recitals or
Issuance of Securities..................... 85
SECTION 605. May Hold Securities........................... 86
SECTION 606. Money Held in Trust........................... 86
SECTION 607. Compensation and Reimbursement................ 86
SECTION 608. Conflicting Interests......................... 88
SECTION 609. Corporate Trustee Required;
Eligibility................................ 88
SECTION 610. Resignation and Removal;
Appointment of Successor................... 88
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
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee
Names and Addresses of Holders............. 94
</TABLE>
-v-
<PAGE>
<TABLE>
<S> <C>
SECTION 702. Preservation of Information;
Communications to Holders.................. 94
SECTION 703. Reports by Trustee............................ 95
SECTION 704. Reports by Company............................ 95
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate, Etc
Only on Certain Terms...................... 96
SECTION 802. Successor Substituted......................... 98
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without
Consent of Holders......................... 99
SECTION 902. Supplemental Indentures with
Consent of Holders......................... 100
SECTION 903. Execution of Supplemental
Indentures................................. 102
SECTION 904. Effect of Supplemental
Indentures................................. 102
SECTION 905. Conformity with Trust
Indenture Act.............................. 103
SECTION 906. Reference in Securities to
Supplemental Indentures.................... 103
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium
and Interest............................... 104
SECTION 1002. Maintenance of Office or Agency.............. 104
SECTION 1003. Money for Security Payments
to be Held in Trust........................ 105
SECTION 1004. Existence.................................... 106
SECTION 1005. Maintenance of Properties.................... 107
SECTION 1006. Payment of Taxes and Other Claims............ 107
SECTION 1007. Maintenance of Insurance..................... 108
SECTION 1008. Limitation on Debt........................... 108
SECTION 1009. Limitation on Subsidiary Debt................ 110
</TABLE>
-vi-
<PAGE>
<TABLE>
<S> <C>
SECTION 1010. Limitation on Restricted Payments............ 111
SECTION 1011. Transactions with Affiliates................. 114
SECTION 1012. Limitations on Liens......................... 115
SECTION 1013. Repurchase of Securities Upon
a Change of Control........................ 117
SECTION 1014. Limitation on Dividend and Other
Payment Restrictions Affecting
Restricted Subsidiaries.................... 119
SECTION 1015. Limitations on Dispositions.................. 121
SECTION 1016. Limitations on Sale-Leasebacks............... 125
SECTION 1017. Provision of Financial Information........... 126
SECTION 1018. Limitations on Sale of
Subsidiary Preferred Stock................. 126
SECTION 1019. Statement by Officers as to Default;
Compliance Certificates.................... 127
SECTION 1020. Waiver of Certain Covenants.................. 128
SECTION 1021. Company to Supply Information
Concerning Original
Issue Discount............................. 129
SECTION 1022. Limitation on Business....................... 129
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Right of Redemption.......................... 130
SECTION 1102. Applicability of Article..................... 130
SECTION 1103. Election to Redeem; Notice
to Trustee................................. 131
SECTION 1104. Selection by Trustee of Securities
to Be Redeemed............................. 131
SECTION 1105. Notice of Redemption......................... 131
SECTION 1106. Deposit of Redemption........................ 132
SECTION 1107. Securities Payable on
Redemption Date............................ 133
SECTION 1108. Securities Redeemed in Part.................. 133
ARTICLE TWELVE
Defeasance and Covenant Defeasance
SECTION 1201. Company's Option to Effect Defeasance
or Covenant Defeasance..................... 134
SECTION 1202. Defeasance and Discharge..................... 134
</TABLE>
-vii-
<PAGE>
<TABLE>
<S> <C>
SECTION 1203. Covenant Defeasance.......................... 135
SECTION 1204. Conditions to Defeasance or
Covenant Defeasance........................ 136
SECTION 1205. Deposited Money and U.S. Government
Obligations to Be Held in Trust;
Miscellaneous Provisions................... 139
SECTION 1206. Reinstatement................................ 140
TESTIMONIUM................................................. 141
SIGNATURES AND SEALS........................................ 141
ACKNOWLEDGEMENTS............................................ 142
</TABLE>
-viii-
<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 here-inafter 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.
-----------
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 which 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.
Certain terms, used principally in Article Six, are defined in that
Article.
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.
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<PAGE>
"Accreted Value" means the lesser of (i) $1,000 and (ii) an amount per
$1,000 of principal amount in respect of each outstanding Security 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 [ ] or [ ] 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 plus (iii) accrued interest, minus all amount 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).
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
"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
Person being merged into the Company).
"Adjusted Consolidated Net Income" means for any period, for any Person
(the "Referenced Person") the aggregate Net Income (or loss) of the Referenced
Person
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<PAGE>
and its consolidated Subsidiaries for such period determined in conformity with
GAAP plus the Net Income of any Subsidiary of the Referenced Person for prior
periods to the extent such Net Income is actually paid in cash to the Referenced
Person during such period plus the Net Income of any other Person (other than a
Subsidiary of such Person) in which any third Person has a joint interest for
prior periods to the extent such Net Income is actually paid in cash to the
Referenced Person during such period, provided that the following items shall be
--------
adjustments 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 shall be excluded,
except to the extent of the amount of dividends or other distributions actually
paid in cash to the Referenced Person during such period 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) of this Indenture (and in such case, except to the
extent includable pursuant to clause (i) above), (A) 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 shall be excluded and (B) the Company's share of the Net Income of
any Subsidiary of the Company may be included (I) to the extent of the net
amount receivable upon distribution (by any means legally available) of any cash
balances held by such Subsidiary that were immediately available for such
distribution or (II) to the extent of the net loan proceeds that would be
available to the Company if its were to borrow (if such a borrowing could
actually occur under then prevailing commercial banking practices) against the
cash balances held by such Subsidiary, provided that such cash balances must be
--------
under the exclusive dominion and control of a Subsidiary of the Company and be
free of the Lien of any other Person, provided further that any cash that
-------- -------
enables the recognition of Net Income pursuant to this clause (B) may not be
used to enable the recognition
-4-
<PAGE>
of Net Income with respect to any other period, regardless of whether such cash
is distributed to the Company or any of its Subsidiaries, and provided further
-------- -------
that the recognition of any Net Income pursuant to this clause (B) shall be
determined in good faith by the Chief Financial Officer, as evidenced by an
Officer's Certificate that shall set forth all the relevant facts and
assumptions supporting such recognition, (iii) the Net Income of any Subsidiary
of the Referenced Person shall be excluded, except to the extent that (A) such
Net Income (if positive) is actually paid in cash to the Referenced Person
during such period and (B) such Net Income (if negative) is actually paid in
cash to such Subsidiary during such period, (iv) any gains or losses (on an
after-tax basis) attributable to Asset Sales shall be excluded, (v) the
cumulative effect of a change in accounting principles shall be excluded 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 shall be excluded. 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.
"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary of the Company or any of its Restricted
Subsidiaries or shall be merged into or consolidated with the Company or any of
its Restricted Subsidiaries or (ii) an acquisition by the Company or any of its
Restricted Subsidiaries of the Property of any Person other than the Company or
any of its Restricted Subsid-
-5-
<PAGE>
iaries 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
(i) any Property of the Company, any of its Restricted Subsidiaries or any
Eligible Joint Venture or (ii) any shares of Capital Stock of the Company's
Subsidiaries or any Eligible Joint Venture. 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 date
of the original issuance of the Securities 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, (ii) any sale, transfer, conveyance, lease or other
disposition of Property governed by Section 801 of this Indenture, (iii) any
sale, transfer, conveyance, lease or other disposition of any Cash Equivalents,
or (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
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<PAGE>
$5 million. The term "Asset Disposition" also shall not include (i) the grant
of or realization upon a Lien by any Person in any Property or shares of Capital
Stock securing a borrowing by, or contractual performance obligation of, the
Company or any Restricted Subsidiary of the Company or any Joint Venture in
which the Company has an interest permitted under Section 1012 of this Indenture
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) the disposition by the Company, any of its Restricted
Subsidiaries or any Eligible Joint Venture of the Capital Stock of any
Restricted Subsidiary or any Eligible Joint Venture, all the Property of which
relates to a Permitted Facility that is in the development stage and in respect
of which Construction Financing has not been funded, provided that the
--------
consideration received in respect of such Capital Stock is contributed to the
Restricted Subsidiary or the Eligible Joint Venture that issued such Capital
Stock or (iv) [COMPANY TO REVISE] [any other transaction if the Chief Financial
Officer of the Company determines (as evidenced by an Officers' Certificate)
that such transaction is intended to permit the repatriation of the Net Cash
Proceeds of a Foreign Asset Disposition or to optimize the tax treatment
thereof.]
"Asset Sale" means the sale or other disposition by the Company or any of
its Restricted Subsidiaries (other than to the Company or another Restricted
Subsidiary of the Company) of (i) all or substantially all of the Capital Stock
of any Restricted Subsidiary of the Company or (ii) all or substantially all of
the Property that constitutes an operating unit or business of the Company or
any of its Restricted Subsidiaries.
"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
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<PAGE>
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.
"Board of Directors" means either the Board of Directors of the Company or
any committee of such Board duly authorized to act hereunder.
"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 or regulation to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or nonvoting) 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.
-8-
<PAGE>
"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 $500,000,000 or a commercial bank
under the laws of any other country having total assets in excess of
$500,000,000 with a maturity date not more than two years from the date of
acquisition, provided that at no time shall the weighted Average Life of all
--------
such Investments be more than one year from the respective dates of acqui-
sition, (iii) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered into
with any bank meeting the qualifications set forth in clause (ii) above, (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
such other nationally recognized rating services acceptable to the Trustee),
(v) commercial paper issued by the parent corporation of any commercial bank
organized in the United States having capital and surplus in excess of
$500,000,000 or a commercial bank organized under the laws of any other country
having total assets in excess of $500,000,000, and commercial paper issued by
others having one of the two highest ratings obtainable from either S&P or
Moody's (or, if at any time neither S&P nor Moody's may be rating such
obligations, then from such
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<PAGE>
other nationally recognized rating services acceptable to the Trustee) and in
each case maturing within one year after the date of acquisition, (vi) overnight
bank deposits and bankers' acceptances at any commercial bank organized in the
United States having capital and surplus in excess of $500,000,000 or a
commercial bank organized under the laws of any other country having total
assets in excess of $500,000,000, (vii) deposits available for withdrawal on
demand with a commercial bank organized in the United States having capital and
surplus in excess of $500,000,000 or a commercial bank organized under the laws
of any other country having total assets in excess of $500,000,000 and (viii)
investments in money market funds substantially all of whose assets comprise
securities of the types described in clauses (i) through (vi).
"Change of Control" means the occurrence of one or more of the following
events:
(i) (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;
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<PAGE>
(ii) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than Kiewit Energy Company, 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 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 Energy Company "beneficially owns" (as so defined),
directly or indirectly, in the aggregate a lesser percentage of the voting
power of the Voting Stock of such parent corporation and does not have the
right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of such parent
corporation); or
(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 Energy
Company.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this Indenture such Commission is not existing and performing the
duties now assigned to it under
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<PAGE>
the Trust Indenture Act, then the body performing such duties at such time.
"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 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 (viii) of "Limitation on Debt" and Debt Incurred pursuant to the first
paragraph under "Limitation on Debt" in an amount (or, if such new Debt pro-
vides 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 at least to the same extent, if any, as the Debt so ex-
changed 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
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<PAGE>
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.
"Consolidated EBITDA" of any Person for any period means the Adjusted
Consolidated Net Income of such Person, plus (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, (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 (v) the aggregate amount actually received in cash by
such Person during such period relating to non-cash items increasing Adjusted
Consolidated Net Income for prior periods, and less (i) all non-cash items
----
increasing Adjusted Consolidated Net Income during such period and (ii) the
aggregate amount actually paid in cash by such Person during such period
relating to non-cash items reducing Adjusted Consolidated Net Income for prior
periods, 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
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<PAGE>
cash to such Person during such period. 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. [COMPANY
TO REVISE ]] 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, 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, dis-
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<PAGE>
counts, 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."
"Consolidated Total Assets" means, with respect to any Person at any time,
the total assets of such Person and its consolidated Subsidiaries at such time
determined in conformity with GAAP. 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 development,
construction and equipping of a Permitted Facility and to enable it to commence
commercial operations.
"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.
"Covenant Defeasance" has the meaning specified in Section 1203.
"Currency Protection Agreement" means, with respect to any Person, any
foreign exchange contract, currency swap agreement or other similar agreement or
arrangement intended to protect such Person or any of its Subsidiaries against
fluctuations in currency values to or under which such 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. When the "Person" referred to
above is the Company, the foregoing referenc-
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<PAGE>
es to "Subsidiaries" shall be deemed to refer to "Restricted Subsidiaries" and
the "Eligible Joint Ventures."
"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 or other similar instruments (or
reimbursement obligations with respect thereto), (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 under this
Section 1009(b), Guarantees of, or obligations with respect to letters of
credit or similar instruments supporting, 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 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.
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<PAGE>
"Default" means any event that is, or after notice or passage of time, or
both, would be, an Event of Default.
"Default Amount" has the meaning specified in Section 502 of this
Indenture.
"Defeasance" has the meaning specified in Section 1202 of this Indenture.
"Disinterested Director" means, with respect to any proposed transaction
between the Company or a Restricted Subsidiary, as applicable, and an Affiliate
thereof, a member of the Board of Directors who is not an officer or employee of
the Company or a Restricted Subsidiary, 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 (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 Energy Company 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 Energy Company, 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
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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 Energy Company shall cease to be an
Eligible Joint Venture if (x) Kiewit Energy Company disposes of any securities
issued by the Company and, as a result of such disposition, Kiewit Energy
Company 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 Energy
Company, Kiewit Energy Company becomes the beneficial owner of less than 25% of
the outstanding shares of Voting Stock of the Company and (II) thereafter Kiewit
Energy Company disposes of any securities issued by the Company as a result of
which the beneficial ownership by Kiewit Energy Company of the outstanding
Voting Stock of the Company is further reduced.
"Event of Default" has the meaning specified in Section 501 of this
indenture.
"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
therefrom 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
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any related retirement of Debt pursuant to an Offer to Purchase (in the maximum
amount required to be included in such Offer if the related Purchase Date 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 of 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 such Person or any of its Subsidiaries 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 and 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) of this Indenture.
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 been merged with or into the Company of any Restricted Subsidiary of
the Company during the Reference Period, or subsequent to the Reference Period
and prior to the Transaction Date shall be calculated on a pro forma basis
--- -----
(including all of the calculations referred to in clauses (1) through (5) above
assuming such Asset Sales or Asset Acquisitions occurred on the first day of the
Reference Period).
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<PAGE>
"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 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" shall not include
--------
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
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<PAGE>
"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 or any of
its Subsidiaries 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
this Indenture or becomes a party or a beneficiary thereafter. When the
"Person" referred to above is the Company, the foregoing references to
"Subsidiaries" shall be deemed to refer to "Restricted Subsidiaries" and the
"Eligible Joint Ventures."
"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).
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<PAGE>
"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.
"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 agreement, capital lease or other title retention agreement
relating to such Property.
"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 assump-
tion 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, earnout or working
interest payments or payments in lieu or in termination thereof)
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<PAGE>
incurred, (ii) all federal, state, provincial, foreign and local taxes 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 to the United States 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
which must by its terms or by applicable law or in order to obtain a required
consent or waiver be repaid out of the proceeds from or in connection with such
Asset Disposition, and (v) all distributions and other payments made to holders
of Capital Stock of Restricted Subsidiaries or Eligible Joint Ventures (other
than the Company or its Restricted Subsidiaries) as a result of such Asset
Disposition.
"Net Income" of any Person for any period 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" shall be
deemed to refer to "Restricted Subsidiaries."
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<PAGE>
"Non-Recourse", as applied to any Debt, means that such Debt is or was
Incurred to finance the development, acquisition, construction, operation,
ownership, servicing or management of one or more Permitted Facilities that are
operated as a single business and technological unit, provided that such Debt is
--------
without recourse to the Company, any Restricted Subsidiary or any Eligible Joint
Venture or to any Property of the Company, any Restricted Subsidiary or any
Eligible Joint Venture other than (i) the Property that constitutes such
Permitted Facilities, (ii) the income from and proceeds of such Permitted
Facilities, (iii) the Capital Stock of the Person that owns the Property that
constitutes such permitted Facilities and (iv) the Capital Stock of the Person
identified as the primary obligor with respect to such Debt, provided that the
--------
Person identified in clause (iv), if different from the Person identified in
clause (iii), must own a direct or indirect interest in such Permitted Facili-
ties and must not own a direct or indirect interest in any other Property except
the Capital Stock of the Person identified in clause (iii) or any intermediate
Restricted Subsidiary or Eligible Joint Venture, provided further that
-------- -------
notwithstanding anything in the foregoing to the contrary, 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.
"Notice of Default" means a written notice of the kind specified in Section
501(5) of this Indenture.
["OECD" means the Organization for Economic Cooperation and Development.]
"Officers' Certificate" means a certificate signed by the Chairman of the
Board of Directors or the President or any Vice President or by the Chief
Financial Officer or 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.
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<PAGE>
"Opinion of Counsel" means 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 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 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 therefor satisfactory to the Trustee has been made;
(iii) Securities which 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 of this Indenture;
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 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 it or their related electric power transmission, fuel supply and
fuel transportation facilities, together with its or their related power supply,
thermal energy and fuel contracts and other facilities, services or goods that
are ancillary, incidental, necessary or reasonably related to the marketing,
development, construction, management, servicing, ownership or operation of the
foregoing, 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 Investment" means any Investment that is made directly or
indirectly by the Company and its Restricted Subsidiaries in (i) a Restricted
Subsidiary (not including for this purpose an Eligible Joint Venture) that,
directly or indirectly, is or shall be engaged in the construction, development,
acquisition, operation,
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<PAGE>
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, provided that Investments that constitute Construction Financing
--------
shall not be deemed to be Permitted Investments (and instead are dealt with in
Section 1010(c) of this Indenture), provided further 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) any Cash Equivalents,
(iii) 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, (iv) loans and
advances to employees made in the ordinary course of business and consistent
with past practice, (v) Debt incurred pursuant to Currency Protection
Agreements and Interest Rate Protection Agreements as otherwise permitted by
this Indenture, (vi) 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 of this Indenture and (viii) and 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 Officer's Certificate, that such bank deposits or
Investments are required to effect such financings and are not materially more
restrictive, taken as a whole, than comparable requirements in comparable
financings.
"Permitted Joint Venture" 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 Energy Company 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
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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 35% of the total
outstanding Capital Stock therein, and (iii) in respect of which the Company
alone or in combination with Kiewit Energy Company, 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 Energy Company shall cease to be a Permitted
Joint Venture if (x) Kiewit Energy Company disposes of any securities issued by
the Company and, as a result of such disposition, Kiewit Energy Company 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 Energy Company, Kiewit
Energy Company becomes the beneficial owner of less than 25% of the outstanding
shares of Voting Stock of the Company and (II) thereafter Kiewit Energy Company
disposes of any securities issued by the Company as a result of which the
beneficial ownership by Kiewit Energy Company of the outstanding Voting Stock of
the Company is further reduced.
"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
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<PAGE>
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 repurchase 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, repurchase 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 a least to the extent and in the
manner as the Debt to be defeased, redeemed, repurchased 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,
repurchased or acquired or, if none, Sections 1013 and 1015 of this Indenture
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) [COMPANY TO REVISE] [any payment required by
applicable law or in order to avoid the imposition of any tax, charge, duty,
impost or other similar governmental charge,] (vi) a Permitted Investment and
(vii) Investments in Unrestricted Subsidiaries, Eligible Joint Ventures and
other Persons that are not Restricted Subsidiaries in an amount not to
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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.
"Permitted Working Capital Facilities" means one or more credit agreements
providing for the extension of credit to the Company or 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 of this Indenture 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 date of original issuance 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.
"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
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<PAGE>
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 BB+, 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).
"Record Expiration Date" has the meaning specified in Section 104 of this
Indenture.
"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
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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 repurchase 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 Section 1013 and 1015 of this
Indenture and such Capital Stock specifically provides that the Company shall
not repurchase or redeem any such Capital Stock pursuant to such covenants prior
to the Company's repurchase of Securities required to be repurchased by the
Company under Sections 1013 and 1015 of 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 complete 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 December 31 or June 30 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"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
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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, (ii) any payment on account of the
purchase, redemption, retirement or acquisition for value of the Company's
Capital Stock, (iii) any defeasance, redemption, repurchase or other
acquisition or retirement for value prior to the scheduled maturity of any Debt
ranked subordinate in right of payment to the Securities, (iv) any Investment
made in a Person (other than the Company or any Restricted Subsidiary) and (v)
designating a Restricted Subsidiary as an Unrestricted Subsidiary.
Notwithstanding the foregoing, "Restricted Payment" shall not include any
Permitted Payment, except that any payment 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) of this Indenture.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"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.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Senior Debt" means 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 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
with-
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<PAGE>
out recourse to the Company, (ii) Debt of the Company to any Affiliate and (iii)
any Debt of the Company that, by the terms of the instrument creating or
evidencing the same, is specifically designated as not being senior in right of
payment to the Securities.
"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 of this Indenture.
"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 which any principal of such debt security or any such installment
of interest is due and payable (including as a result of the Company's election
to cause the Interest Commencement Date to occur prior to the Scheduled Inter-
est Commencement Date).
"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
Funding Corp., 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
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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 of Construction Financing, an amount
not to exceed 85% of the aggregate investment in such Restricted Subsidiary or
such Eligible Joint Venture at the time of such exchange or refinancing,
provided that (A) such Debt shall be Non-Recourse at least to the same extent,
- --------
if any, as the Debt so exchanged or refinanced is Non-Recourse, (B) 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 (C) 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 further that upon the first refinancing of any
-------- -------
Construction Financing of a Restricted Subsidiary or an Eligible Joint Venture,
(i) the amount of the Construction Financing that is exchanged or refinanced
shall not exceed 85% of the aggregate investment in such Restricted Subsidiary
or such Eligible Joint Venture at the time of such exchange or refinancing, (ii)
the amount of the Subsidiary Refinancing Debt issued in exchange for or to
refinancing such Construction Financing shall not be limited by this provision
and (iii) the Subsidiary Refinancing Debt issued in exchange for or to
refinancing such Construction Financing shall not be subject to the provisions
of the foregoing clauses (B) and (C) 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,
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assumed or Guaranteed by such Person or any of its Subsidiary 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" means 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 is not a
Restricted Subsidiary and includes any Restricted Subsidiary that becomes an
Unrestricted Subsidiary in accordance with the requirements set forth in the
next sentence. The Board of Directors may designate any Restricted Subsidiary
as an Unrestricted Subsidiary if (a) such designation is in compliance with
Section 1010(a) of this Indenture and (b) after giving effect to such
designation, such Subsidiary does not own, directly or indirectly, a majority of
the Capital Stock or the Voting Shares of any Restricted Subsidiary or any
Eligible Joint Venture. Any such designation shall be effected by filing with
the Trustee a certified copy of the resolution of the Board of Directors that
contains such designation together with an Officer's 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.
"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
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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 person fulfilling similar responsibilities) of such Person.
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
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<PAGE>
condition and the definitions herein relating thereto;
(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.
--------------------------------------
In any case where 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,
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<PAGE>
that the certificate or opinion or representations with respect to such
matters are erroneous.
Where 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, where 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 of this Indenture) 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. Where 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 which the Trustee deems sufficient.
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<PAGE>
The ownership of Securities shall be proved by the Security Register.
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 Outstand-
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<PAGE>
ing 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 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 of
this Indenture.
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 of
this Indenture.
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<PAGE>
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 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 of this Indenture, 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
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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 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.
-------------------------
Where 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 his or her 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. In
any case where notice to Holders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other Holders.
Where 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
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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.
Section 108. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein 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. Any such indenture, loan or debt agreement
may not 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, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCI-
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PLES OF CONFLICTS OF LAW. 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 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 WHICH 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.
--------------
In any case where 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
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<PAGE>
part of the consideration for the issuance of the Securities.
Section 115. Duplicate Originals.
-------------------
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.
------------------------
Original Issue Discount - The Securities represented hereby are issued
with "original issue discount" within the meaning of Section 1273 of the
Internal Revenue Code of 1986, as amended (the "Code"). For purposes of Sec-
tion 1275 of the Code (i) the issue date of this Note is
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<PAGE>
____________, 1994; (ii) the yield to maturity is ______ percent; (iii) the
original issue discount per $1,000 face amount at which this Note is issued is
$___________; and (iv) the issue price of this Security is $___________ per
$1,000 face amount.
CALIFORNIA ENERGY COMPANY, INC.
___ % Senior Discount Notes Due 2004.
No. _________ $_____________
CUSIP No._____________
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 ________, 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, which is overdue shall bear interest at the rate of
_____% 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 ___________ or _______ (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
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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.
The principal of this Security shall not bear or accrue interest until
__________, 1997, provided that in the case of a default in payment of principal
--------
upon acceleration, redemption or repurchase and, in such case, the overdue
principal and any overdue premium shall bear interest at the rate of ______% 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. Interest on any overdue principal or premium shall be payable on
demand. Any such interest on overdue principal or premium which is not paid on
demand shall bear interest at the rate of ______% per annum (to the extent that
the payment of such interest on interest shall be legally enforceable), from the
date of such demand until the amount so demanded is paid or duly provided for,
and such shall be payable on demand.
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, 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 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.
-48-
<PAGE>
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.
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 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 _______________, 1999 and
prior to maturity, as a whole or in part, at the election of the Company, at the
following Redemption Prices (expressed as
-49-
<PAGE>
percentages of the principal amount at Stated Maturity): If redeemed during the
12-month period commencing on or after _________________ of the years indicated,
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------------
<S> <C>
1999.............................
2000.............................
2001 and thereafter.............. 101%
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount at
Stated Maturity, 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 101 percent of
the Accreted Value thereof on any Purchase Date occurring prior to January,
1997, plus accrued and unpaid cash interest, if any, to such Purchase Date not
otherwise included in Accreted Value, or 101 percent of the principal amount
thereof payable at Stated Maturity on any Purchase Date occurring on or after
___________, 1999 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 100 percent of the Accreted Value thereof on any
Purchase Date occurring prior to the January 15, 1997, plus accrued and
unpaid cash interest, if any, to such Purchase
-50-
<PAGE>
Date not otherwise included in Accreted Value, or 101 percent of the principal
amount thereof at Stated Maturity on any Purchase Date occurring on or after
January 15, 1999, 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 which
are not used to reinvest in Replacement Assets and/or repay in a permanent
reduction of pari passu Debt of the Company or Debt of its Restricted
---- -----
Subsidiaries. Holders of Securities that are subject to an Offer to Purchase
shall receive an Offer to Purchase from the Company prior to the related
Purchase Date, and may elect to have such 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 unredeemed
or unpurchased portion hereof 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, 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 and including January 15,
1997, the Default Amount in respect of this Security as of any particular date
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 payable in respect of
this Security at the Stated Maturity hereof. Upon payment of (i) the Default
Amount so declared due and payable and any overdue installment of interest in
respect of this Security, (ii) any overdue principal or premium payable on
redemption or repurchase of this Security as provided on the face hereof, any
interest on any overdue Default Amount, principal, premium or interest in
respect of this
-51-
<PAGE>
Security (to the extent that the payment of such interest shall be legally
enforceable), all of the Company's obligations in respect of the payment of the
principal of and any premium and interest on this Security shall terminate.
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 at Stated Maturity of the Securities at
the time Outstanding. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount at Stated
Maturity 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, 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 which shall not ad-
versely affect in any material aspect 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 at Stated Maturity of the Securities at the time Outstanding shall have
made written request to the Trustee to institute proceedings in respect of
such Event
-52-
<PAGE>
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 at Stated Maturity of Securities at the time Outstanding a direction
inconsistent with such request, and shall have failed to institute any such
proceeding, for 30 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, 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 will 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 autho-
-53-
<PAGE>
rized 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 in whose name this Security is registered as the owner hereof for
all purposes, whether or not this Security be 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 twelve 30-day months.
All terms used in this Security which 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.
-54-
<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.
Date: _________________________
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.)
-55-
<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
-56-
<PAGE>
ARTICLE THREE
The Securities
Section 301. Title and Terms.
---------------
The aggregate principal amount at Stated Maturity of Securities which 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 __________, 2004
and they shall bear interest at the rate of _____% per annum, from __________,
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
__________ and _______, commencing _______, 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 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.
The Company may be required to make an Offer to Purchase the Securities as
provided in Sections 1013 and 1015 of this Indenture.
The Securities shall be redeemable as provided in Article Two and Article
Eleven of this Indenture.
-57-
<PAGE>
The Securities shall be subject to Defeasance and/or Covenant Defeasance as
provided in Article Twelve of this Indenture.
Section 302. Denominations.
-------------
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
-58-
<PAGE>
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.
--------------------
Pending the preparation of definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Securities which 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 of this Indenture
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 of this Indenture being
herein sometimes collectively referred to as the "Security Register") in which,
subject to such reasonable regulations as it may prescribe, the Company
-59-
<PAGE>
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 pursuant to Section 1002 of this Indenture 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 which 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
-60-
<PAGE>
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 of this
Indenture, 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 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 of this Indenture 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.
-61-
<PAGE>
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 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 which 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 which 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,
-62-
<PAGE>
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 when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this Clause
provided. Thereupon the Trustee shall fix a Special Record Date for the payment
of such Defaulted Interest which 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 of this Indenture
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 mailed, 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
-63-
<PAGE>
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 such Security
for the purpose of receiving payment of principal of (and premium, if any) and
(subject to Section 307 of this Indenture) 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 of this Indenture 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 which 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.
-64-
<PAGE>
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 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 (except as to any
surviving rights of registration of transfer or exchange of Securities herein
expressly provided for) 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) either
(A) all Securities theretofore authenticated and delivered (other than (i)
Securities which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 306 of this Indenture and (ii)
Securities for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust, as provided in Section 1003 of this Indenture)
have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
-65-
<PAGE>
(i) have become due and payable, or
(ii) shall become due and payable at their Stated Maturity within one
year, or
(iii) are to be called for redemption within one year under
irrevocable arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in trust
for the purpose an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the Trustee for
cancellation, for principal (and premium, if any) and interest to the date of
such deposit (in the case of Securities which have become due and payable) or to
the Stated Maturity or Redemption Date, as the case may be, together with
irrevocable instructions from the Company in form and substance satisfactory to
the Trustee directing the Trustee to apply such funds to the payment thereof at
Stated Maturity or redemption, as the case may be;
(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, the obligations of the Company to the Trustee under Section
607 of this Indenture, the obligations of the Company to any Authenticating
Agent under Section 614 and, if money shall have been deposited with the Trustee
pursuant to subclause (B) of Clause (1) of this Section 401, the obligations of
the Trustee under Section 402 and the last paragraph of Section 1003 shall
survive.
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Section 402. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 of this Indenture shall be
held in trust and applied by it, in accordance with the provisions of the
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal (and
premium, if any) and interest for whose payment such money has been deposited
with the Trustee. If the Trustee or Paying Agent is unable to apply any money
or U.S. Government Obligations in accordance with Section 401 by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Securities
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 401 until such time as the Trustee or Paying Agent is permitted to apply
all such money or U.S. Government Obligations in accordance with the first
sentence of this Section 402; provided that if the Company has made any payment
--------
of interest on or principal of any Securities because of the reinstatement of
its obligations, the Company shall be subrogated to the rights of the Holders
of such Securities to receive such payment from the cash or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE FIVE
Remedies
Section 501. Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary 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):
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(1) default in the payment of the principal of (or premium, if any,
on) any Security at its Maturity (whether at 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, on the applicable Purchase Date, in the purchase of
Securities required to be purchased by the Company pursuant to an Offer to
Purchase as to which an Offer has been mailed to Holders or the failure to make
an Offer to Purchase as required hereunder; or
(4) default in the performance, or breach, of Section 801, Section
1008 or Section 1009 of this Indenture; or
(5) default in the performance, or breach, of any covenant, agreement
or warranty of the Company in this Indenture (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 by written notice 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 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
(6) a default or defaults under any bond(s), debenture(s), note(s) or
other evidence(s) of Debt by the Company or any Significant Subsidiary (other
than Non-Recourse Debt of Significant Subsidiaries)(or under any mortgage(s),
indenture(s) or instrument(s) under which there may be issued or by which there
may be secured or evidenced any Debt by the Company or any Significant
Subsidiary) if either (x) such default results from failure to pay principal of
such Debt in excess of $25 million when due within any applicable grace period
or (y) as a result of such default, the maturity of such Debt has been
accelerated prior to its scheduled maturi-
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ty, 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, or the
maturity of which has been accelerated, aggregates $25 million or more; or
(7) 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 third party other than an Affiliate), 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 on Event of Default if such judgment or order does not require
any payment by the Company, 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 of this Indenture; or
(8) 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, liquidator, 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
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or order unstayed and in effect for a period of 60 consecutive days; or
(9) (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.
Section 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than an Event of Default specified in Section
501(8) or (9) of this Indenture) occurs and is continuing, then and in every
such case the Trustee or the Holders of not less than 25
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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 and any accrued
interest shall become immediately due and payable. If an Event of Default
specified in Section 501(8) or (9) occurs, the Default Amount of and any accrued
interest on 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.
Until and including __________, 1997, the "Default Amount" in respect of
any particular Security as of any particular date shall equal the Accreted Value
of the Security as of such date. On and after __________, 1997, the Default
Amount in respect of any particular Security as of any particular date shall
equal 100% of the principal amount payable in respect of the Security at the
Stated Maturity thereof.
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 at Stated Maturity 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 principal of (and premium, if any, on) any Securities
which have become due otherwise than by such declaration of acceleration
(including any Securities required to have been purchased on the 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
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Securities (without duplication of any amount 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 nonpayment of the
principal of Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513 of this
Indenture.
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 of (or premium,
if any, on) any Security at the 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
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whole amount then due and payable on such Securities for principal (and premium,
if any) and interest, and, to the extent that payment of such interest shall be
legally enforceable, interest on any overdue principal (and premium, if any) 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 principal 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 principal, premium, if any, or interest) shall 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
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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 of this Indenture. To the extent that payment of any such com-
pensation, 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 which 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.
Section 505. Trustee May Enforce Claims Without Possession of Securities.
------------------------------------------------------------
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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 for
principal of (and premium, if any) and interest 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 for principal (and premium, if any) and interest,
respectively; 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 respect to this Indenture, or for the appointment of
a
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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 at
Stated Maturity 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 at Stated Maturity 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
payment of the principal of (and premium, if any) and (subject to Section 307 of
this Indenture) interest on such Security on the respective Stated Maturities
expressed in such
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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) 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 of this Indenture, 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 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
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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 at Stated Maturity 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 which is not inconsistent with such direction.
Section 513. Waiver Of Past Defaults.
-----------------------
The Holders of not less than a majority in principal amount at Stated
Maturity 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 which is required to have been
purchased pursuant to an Offer to Purchase which has been made by the Company),
or
(2) in respect of a covenant or provision hereof which 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 subsequent or other
default or impair any right consequent thereon.
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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; provided that neither this Section 514 nor the Trust Indenture
--------
Act shall be deemed to authorize any court to require such an undertaking or to
make such an assessment in any suit instituted by the Company, in any suit
instituted by the Trustee or in any suit for the enforcement of the right to
require an Offer to Purchase to be made by the Company.
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
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liability of or affording protection to the Trustee shall be subject to the
provisions of this Section 601.
(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 which 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 calcu-
lations 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 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; and
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(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction of
the Holders of a majority in principal amount at Stated Maturity 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.
(e) Notwithstanding the foregoing, 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 the 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 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 withhold-
ing 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) of this Indenture, no such notice to Holders shall be given until
at least 30 days after the occurrence thereof.
Section 603. Certain Rights of Trustee.
-------------------------
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Subject to the provisions of Section 601 of this Indenture:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, 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 which 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,
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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 investigation, 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 Trust-
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ee, 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 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.
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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 of this Indenture, except with respect
to funds held in trust for the benefit of the Holders of particular Securities.
When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 501(8) or Section 501(9) of this
Indenture, 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 which 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 $100,000,000 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
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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 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 of this Indenture.
(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 of this Indenture
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 at Stated Maturity 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 of this
Indenture 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 of
this Indenture and shall fail
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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,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514 of this Indenture, 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 at Stated Maturity 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 of
this Indenture, 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
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appointment of a successor Trustee to all Holders in the manner provided in
Section 106 of this Indenture. 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 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 of this Indenture, 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 of this
Indenture. 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
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<PAGE>
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.
-------------------------
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 which 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 $100,000,000 and subject
to supervision or examina-
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tion 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.
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.
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 which 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.
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<PAGE>
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section.
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
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<PAGE>
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.
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 of this Indenture 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
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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, 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, and shall not permit any Restricted Subsidiary
to, in any transaction or series of transactions, consolidate with or merge into
any other Person (other than a merger of a Restricted Subsidiary into the
Company in which the Company is the continuing Corporation or the merger of a
Restricted Subsidiary into or with a Restricted Subsidiary), or sell, convey,
assign, transfer, lease or otherwise dispose of all or substantially all of the
Property and assets of the Company and the Restricted Subsidiaries taken as a
whole 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 which acquires, by sale,
assignment, conveyance, transfer, lease or disposition, all or substantially
all of the Property and assets of the Company and the Restricted Subsidiaries
taken as a whole (such corporation or Person, the "Surviving Entity"), shall be
a Corporation organized and validly ex-
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<PAGE>
isting 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
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 paragraphs (h) or (i)
of the definition of "Permitted Debt" and Section 1008 of this Indenture; 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), the Company (or the Surviving
Entity if the Company is not continuing) shall have a Consolidated Net Worth
equal to or greater than the Consolidated 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 reason-
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<PAGE>
ably 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 (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 and the manner of determination of the Consolidated Net Worth in accordance
with Clause (iv) 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.
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, 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 of this
Indenture, 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.
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<PAGE>
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 of this Indenture, 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
(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 which 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 of this Indenture or otherwise; or
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(8) to cure any ambiguity, to correct or supplement any provision
herein which 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 in any material respect;
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 at Stated Maturity 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 of this
Indenture, the Trustee shall enter into an indenture or indentures 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
_____________, 1997, reduce any amount payable on redemption or repurchase
thereof, or reduce the Default Amount that would be due and payable on
acceleration of the Maturity thereof pursuant to Section 502 of this Indenture,
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
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of any such payment on or after the Stated Maturity thereof, or
(2) reduce the percentage in principal amount at Stated Maturity
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 upon a Change of Control or from the Net Cash Proceeds of Asset Sales,
or
(4) subordinate a right of payment, or otherwise subordinate,
the Securities to any other indebtedness,
(5) modify any provisions of this Indenture relating to the
calculation of Accreted Value, or
(6) modify any of the provisions of this Section, Section 513 or
Section 1020 of this Indenture, except to increase 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;
provided further that the consent of Holders of not less than 75 percent in
- -------- -------
principal amount at Stated Maturity of the Outstanding Securities is required to
make any amendment to Section 1013 of this Indenture and the definition of
Change of Control.
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 supple-
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mental 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 of this Indenture) 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 which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
Section 904. Effect of Supplemental Indentures.
---------------------------------
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 of this Indenture, 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
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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.
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.
-100-
<PAGE>
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 Compa-
ny 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 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
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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.
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.
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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, 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 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 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 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
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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 properties if
such discontinuance 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.
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 Re-
stricted 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 which, 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 established to the extent
required by GAAP.
Section 1007. Maintenance of Insurance.
------------------------
The Company shall, and shall cause its Restricted Subsidiaries to,
keep at all times all of their Properties which 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 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
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<PAGE>
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.
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 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) of this
Indenture, 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 any 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 Energy Company in a Permitted Joint Venture or an Eligible Joint
Venture (which transfer has the effect of causing such Restricted Subsidiary 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 Section
1008(a) of this Indenture, (iii) Debt in an aggregate amount not to exceed $50
million outstanding at any one time may be
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issued under or in respect of Permitted Working Capital Facilities, provided
--------
that either (A) all such Working Capital Facilities and all refinancings thereof
must expire and be repaid at least one year before the final Stated Maturity of
the Securities or (B) all such Working Capital Facilities and all refinancings
thereof must provide that all Liens that secure all such Working Capital
Facilities and all refinancings thereof shall be released at least one year
before the final Stated Maturity of the Securities, (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) Debt in respect of letters of credit, bankers'
acceptances, or other similar instruments (or reimbursement obligations with
respect thereto) that is Incurred in the ordinary course of business, (vii) pur-
chase 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, (viii) Debt outstanding as of the date of original issuance of the
Securities other than Debt that is extinguished, retired or repaid in
connection with the original issuance of the Securities and (ix) Debt in an
aggregate amount not to exceed $50 million outstanding at any one time.
Section 1009. Limitation on Subsidiary Debt.
-----------------------------
(a) The Company shall not permit any Restricted Subsidiary or
any Eligible Joint Venture, to Incur any Debt.
(b) Notwithstanding the provisions of Section 1009(a) of this
Indenture, 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 Securities, (ii) Debt owed by a Restricted Subsidiary
or an Eligible Joint Venture to the Company or a Restricted Subsidiary of the
Company or an Eligible Joint Venture that directly or indirectly owns all the
Company's interest in such Restricted Subsidiary and that does not own any
other Property, (iii) Non-Recourse Debt Incurred in respect of a Permitted
Facility in which such Restricted Subsidiary or such Eligible Joint Venture has
an interest (which may
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include Construction Financing provided by the Company pursuant to Section
1010(c) of this Indenture, (iv) Subsidiary Refinancing Debt, (v) Debt Incurred
by a Person prior to the time (A) such person became a Restricted Subsidiary of
the Company or an Eligible Joint Venture, (B) such Person merges with or into a
Restricted Subsidiary of the Company or an Eligible Joint Venture, or (C) 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, giving
--------
effect to such transaction, such Debt could have been Incurred (1) by the
Company at the time of such merger or acquisition by the Company pursuant to
Section 1008(a) of this Indenture or (2) by the Restricted Subsidiary or the
Eligible Joint Venture pursuant to either of the provisions described in clause
(iii) of this paragraph, 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, (vi) Debt in
respect of Currency Protection Agreements or Interest Rate Protection Agreements
and (vii) Debt in respect of letters of credit, bankers' acceptances, or other
similar instruments (or reimbursement obligations with respect thereto) that is
Incurred in the ordinary course of business.
Section 1010. Limitation on Restricted Payments.
---------------------------------
(a) The Company shall not, and shall not permit any Restricted
Subsidiary 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 or an 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) of this Indenture 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,
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as evidenced by a Board resolution) after the date of original issuance of the
Securities, is less than the sum (without duplication) of (i) 50% of the
Adjusted Consolidated Net Income of the Company and its consolidated Restricted
Subsidiaries 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 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, with respect to S&P, at least BBB- and, with respect to Moody's,
at least Baa3 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 date of original issuance of the Securities from 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), and
from the exercise of warrants, options and rights to purchase its Capital Stock
(other than Redeemable Stock) issued after the date of original issuance of the
Securities and from the issuance and sale, after the date of original issuance
of the Securities 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 type speci-
----
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<PAGE>
fied in clause (iv) of the definition of "Restricted Payment" that result from
payments of interest on Debt, dividends, or repayment of loans or advances to
the Company or the Restricted Security 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 type specifies in clause (iv) of the
- -------
Definition of "Restricted Payment" have been made in any Person and such Person
thereafter becomes a Restricted Subsidiary, then the aggregate amount of such
Investment (to the extent that they have reduced the amount available pursuant
to this clause (c) for making Restricted Payments), net of the amounts
previously added pursuant to this clause (iii), may be added to the amount
available for making Restricted Payments. The foregoing clause (c) 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 declara-
tion without violation of the provisions of this Section 1010(a).
(b) Neither the Company nor any of its Restricted Subsidiaries shall
be deemed to have made an Investment at the time that a Person that is a
Restricted Subsidiary if the Company ceases to be a Restricted Subsidiary,
although any subsequent Investment made by the Company and its Restricted
Subsidiaries 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 Subsidiary. The designation of an Unrestricted Subsidiary as a
Restricted Subsidiary, as provided in the definition of "Unrestricted
Subsidiary," shall be an Investment that shall be subject to the foregoing
paragraph.
(c) Notwithstanding the provisions of Section 1010(a) of this
Indenture, the Company may provide (A) to any of its Restricted Subsidiaries up
to 100% of the Con-
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<PAGE>
struction 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 is equal to the proportion of all the outstanding
Capital Stock in such Person that is owned directly and indirectly by the
Company and Kiewit Energy Company together, if, in either case, (i) the
aggregate proceeds of all the Construction Financing provided is not less than
85% of the sum of the aggregate proceeds of such Construction Financing and the
aggregate owners' invested in such Restricted Subsidiary or such Eligible Joint
Venture, as the case may be, (ii) the Company receives a pro rata 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
Persons and (iii) neither the Company nor Kiewit Energy Company reduces its
beneficial ownership in such Restricted Subsidiary or such Eligible Joint Ven-
ture, as the case may be, prior to the repayment in full of the Company's
portion of the Construction Financing.
Section 1011. 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 or such Restricted
Subsidiary, or such Eligible Joint Venture than those that could be obtained
in a comparable arm's length transaction with a Person that is not such an
Affiliate and (iii) (a) with respect to such business, transaction or series
of related transactions that has a fair market value or involves aggregate pay-
ments equal to, or in excess of, $10 million but less than $25 million, the
Company delivers to the Trustee an
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Officer's Certificate stating that such business, transaction or series of
related transactions complies with clauses (i) and (ii) above, and (b) with
respect to such business, transaction or series of related transactions that has
a fair market value or involves aggregate payments equal to, or in excess of,
$25 million such business, transaction or series of transactions is approved by
a majority of the Board of Directors (including a majority of the disinterested
directors), which approval is set forth in a Board resolution delivered to the
Trustee certifying that, in good faith, the Board of Directors believes that
such business, transaction or series of transactions complies with clauses (i)
and (ii) above.
Section 1012. Limitations 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 1009(b) of this Indenture and (B) contemplated by
clauses (ii), (iii), (vi) and (vii) of Section 1009(b) of this Indenture,
provided that, in the case of Debt owed to a Person other than the Company or a
- --------
Re-
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<PAGE>
stricted 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, (iv) Liens existing on the date of the original issuance
of the Securities, (v) Liens incurred to secure Debt incurred by the Company as
permitted by clause (vii) of Section 1008(b) of this Indenture, 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 Facili-
ties, Guarantees thereof and any related Interest Rate Protection Agreements or
Currency Protection Agreement in respect thereof, provided that such Liens may
--------
not extend to the Capital Stock owned by the Company, any Restricted Subsidiary
or any Eligible Joint Venture in any Subsidiary of the Company or any Eligible
Joint Venture, and Liens on any Property of the Company securing other Interest
Rate Protection Agreements and other Currency Protection Agreements, (vii) Liens
incurred in connection with Capitalized Lease Obligations incurred by the Compa-
ny, any of its Restricted Subsidiaries or any Eligible Joint Venture as
permitted by Section 1008(b) or Section 1009 of this Indenture, (viii) 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, (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
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<PAGE>
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 materially detract from the value of
the property subject thereto or 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 (xi) Liens, in
addition to the foregoing, that secure obligations not in excess of $[ ]
million in the aggregate. [COMPANY TO PROPOSE BASKET]
Section 1013. Repurchase of Securities Upon a Change of Control.
-------------------------------------------------
(a) Upon the occurrence of both a Change of Control and a Rating
Decline, each Holder of the Securities shall have the right to require that the
Company repurchase such Holder's Securities at a repurchase price in cash equal
to 101% of the Accreted Value thereof on the date of repurchase plus accrued
interest, if any, to the date of repurchase.
(b) 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 shall not
necessarily afford protection to Holders, including protection against an
adverse effect on the value of the Securities, in the event that the Company or
its Subsidiaries Incur additional Debt, whether through recapitalization or
otherwise.
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(c) Within 30 days following the later of a Change of Control and a
Rating Decline, 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 repurchase such Holder's
Securities at a repurchase price in cash equal to 101% of the Accreted Value
thereof on the date of repurchase plus accrued interest, if any, to the date of
repurchase (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 repurchase date (which shall be not earlier
than 30 days nor later than 60 days from the date such notice is mailed) (the
"Repurchase 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 accepted for payment pursuant to the Change of Control Offer shall
cease to accrete original issue discount or accrue interest, as the case may
be, after the Repurchase Date (assuming sufficient moneys for the purchase
thereof are deposited with the Trustee), (6) that Holders electing to have a
Security repurchased 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
Repurchase 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 Repurchase 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.
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(d) On the Repurchase 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 so accepted 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 so accepted 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 Repurchase
Date.
[Add procedures]
(e) 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 Dividend and Other Payment Restrictions Affecting
---------------------------------------------------------------
Restricted Subsidiaries.
------------------------
The Company shall not, and shall not permit any Restricted Subsidiary or
any Eligible Joint Venture to, create or cause to become or remain subject to,
as a result of the acquisition of any Person or Property or upon any Person
becoming a Restricted Subsidiary or an Eligible Joint Venture, 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 owned or such Eligible Joint Venture 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 Re-
stricted Subsidiary of the Company or any Eligible Joint
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Venture, (c) make loans or advances to the Company, any other Restricted
Subsidiary of the Company or any other Eligible Joint Venture or (d) transfer
any of its Property to the Company or any other Restricted Subsidiary or any
other Eligible Joint Venture, other than those encumbrances and restrictions
created or existing (i) on the date of the original issuance 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)
of this Indenture, 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 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 above than
encumbrances and restrictions, taken as a whole, customarily accepted (or, in
the absence of any industry custom, reasonably acceptable) in comparable
financings, (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, 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
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encumbrances and restrictions, taken as a whole, customarily accepted (or, in
the absence of any industry custom, reasonably acceptable) in comparable
financings, (v) in connection with any Debt of a Person outstanding when such
Person becomes a Restricted Subsidiary or an Eligible Joint Venture permitted
under the provision described in clause (v) of Section 1009(b) of this
Indenture, 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 may not
-------- -------
extend beyond the 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 Section 1009(b) of this Indenture,
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 Officer's 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 of this Indenture, but only to the extent that the
encumbrances and restrictions are necessary to effectuate such Lien or (x) in
connection with the Incurrence of any Debt permitted under clause (ii) of
Section 1009(b) of this Indenture.
Section 1015. Limitations on Dispositions.
---------------------------
(a) Subject to the provisions of Article Eight of this Indenture, the
Company shall not make and shall not permit any of its Restricted Subsidiaries
or any
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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 assets related to the
business of the Company as described in the first sentence of Section 1022 of
this Indenture, 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 or businesses of the Company, any of its Restricted Subsid-
iaries or any Eligible Joint Venture or (B) applied to the payment of any Debt
of the Company, such Restricted Subsidiary or such Eligible Joint Venture (or as
otherwise required under the terms of such Debt) (other than Debt owed to the
Company, another Restricted Subsidiary or another Eligible Joint Venture by such
Restricted Subsidiary or such Eligible Joint Venture), provided that, no such
--------
payment of Debt under Permitted Working Capital Facilities shall be permitted
unless the related loan commitment, standby facility or the like shall be
permanently reduced by an amount equal to the principal amount so repaid,
provided further that such investment or such payment, as the case may be, must
- -------- -------
be made within 365 days from the later of the date of such Asset Disposition or
the receipt by the Company, such Restricted Subsidiary or such Eligible Joint
Venture of the Net Cash Proceeds related thereto. Any Net Cash Proceeds from
Asset Dispositions that are not applied as provided in clause (A) or (B) of the
preceding sentence shall constitute "Excess Proceeds." Excess Proceeds shall
be applied, as described below, to make an offer ("Offer") to purchase
Securities at a purchase price equal to 100% of principal amount thereof, plus
accrued interest, if any, to the date of purchase.
(b) Notwithstanding the provisions of Section 1015(a), the Company
and its Restricted Subsidiaries may
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exchange with other Persons (i) Property that constitutes a Restricted
Subsidiary for Property that constitutes a Restricted Subsidiary, (ii) Property
that constitutes a Restricted Subsidiary for Property that does not constitute
a Restricted Subsidiary, (iii) Property that does not constitute a Restricted
Subsidiary for Property that does not constitute a Restricted Subsidiary and
(iv) Property that does not constitute a Restricted Subsidiary for Property that
constitutes a Restricted Subsidiary, 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 of this
Indenture. Notwithstanding anything in the foregoing to the contrary, the
Company may not, and shall not permit any of its Restricted Subsidiaries to,
make an Asset Disposition of any interest in, or Property of, any of the [Coso
entities] other than for consideration consisting of cash.
(c) To the extent that any or all of the Net Cash Proceeds of any
Foreign Asset Disposition is 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 the applicable Restricted Subsidiary or the
applicable Eligible Joint Venture so long, but only so long, as the applicable
local law does not permit (or delays) repatriation to the United States. The
Company shall take or cause the applicable Restricted Subsidiary or the appli-
cable 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, repa-
triation 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 date of such repatriation. In addition,
if the Board of Directors determines, in good
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faith, 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. Not-
withstanding 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) of this Indenture, the Company may apply by such Net Cash Pro-
ceeds pursuant to such provision.
(d) If the aggregate principal amount of Securities tendered pursuant
to an Offer 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 provision of this Section 1015(d). The
Company shall not be required to make an Offer for Securities 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 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 Offer with respect
thereto.
(e) The Company shall make an Offer by mailing to each Holder, within
30 days from the receipt of Excess Proceeds that cause the cumulated Excess
Proceeds to exceed $10 million, a written notice that shall specify the
purchase date, which shall not be less than 30 days nor more than 60 days after
the date of such notice (the "Purchase Date"), and that shall contain certain
information concerning the business of the Company that the Company believes in
good faith shall enable the Holders
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to make an informed decision. Holders that elect to have their Securities
purchased shall be required to surrender such Securities at least one Business
Day prior to the Purchase Date. If at the expiration of the Offer period the
aggregate Accreted Value of Securities surrendered by Holders exceeds the amount
of such Excess Proceeds, the Company shall select the Securities to be purchased
on a pro rata basis.
--- ----
[Add procedures]
(f) If the Company is prohibited by applicable law from making the
Offer or purchasing Securities thereunder, the Company need not make an Offer
for so long as such prohibition is in effect.
(g) The Company shall comply with all applicable tender offer rules,
including, without limitation, Rule 14e-1 under the Exchange Act, in connection
with an Offer.
Section 1016. Limitations on 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 of this Indenture 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) of this Indenture, assuming for the purpose
of this Section 1016 and Section 1008 and 1009(b) of this Indenture 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
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<PAGE>
(determined in good faith by the Board of Directors, as evidenced by a Board
resolution) and (iv) the Net Cash Proceeds of the sale-leaseback are applied
pursuant to Section 1015 of this Indenture.
Section 1017. Provision of Financial Information.
----------------------------------
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
which 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 (the "Required Filing 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 Required Filing 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. Limitations on Sale of Subsidiary Preferred Stock.
--------------------------------------------------
The Company shall not permit any Restricted Subsidiary 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, (ii) Preferred Stock issued to and held by the Company, a
Restricted Subsidiary of the Company or an Eligible Joint Venture (but only so
long as held or owned by the Company or a Restricted Subsidiary of the Company
or an Eligible Joint Venture), (iii) Preferred Stock issued by a Person prior
to the time (a) such
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Person became a Restricted Subsidiary or an Eligible Joint Venture, (b) such
Person merges with or into a Restricted Subsidiary or an 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 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, equipping, developing,
operation, ownership, management, servicing or acquisition of a Permitted
Facility or the retirement of Debt secured by such Permitted Facility or the
repatriation of equity, advances or income or the optimization of tax treatment
for the benefit of 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 the 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 (iv) 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 and its Restricted Subsidiaries 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
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whether the Restricted Subsidiaries are in compliance with all covenants of this
Indenture applicable 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) So long as not contrary to the then current recommendations
of the American Institute of Certified Public Accountants, the year-end
financial statements delivered pursuant to Section 1017 above shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation reasonably
satisfactory to the Trustee) that in making the examination necessary for
certification of such financial statements nothing has come to their attention
which would lead them to believe that the Company or any of its Restricted
Subsidiaries has violated any provisions of Sections 1001, 1006, 1008, 1009,
1010, 1011, 1015 or 1018 hereof or of Article Eight of this Indenture or, if any
such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any person for any failure to obtain knowledge of any such
violation.
(c) 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.
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<PAGE>
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, and Section 1014 and
Sections 1016 through 1018 of this Indenture, inclusive, 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.
Section 1021. Company to Supply Information Concerning Original Issue Discount.
----------------------------------------------------------------
The Company shall provide to the Trustees on a timely basis such
information as the Trustee requires to enable the Trustee to prepare and file
any form required to be submitted 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, 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, 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
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<PAGE>
any Eligible Joint Venture to, make any Investment or otherwise acquire any
Property that is not directly related to the business of the Company as
described in the preceding sentence (collectively, the "Ineligible Investments")
other than as a part of an Investment or an acquisition of Property that is
predominantly directly related to the business of the Company as described
above, and if the aggregate fair market value of such Ineligible Investments in
the aggregate exceeds 10% (the "10% Limit") of the total assets of the Company
and its consolidated Restricted Subsidiaries (as determined in accordance with
GAAP) as determined in good faith by the Chief Financial Officer, as evidenced
by an Officer's Certificate, the Company, its Restricted Subsidiaries and the
Eligible Joint Ventures must cease acquiring any additional Ineligible
Investments and must, within 18 months of the acquisition that caused the
Ineligible Assets to exceed the 10% Limit, dispose of a sufficient amount of
Ineligible Investments so that the 10% Limit shall not be exceeded, provided
--------
that such 18-month period may be extended up to an additional six months if, de-
spite the Company's active efforts during such 18-month period to dispose of
such Ineligible Investments, the Company is unable to do so because of
regulatory difficulties or 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 _________________, 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 provi-
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<PAGE>
sions 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 of this Indenture 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.
Section 1104. Selection by Trustee of Securities to Be Redeemed.
-------------------------------------------------
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to
the Redemption Date by the Trustee, from the Outstanding Securities not previ-
ously called for redemption, on a pro rata basis, by lot, or by such method as
the Trustee shall deem fair and appropriate and which may provide for the
election for redemption of portions (equal to $1,000 or any integral multiple
thereof) of the principal amount at Stated Maturity of Securities of a
denomination larger than $1,000.
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 which has been or is to be redeemed.
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<PAGE>
Section 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at his address appearing in the
Security register.
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,
(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 irrevoca-
ble.
Section 1106. Deposit of Redemption.
---------------------
Prior to any Redemption Date, the Company shall deposit with the Trustee
or with a Paying Agent (or if
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<PAGE>
the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003 of this Indenture) 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 which 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. 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 of this Indenture.
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 principal (and premium, if any) 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 which 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 of this Indenture (with, if the Company or the Trustee so
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<PAGE>
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 at
Stated Maturity equal to and in exchange for the unredeemed portion of the
principal amount at Stated Maturity of the Security so surrendered.
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 of this Indenture 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 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 date the
conditions set forth in Section 1204 of this Indenture are satisfied
(hereinafter called "Defeasance"). 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 hereun-
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<PAGE>
der: (1) the rights of Holders of such Securities to receive, solely from the
trust fund described in Section 1204 of this Indenture 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 of this Indenture, (3) the rights, powers, trusts, duties and
immunities of the Trustee under this Indenture, (4) Article Eleven and (5) this
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 of this Indenture 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 shall
be released from its obligations under Section 801(iii) or (iv)), Sections
1005 through 1018 of this Indenture, inclusive, and any covenant provided
pursuant to Section 901(2) and (ii) the occurrence of any event specified in
Section 501(4) (with respect to Section 801(iii) or (iv)), Section 501(5)
(with respect to any of Sections 1005 through 1018, inclusive, and any such
covenants provided pursuant to Section 901(2)), Section 501(6) or Section
501(7) 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(4) and 501(5)), 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 re-
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<PAGE>
mainder of this Indenture and such Securities shall be unaffected thereby.
Section 1204. Conditions to Defeasance or Covenant Defeasance.
------------------------------------------------
The following shall be the conditions to the application of Section
1202 or Section 1203 of this Indenture to the Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee which 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. As used herein, "U.S. Government
Obligations" means (x) securities that are (i) direct obligations of the United
States of America for the payment of which the full faith and credit of the
United States of America is pledged or (ii) obligations of a Person controlled
or supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case
under claus-
-132-
<PAGE>
es (i) or (ii) above, are not callable or redeemable at the option of the issuer
thereof, and (y) depositary receipts issued by a bank (as defined in Section
3(a)(2) of the Securities Act of 1933, as amended) as custodian with respect to
any U.S. Government Obligation which is specified in Clause (x) above and held
by such bank for the account of the holder of such depositary receipt, or with
respect to any specific payment of principal of or interest on any U.S.
Government Obligation which is so specified and held, 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 depositary receipt from any amount
received by the custodian in respect of the U.S. Government Obligation or the
specific payment of principal or interest of the U.S. Government Obligation
evidenced by such depositary receipt.
(2) In the event of an election to have Section 1202 of this
Indenture apply to the Outstanding Securities, the Company shall have delivered
to the Trustee an Opinion of Counsel stating that (A) the Company has received
from, or there has been published by, the Internal Revenue Service a ruling or
(B) since the date of this Indenture, there has been a change in the applicable
Federal income tax law, in either case (A) or (B) to the effect that, and based
thereon such opinion shall confirm that, the Holders of such Securities shall
not recognize gain or loss for Federal income tax purposes as a result of the
deposit, Defeasance and discharge 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, Defeasance
and discharge were not to occur.
(3) In the event of an election to have Section 1203 of this
Indenture apply to the Outstanding Securities, the Company shall have delivered
to the Trustee an Opinion of Counsel to the effect that the Holders of such
Outstanding Securities shall not recognize 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.
-133-
<PAGE>
(4) No Default or Event of Default with respect to the
Outstanding Securities shall have occurred and be continuing at the time of
such deposit after giving effect thereto or, in the event of an election to
have Section 1202 of this Indenture apply to the Outstanding Securities, with
regard to any such event specified in Sections 501(8) and (9), at any time on
or prior to the 91st day after the date of such deposit (it being understood
that this condition shall not be deemed satisfied until after such 91st day).
(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.
Section 1205. Deposited Money and U.S. Government Obligations to Be Held in
--------------------------------------------------------------
Trust; Miscellaneous Provisions.
-------------------------------
Subject to the provisions of the last paragraph of Section 1003 of this
Indenture, 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 of this Indenture, the Trustee
and any such other
-134-
<PAGE>
trustee are referred to collectively as the "Trustee") pursuant to Section 1204
of this Indenture 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 (including 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 of this Indenture or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which 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 of this Indenture which, 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 which 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 application, 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
-135-
<PAGE>
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.
-136-
<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: Title:
- -------------------------
IBJ SCHRODER BANK & TRUST
COMPANY
By:
---------------------------
Attest: Title:
- -------------------------
-137-
<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 which
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_______, one of the corporations described in and
which 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.
------------------------------
-138-
<PAGE>
Exhibit 11.0
<TABLE>
<CAPTION>
California Energy Company, Inc.
Calculation of Earnings per share in Accordance
with Interpretive Release No. 34-9083
for the three years ended December 31, 1993
(dollars in thousands except per share amounts)
- --------------------------------------------------------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Actual weighted average shares
outstanding for the period 35,454,539 33,414,139 29,847,156
Dilutive stock options and warrants using
average market prices 3,030,431 3,294,065 4,844,869
Preferred stock -- 786,712 779,405
----------- ----------- -----------
Total number of shares based on shares
outstanding and the assumption that
dilutive stock options and warrants
will be exercised at average stock
market prices 38,484,970 37,494,916 35,471,430
Additional dilutive stock options and
warrants using ending market price -- 1,282,223 992,399
----------- ----------- -----------
Total shares based on shares outstanding
and the assumption that dilutive stock
options and warrants will be exercised
at ending market price 38,484,970 38,777,139 36,463,829
=========== =========== ===========
Income before change in accounting
principle and extraordinary item $ 43,074 $ 38,810 $ 26,582
Cumulative effect of change in accounting
principle 4,100 -- --
Extraordinary item -- (4,991) --
----------- ----------- -----------
Net income 47,174 33,819 26,582
Series C preferred stock dividends (4,630) (4,275) --
----------- ----------- -----------
Net Income available for common shares $ 42,544 $ 29,544 $ 26,582
=========== =========== ===========
Primary earnings per share before change
in accounting principle and
extraordinary item $ 1.00 $ .92 $ .75
Primary earnings per share $ 1.11 $ .79 $ .75
==== ==== ====
Fully diluted earnings per share before
change in accounting principle and
extraordinary item based on SEC
Interpretive Release No. 34-9083 $ 1.00 $ .89 $ .73
Fully diluted earnings per share based on
SEC interpretive Release No. 34-9083 $ 1.11 $ .76 $ .73
==== ==== ====
</TABLE>
<PAGE>
Exhibit 12.0
<TABLE>
<CAPTION>
California Energy Company, Inc.
Ratio of Earnings to Fixed Charges
(dollars in thousands except ratios)
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Pre-tax income from
continuing operations $61,258 $50,732 $34,866 $15,565 $ 13,051
------- ------- ------- ------- --------
Capitalized interest net
of amortization (6,174) (5,202) (4,979) (4,565) (12,405)
------- ------- ------- ------- --------
55,084 45,530 29,887 11,000 646
------- ------- ------- ------- --------
Fixed Charges:
Interest expense and
amortization of deferred
finance charges on all
indebtedness 30,205 20,459 29,814 35,369 27,870
Interest portion of
lease rentals 247 253 217 677 668
------- ------- ------- ------- --------
Total fixed charges 30,452 20,712 30,031 36,046 28,538
------- ------- ------- ------- --------
Earnings before income
taxes, and fixed charges $85,536 $66,242 $59,918 $47,046 $ 29,184
------- ------- ------- ------- --------
Ratio of earnings
to fixed charges 2.809 3.198 1.995 1.305 1.023
======= ======= ======= ======= ========
</TABLE>
<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
February 24, 1994
<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305 (b) (2)__
--------------------
IBJ SCHRODER BANK & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-5375195
(State of Incorporation or Organization (I.R.S. employer
if not a U.S. national bank) identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
Max Volmar, Vice President
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
(212) 858-2000
(Name, Address and Telephone Number of Agent for Service)
CALIFORNIA ENERGY COMPANY, INC.
(Exact name of obligor as specified in its charter)
Delaware 94-2213782
(State or jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
10831 Old Mill
Omaha, Nebraska 68154
(Address of principal executive office) (zip code)
--------------------
% SENIOR DISCOUNT NOTES DUE 2004
(Title of Indenture Securities)
- --------------------------------------------------------------------------------
<PAGE>
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, Two Rector Street, New
York, New York
Federal Deposit Insurance Corporation Washington, D.C.
Federal Reserve Bank of New York Second District,
33 Liberty Street, New York, New York
(b) Whether it is authorized to exercise corporate trust powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
The obligor is not an affiliate of the trustee.
Item 3. Voting securities of the trustee.
Furnish the following information as to each class of voting
securities of the trustee:
As of February 28, 1994
<TABLE>
<CAPTION>
Col. A Col. B
Title of class Amount Outstanding
-------------- ------------------
<S> <C> <C>
Not Applicable
</TABLE>
- 2 -
<PAGE>
Item 4. Trusteeships under other indentures.
If the trustee is a trustee under another indenture under
which any other securities, or certificates of interest or
participation in any other securities, of the obligor are
outstanding, furnish the following information:
(a) Title of the securities outstanding under each such other indenture
Not Applicable
(b) A brief statement of the facts relied upon as a basis for the claim
that no conflicting interest within the meaning of Section 310 (b)
(1) of the Act arises as a result of the trusteeship under any
such other indenture, including a statement as to how the
indenture securities will rank as compared with the securities
issued under such other indenture.
Not Applicable
Item 5. Interlocking directorates and similar relationships with the obligor or
underwriters.
If the trustee or any of the directors or executive officers of the trustee
is a director, officer, partner, employee, appointee, or representative of
the obligor or of any underwriter for the obligor, identify each such
person having any such connection and state the nature of each such
connection.
Not Applicable
Item 6. Voting securities of the trustee owned by the obligor or its officials.
Furnish the following information as to the voting securities of the
trustee owned beneficially by the obligor and each director, partner, and
executive officer of the obligor:
<TABLE>
<CAPTION>
As of February 28, 1994
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percentage of
beneficially represented by voting
securities amount given
in Col. C
- -------------- -------------- -------------- -----------------
<S> <C> <C> <C>
Not Applicable
</TABLE>
- 3 -
<PAGE>
Item 7. Voting securities of the trustee owned by underwriters or their
officials.
Furnish the following information as to the voting securities of the
trustee owned beneficially by each underwriter for the obligor and each
director, partner and executive officer of each such underwriter:
As of February 28, 1994
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percentage of
beneficially voting securities
represented by
amount given
-----------------
in Col. C
<S> <C> <C> <C>
- -----------------------------------------------------------------
Not Applicable
</TABLE>
Item 8. Securities of the obligor owned or held by the trustee
Furnish the following information as to securities of
the obligor owned beneficially or held as collateral security
for obligations in default by the trustee:
As of February 28, 1994
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Issuer Amount of Amount owned bene- Percentage of
and Oustanding ficially or held voting securities
Title of Class as collateral sec- represented by
urity for oblig- amount given in
- ------------------- Col. C
ations in default
by trustee
------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
</TABLE>
Not Applicable
- 4 -
<PAGE>
Item 9. Securities of underwriters owned or held by the trustee.
If the trustee owns beneficially or holds as collateral security
for obligations in default any securities of an underwriter
for the obligor, furnish the following information as
to each class of securities of such underwriter any of which
are so owned or held by the trustee:
As of February 28, 1994
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Issuer Amount of Amount owned bene- Percentage of
and Oustanding ficially or held voting securities
Title of Class as collateral sec- represented by
urity for oblig- amount given in
- ------------------- Col. C
ations in default
by trustee
------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
</TABLE>
Not Applicable
Item 10.Ownership or holdings by the trustee of voting securities of
certain affiliates or securityholders of the obligor.
If the trustee owns beneficially or holds as collateral security for
obligations in default voting securities of a person who, to the knowledge
of the trustee (1) owns 10 percent or more of the voting securities of the
obligor or (2) is an affiliate, other than a subsidiary, of the obligor,
furnish the following information as to the voting securities of such
person:
As of February 28, 1994
Col A Col. B Col. C Col. D
Name of Issuer and Amount of Amount owned bene- Percentage of
Title of Class Oustanding ficially or held class represented
as collateral sec- by amount
urity for oblig- given
----------------
in Col. C
ations in default
-----------------
by trustee
----------
- --------------------------------------------------------------------------------
Not Applicable
- 5 -
<PAGE>
Item 11. Ownership or holdings by the trustee of any securities of a
person owning 50 percent or more of the voting securities of the
obligor.
If the trustee owns beneficially or holds as collateral security
for obligations in default any securities of a person who, to the knowledge
of the trustee, owns 50 percent or more of the voting securities of the
obligor, furnish the following information as to each class of securities
of such person any of which are so owned or held by the trustee:
As of February 28, 1994
<TABLE>
<CAPTION>
Col. A Col. B Col. C
Nature of Amount Date
Indebtedness Outstanding Due
- -------------- ----------- ------
<S> <C> <C>
</TABLE>
Not Applicable
Item 12. Indebtedness of the Obligor to the Trustee.
Except as noted in the instructions, if the obligor is indebted to the
trustee, furnish the following information:
As of February 28, 1994
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Title of Class Whether the secur- Amount owned bene- Percentage of
ities are voting ficially or held class repre-
or nonvoting as collateral sec- sented by
securities urity for oblig- amount given in
- -------------------
ations in default Col. C
- -------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
</TABLE>
Not Applicable
Item 13. Defaults by the Obligor.
(a)State whether there is or has been a default with respect
to the securities under this indenture. Explain the nature of any
such default.
Not Applicable
- 6 -
<PAGE>
(b)If the trustee is a trustee under another indenture under
which any other securities, or certificates of interest or
participation in any other securities, of the obligor are outstanding,
or is trustee for more than one outstanding series of securities under
the indenture, state whether there has been a default under any such
indenture or series, identify the indenture or series affected, and
explain the nature of any such default.
Not Applicable
Item 14. Affiliations with the Underwriters
If any underwriter is an affiliate of the trustee, describe
each such affiliation.
Not Applicable
Item 15. Foreign Trustees.
Identify the order or rule pursuant to which the foreign
trustee is authorized to act as sole trustee under indentures
qualified or to be qualified under the Act.
Not Applicable
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust Company as amended
to date. (See Exhibit 1A to Form T-1, Securities and Exchange
Commission File No. 22-18460).
*2. A copy of the Certificate of Authority of the Trustee to Commence
Business (Included in Exhibit 1 above).
*3. A copy of the Authorization of the Trustee, to exercise Corporate
Trust Powers (included in 1 above).
*4. A copy of the existing By-Laws of the Trustee, as amended to date (See
Exhibit 4 to Form T-1, Securities and Exchange Commission File No. 22-
19146).
- 7 -
<PAGE>
5. A copy of each Indenture referred to in Item 4, if the Obligor is in
default. Not Applicable.
6. The consent of the United States institutional trustee required by
Section 321(b) of the Act (see attached Exhibit I).
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority (see attached Exhibit II).
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a reference
to the copy of the Exhibit heretofore filed with the Securities and
Exchange Commission, to which there have been no amendments or changes.
NOTE
----
In answering any item in this Statement of Eligibility which relates to matters
peculiarly within the knowledge of the obligor and its directors or officers,
the trustee has relied upon information furnished to it by the obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of
all facts on which to base responsive answers to Item 2, the answer to said Item
are based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an amendment to
this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items 1, 2 and
16 of this form since to the best knowledge of the trustee as indicated in Item
13, the obligor is not in default under any indenture under which the applicant
is trustee.
- 8 -
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, IBJ Schroder Bank & Trust Company, a corporation organized
and existing under the laws of the State of New York, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 28th day of February, 1994.
IBJ SCHRODER BANK & TRUST COMPANY
By: _______________________________
Max Volmar
Vice President
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, IBJ Schroder Bank & Trust Company, a corporation organized
and existing under the laws of the State of New York, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 28th day of February, 1994.
IBJ SCHRODER BANK & TRUST COMPANY
By: Max Volmar
-------------------------------
Max Volmar
Vice President
<PAGE>
Exhibit I
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the issue by California Energy
Company, Inc. of its % Senior Discount Notes due 2004, we hereby consent that
reports of examinations by Federal, State, Territorial, or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: _______________________________
Max Volmar
Vice President
Dated:
<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)(6) 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 458,974
5-02(13) property--equipment 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(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
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<PAGE>
<TABLE>
<S> <C> <C>
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
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