<PAGE>
Filed Pursuant to Rule 424(b)(4)
Registration File No.: 33-59401
[LOGO APPEARS HERE]
$200,000,000
CALIFORNIA ENERGY COMPANY, INC.
9 7/8 % LIMITED RECOURSE SENIOR SECURED NOTES DUE 2003
INTEREST PAYABLE JUNE 30 AND DECEMBER 30
----------------
The 9 7/8 % Limited Recourse Senior Secured Notes Due 2003 (the "Notes")
are being offered (the "Offering") by California Energy Company, Inc.
("CECI" or the "Company"). The Notes are secured by an assignment and
pledge of 100% of the outstanding capital stock of Magma Power Company
("Magma"), a direct wholly owned subsidiary of CECI. The provisions of
the Indenture under which the Notes will be issued will permit Magma
and its subsidiaries and certain joint ventures in which Magma owns a
significant interest to incur substantial indebtedness and will not
restrict the ability of the Company or its other subsidiaries or
joint ventures to incur indebtedness. Any indebtedness incurred by
the Company's subsidiaries and joint ventures, including Magma and
its subsidiaries and joint ventures, would be effectively senior to
the Notes. The Offering is expected to be consummated concurrently
with an offering (the "Funding Corporation Offering") by Salton Sea
Funding Corporation (the "Funding Corporation"), a special purpose
corporation and a wholly owned subsidiary of Magma, of $475 million
aggregate principal amount of the Funding Corporation's senior
secured debt securities (the "Funding Corporation Securities"). See
"Use of Proceeds" and "The Funding Corporation Offering." As of
March 31, 1995, on a pro forma basis, after giving effect to the
consummation of the Offering and the Funding Corporation Offering
and the application of the net proceeds therefrom, there would
have been approximately $1,255 million of indebtedness and other
liabilities that represented CECI's proportionate share of
joint venture and subsidiary debt, which would be effectively
senior to the Notes.
THE NOTES ARE LIMITED RECOURSE OBLIGATIONS OF CECI AND ARE SECURED ONLY BY
THE COLLATERAL (AS DEFINED HEREIN). RECOURSE ON THE NOTES WILL BE
LIMITED TO (i) THE COLLATERAL, (ii) THE MAGMA NOTE RECOURSE
ASSETS (AS DEFINED HEREIN) AND (iii) GENERAL ASSETS OF
THE COMPANY IN AN AMOUNT EQUAL TO THE RESTRICTED
PAYMENT RECOURSE AMOUNT (AS DEFINED HEREIN).
HOLDERS OF THE NOTES WILL HAVE NO OTHER
RECOURSE TO THE GENERAL ASSETS OF
THE COMPANY.
On or prior to June 30, 1998, the Company may, at its option, use all or a
portion of the net cash proceeds of one or more Company Equity Offerings
(as defined herein) and shall at any time use all of the net cash proceeds
of one or more Magma Equity Offerings (as defined herein) to redeem up to
an aggregate of 35% of the principal amount of the Notes originally
issued at a redemption price equal to 109.875% of the principal
amount thereof plus accrued interest to the redemption date,
provided that immediately following such redemption, at least
$130 million principal amount of Notes remain outstanding.
On or after June 30, 2000, the Notes are redeemable at
the option of CECI, in whole or in part, at the
redemption prices set forth herein, plus accrued
interest to the date of redemption. Upon a
Change of Control (as defined herein), each
holder of the Notes may require CECI
to repurchase such Notes at 101% of
the principal amount thereof plus
accrued interest to the date of
repurchase. See "Description
of the Notes."
Settlement for the Notes will be made in immediately available funds. The
Notes will trade in the Same-Day Funds Settlement System of The
Depository Trust Company (the "Depositary"), and, to the extent
that secondary market trading activity in the Notes is effected
through the facilities of the Depositary, such trades will be
settled in immediately available funds. All payments of
principal and interest will be made by the Company in
immediately available funds.
SEE "RISK FACTORS" ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN 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>
Underwriting Proceeds To
Price To Discounts and Company
Public (1) Commissions (2) (1)(2)
-------------- --------------- -------------
<S> <C> <C> <C>
Per Note .. 100% 2.5% 97.5%
Total ...... $200,000,000 $5,000,000 $195,000,000
</TABLE>
- ---------------
(1) Plus accrued interest, if any, from July 21, 1995.
(2) An affiliate of the Underwriter has agreed to make certain payments
to the Company related to the Offering. See "Underwriting."
The Notes are offered by the Underwriter when, as and if issued by CECI,
delivered to and accepted by the Underwriter and subject to its right to
reject orders in whole or in part. It is expected that delivery of the Notes
in book-entry form will be made through the facilities of The Depository
Trust Company on or about July 21, 1995 against payment in immediately
available funds.
CS First Boston
The date of this Prospectus is July 18, 1995.
<PAGE>
#############################################################################
IMAGE OMITTED
DATAPOINTS AND NARRATIVE SUPPLIED BELOW
#############################################################################
[LOGO] CALIFORNIA ENERGY COMPANY, INC.'S PLANNED PROJECT
DEVELOPMENT AND CAPACITY IMPLEMENTATION SCHEDULE
(INCLUDES EXISTING OPERATIONS, CONSTRUCTION PROJECTS, CONTRACTS AND
AWARDS)(1)
MW IN OPERATION
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PROFILE OF PROJECTS(2)
FACILITY MW
CAPACITY
----------------
NET MW Commercial
PROJECT GROSS NET OWNED FUEL TYPE Operation
- ------------------------------ ------- ------- -------- --------------- ------------
PROJECTS IN OPERATION
Coso Project(3) 288 264 127 geothermal 1987-90
*Salton Sea Projects(4) 263 228 154 geothermal 1986-90
Yuma 55 50 50 natural gas 1994
Roosevelt Hot Springs(5) 25 23 17 geothermal 1984
Desert Peak 10 10 10 geothermal 1985
------- ------- --------
Total 641 575 358
PROJECTS UNDER CONSTRUCTION
Upper Mahiao 128 119 119 geothermal 1996
Mahanagdong 180 165 74 geothermal 1997
*Malitbog 231 216 216 geothermal 1996-97
*Salton Sea Expansion Project 40 40 40 geothermal 1996
------- ------- --------
Total 579 540 449
AWARDED PROJECTS(6)
*BRPU 163 163 163 geothermal TBD
Newberry 30 30 30 geothermal 1997
Dieng 400 400 188 geothermal 1997-99
Patuha 400 400 140 geothermal 1997-99
Casecnan 140 140 98 hydroelectric 1998
Bali 350 350 210 geothermal 1998-99
Alto Peak 70 70 70 geothermal 1997
------- ------- --------
Total 1,553 1,553 899
------- ------- --------
TOTAL 2,773 2,668 1,706
======= ======= ========
<FN>
- ---------------
* OWNED BY MAGMA.
(1) For projects under award, no assurance can be given that a power
sales contract will be executed. In addition, substantial other
contingencies exist with respect to awards, including, without
limitation, the need to obtain financing, permits and licenses, and
the satisfactory completion of construction. The BRPU project is
currently being challenged by California utility companies, and, in
addition, 69 MW of such award is subject to a buyout agreement with
Southern California Edison Co.
(2) For more detailed information concerning the Company's projects,
including royalty income, see "Business--Domestic Projects" and
"--International Projects."
(3) The Coso Project consists of the Navy I, BLM and Navy II projects.
(4) The Salton Sea Projects consist of the Vulcan, Hoch (Del Ranch),
Elmore and Leathers projects (each of which is 50% owned by Magma)
and the Salton Sea I, Salton Sea II and Salton Sea III projects (each
of which is 100% owned by Magma).
(5) Represents the MW/hour equivalent of delivered steam.
(6) The Indenture contains certain restrictions on the ability of Magma
to make equity investments in the development of new projects unless
the funds for such investments are obtained from the Company or other
external sources. See "Description of the Notes--Certain
Covenants--Limitation on Business and New Magma Project
Developments."
</TABLE>
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
California Energy Company, Inc. is, and, until its acquisition by CECI
completed on February 24, 1995, Magma Power Company was, subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, the Company files, and
Magma filed, 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 or Magma with the
Commission pursuant to the informational requirements of the Exchange Act may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the following Regional Offices of the Commission: Midwest Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and New York Regional Office, 14th Floor, Seven World Trade Center,
New York, New York 10048. Copies of such materials can be obtained at
prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition,
material filed by the Company can be inspected at the offices of the New York
Stock Exchange, Inc. ("NYSE"), 20 Broad Street, New York, New York 10005, on
which the shares of common stock, par value $.0675 per share (the "Common
Stock"), of the Company are listed, 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 and at the offices of the
London Stock Exchange at International Stock Exchange, Throgmorton Street,
EC2N 1HP, London, England. Material filed by Magma can be inspected at the
offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement," which term shall include all amendments,
exhibits and schedules thereto) under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Notes. This Prospectus does not
contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Notes, reference is made to the Registration Statement,
including the exhibits and schedules filed as a part thereof and otherwise
incorporated therein. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matter involved and each such
statement shall be deemed qualified in its entirety by such reference. Copies
of the Registration Statement and the exhibits thereto may be inspected,
without charge, at the offices of the Commission, or obtained at prescribed
rates from the Public Reference Section of the Commission at the address set
forth above.
The Company's principal executive offices are located at 302 South 36th
Street, Suite 400, Omaha, Nebraska 68131, and its telephone number is (402)
341-4500. The Company was incorporated in 1971 under the laws of the State of
Delaware.
3
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into the Registration
Statement of which this Prospectus is a part the following documents
previously filed with the Commission pursuant to the Exchange Act:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (the "Company's 1994 10-K").
2. The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995.
3. The Company's Current Reports on Form 8-K dated May 16, 1995 and June
23, 1995.
In addition, all reports and other documents filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date hereof and prior to the termination of the Offering hereby shall be
deemed to be incorporated by reference herein and to be a part hereof from
the date of filing of such reports and documents. Any statement contained in
a document incorporated or deemed to be incorporated by reference 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 that 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,
including any beneficial owner, to whom this Prospectus is delivered, upon
written or oral request from 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 California Energy
Company, Inc., 302 South 36th Street, Suite 400, Omaha, Nebraska 68131,
Attention: Chief Financial Officer (telephone no. (402) 341-4500).
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus and in the information
incorporated by reference herein. In this Prospectus, unless the context
otherwise requires, references to "CECI" or the "Company" shall mean
California Energy Company, Inc., its subsidiaries and joint ventures
(including Magma Power Company), and references to "Magma" shall mean Magma
Power Company, its subsidiaries and joint ventures. Terms used but not
defined in this summary have the meanings ascribed to them elsewhere in this
Prospectus.
THE COMPANY
California Energy Company, Inc. was founded in 1971 and 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.
With the completion of the acquisition of Magma on February 24, 1995 as
described below (the "Magma Acquisition"), the Company became the largest
independent geothermal power producer in the world (on the basis of the
Company's estimate of aggregate megawatts ("MW") of electric generating
capacity in operation and capacity under construction). The Company believes
it will realize certain benefits from the acquisition of Magma which will
improve the Company's competitive position, including:
o Expansion and enhancement of development efforts;
o Benefits of increased size;
o Operational and administrative cost savings, some of which have been
realized; and
o Diversification in sources of revenues and operations.
Based on its efforts to date, the Company believes that it has implemented
various measures which, for the first 12 months of operations following
consummation of the Merger, are expected to result in a reduction of
approximately 0.5 cents per kWh in the costs of Magma's operations.
The Company has an aggregate net ownership interest of 358 MW of electric
generating capacity in power production facilities in the United States
having an aggregate net capacity of 575 MW. All of these facilities are
managed and operated by the Company and are principally located in Southern
California. In addition to the electricity sales revenue earned from its net
ownership position in such facilities, the Company receives significant fee
and royalty income from operating certain of such plants and certain power
plants which are owned by unaffiliated third parties and from managing the
production from the geothermal resource for such facilities. Additionally,
the Company has an aggregate net ownership interest of 409 MW of electric
generating capacity in three geothermal power projects in the Republic of the
Philippines ("Philippines"), having an aggregate net capacity of 500 MW,
which projects are financed and under construction, and has a net ownership
interest of 40 MW of electric generating capacity in an additional project
having a net capacity of 40 MW, which is under construction in California
(which largely comprises the "Salton Sea Expansion Project" as described
herein). The Company is also developing seven additional projects with
executed power sales contracts or awards in the Philippines, the Republic of
Indonesia ("Indonesia") and the United States. The Company is expected to
have an approximate net ownership interest of 899 MW in these development
projects (which represent an aggregate net capacity of 1,553 MW of additional
potential electric generating capacity). Substantial contingencies
customarily exist with respect to development projects, including, without
limitation, the need to obtain financing, permits and licenses and the
satisfactory completion of construction. See "Business."
During the next several years, the Company intends to focus its
development efforts in the international marketplace due to the rapid growth
in power requirements in the developing world and the increasing competition
in the U.S. market. The Company is actively pursuing selected opportunities
in nations where power demand is high and the Company's geothermal resource
development and operating
5
<PAGE>
experience, project development and project financing expertise and strategic
relationships are expected to provide it with a competitive advantage. The
Company believes that opportunities to successfully develop, construct,
finance, own and operate international power projects are increasing as
several countries have initiated the privatization of their power generation
capacity and have solicited bids from private companies to purchase existing
generating facilities or to develop new capacity. Some of these countries,
such as the Philippines and Indonesia, have extensive geothermal resources.
On January 10, 1995, CECI acquired approximately 51% of the outstanding
shares of common stock of Magma (the "Magma Common Stock") through a cash
tender offer and on February 24, 1995 CECI completed the Magma Acquisition by
acquiring the approximately 49% of the outstanding shares of Magma Common
Stock not owned by CECI through a merger (the "Merger"). See "The Magma
Acquisition."
MAGMA
Magma is a direct wholly owned subsidiary of CECI through which the
Company conducts certain of its independent geothermal power operations and
development activities.
Magma's domestic activities are currently centered in the Imperial Valley
of California and primarily consist of: (i) the operation of seven geothermal
power plants with a 228 MW net capacity (the "Salton Sea Project Plants"),
(ii) the construction of a 40 MW net capacity expansion plant (the "Salton
Sea Expansion"), and (iii) the potential development of an additional plant
with a 163 MW net capacity ("BRPU Project"). Magma's international activities
currently consist of the construction of a geothermal power project in the
Philippines ("Malitbog Facility") with a 216 MW net capacity. Four of the
Salton Sea Project Plants (the "Partnership Plants") were developed by Magma
and are owned by partnerships (the "Partnerships") in which Magma is the
managing general partner and operator and owns 50% interests. The remaining
50% interests in the Partnerships are owned by subsidiaries of Mission Energy
Company ("Mission Energy"), which is an affiliate of Southern California
Edison Co. ("SCE"). The remaining three operating geothermal power plants
(the "Magma Plants") are indirectly wholly owned by Magma and were purchased
on March 31, 1993 from Union Oil Company of California. The Salton Sea
Expansion Project is also indirectly wholly owned by Magma.
Each Partnership Plant sells its electricity to SCE under an Interim
Standard Offer No. 4 long-term power purchase agreement ("SO4 Agreement").
Each contract provides for capacity payments fixed at a constant dollar
amount over the 30-year term thereof and energy payments set at an annually
escalating rate for the first 10 years of the term and thereafter equal to
SCE's then current published avoided cost of energy ("Avoided Cost of
Energy"), calculated on the basis of SCE's marginal cost of generating
energy. Magma and its subsidiaries also receive royalties senior to each
project's debt service for providing geothermal resources to the Partnership
Plants as well as a special priority partnership distribution and a bonus if
annual capacity exceeds certain specified amounts. In addition, Magma (or a
subsidiary) is reimbursed by, and receives fees from, each of the Partnership
Plants for providing operating and maintenance services and receives fees for
providing administrative services. Magma consolidates one-half of the
operating results of each Partnership Plant in its financial statements.
Magma also receives royalty income from the Mammoth and East Mesa Plants,
which are owned by unaffiliated third parties.
Two of the Magma Plants sell their electricity to SCE under SO4 Agreements
which provide for fixed capacity and capacity bonus payments over the 30-year
term thereof and for energy payments which are fixed and do not escalate over
the first 10 years of the term and which are thereafter equal to SCE's
Avoided Cost of Energy. The third Magma Plant sells (and the Salton Sea Unit
IV (as defined) is expected to sell) its electricity to SCE under a
negotiated agreement that provides for capacity and energy payments that
adjust quarterly over the 30-year term of the contract based upon certain
inflation based indices.
The Indenture contains certain restrictions on the ability of Magma to
make equity investments in the development of new projects unless the funds
for such investments are obtained from the Company or other external sources.
See "Description of the Notes--Certain Covenants--Limitation on Business and
New Magma Project Developments."
6
<PAGE>
USE OF PROCEEDS AND THE FUNDING CORPORATION OFFERING
As part of the financing of the Magma Acquisition, CECI borrowed $500
million on a non-recourse basis under a secured bank financing facility with
Credit Suisse, as agent bank (the "Merger Facilities"). The funds borrowed
were subsequently loaned to Magma and used by Magma in connection with the
Magma Acquisition.
The Offering is expected to be consummated concurrently with the Funding
Corporation Offering.
CECI intends to lend the proceeds of the Offering to Magma in exchange for
a secured term note of Magma in the amount of $200 million (the "Secured
Magma Note"). Magma intends to immediately use the proceeds from the
Offering, approximately $253 million of the net proceeds from the Funding
Corporation Offering and approximately $39 million from Magma's general
corporate funds to repay the funds borrowed from CECI in connection with the
Magma Acquisition, and simultaneously therewith CECI will repay the Merger
Facilities. See "Use of Proceeds," "The Funding Corporation Offering," "The
Magma Acquisition" and "Underwriting."
The following chart outlines the simplified corporate structure of the
Company and the simplified structure of the Offering and the Funding
Corporation Offering:
##############################################################################
IMAGE OMITTED
[ORGANIZATIONAL CHART OUTLINING SIMPLIFIED CORPORATE STRUCTURE OF THE COMPANY
AND SIMPLIFIED STRUCTURE OF THE OFFERING AND THE FUNDING CORPORATION OFFERING.]
##############################################################################
7
<PAGE>
THE OFFERING
Notes Offered .......... $200 million principal amount of 9 7/8 %
Limited Recourse Senior Secured Notes due
2003 (the "Notes").
Maturity Date .......... June 30, 2003
Interest Payment Dates . June 30 and December 30, commencing December
30, 1995
Form and Registration .. The Notes may be represented by one or more
Global Notes (the "Global Notes") registered
in the name of The Depository Trust Company
(the "Depositary") or its nominee.
Beneficial interests in the Global Notes
will be shown on, and transfers thereof will
be effected only through, records maintained
by the Depositary and its participants.
Except as provided herein, Notes in
certificated form will not be issued. See
"Description of the Notes--Global Notes."
Redemption ............. At any time, or from time to time, on or
prior to June 30, 1998, the Company may, at
its option, use all or a portion of the net
cash proceeds of one or more Company Equity
Offerings (as defined) and shall at any time
use all of the net cash proceeds of one or
more Magma Equity Offerings (as defined) to
redeem up to an aggregate of 35% of the
principal amount of the Notes originally
issued, at a redemption price equal to
109.875% of the principal amount thereof
plus accrued interest to the redemption
date, provided that immediately following
such redemption, at least $130 million
principal amount of Notes remain
outstanding. The Notes will also be
redeemable at the option of the Company, in
whole or in part, on or after June 30, 2000,
initially at a redemption price equal to
104.9375%, declining to 100% on June 30,
2002, in each case, plus accrued interest to
the date fixed for redemption. See
"Description of the Notes-- Redemption Upon
Company Equity Offering" and "-- Redemption
Upon Magma Equity Offering."
Change in Control ...... Upon the occurrence of a Change of Control
(as defined), each Holder (as defined) 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 principal amount thereof, plus
accrued interest to the date of repurchase
in accordance with the procedures set forth
in the Indenture (as defined). See
"Description of the Notes--Certain
Covenants-- Purchase of Notes Upon a Change
of Control."
Collateral ............. Upon consummation of the Offering, the Notes
will be secured by an assignment and pledge
of 100% of the outstanding Capital Stock (as
defined) of Magma. See "The Collateral."
Ranking ................ The Notes will be limited recourse senior
secured obligations of the Company with
recourse only to the Collateral, the
Company's interest in the Secured Magma Note
and payments thereon (the "Magma Note
Recourse Assets") and general assets of the
Company in an amount equal to the Restricted
Payment Recourse Amount (as defined).
Holders of the Notes will have a security
interest in the Collateral, but will not
have a security interest in the Magma Note
Recourse Assets and the other general assets
of the Company. The Notes will rank senior
to all
8
<PAGE>
other existing and future subordinated
indebtedness of the Company. The Company is
a holding company that derives substantially
all of its income from its operating
subsidiaries and joint venture projects. The
provisions of the Indenture under which the
Notes will be issued will permit Magma and
its subsidiaries and certain joint ventures
in which Magma owns a significant interest
to incur substantial indebtedness and will
not restrict the ability of the Company or
its other subsidaries or joint ventures to
incur indebtedness. Any indebtedness
incurred by the Company's subsidiaries and
joint ventures, including Magma and its
subsidiaries and joint ventures, would be
effectively senior to the Notes. As of March
31, 1995, on a pro forma basis, after giving
effect to the consummation of the Offering
and the Funding Corporation Offering and the
application of the net proceeds therefrom,
there would have been approximately $1,255.0
million of indebtedness and other
liabilities that represented CECI's
proportionate share of joint venture and
subsidiary debt, which would be effectively
senior to the Notes, and the Company's total
consolidated indebtedness (including
indebtedness of Magma) would have been
$1,618.1 million (excluding deferred
income), its total consolidated assets would
have been $2,414.8 million and its
stockholders' equity would have been $485.4
million.
Limited Recourse ....... THE NOTES ARE LIMITED RECOURSE OBLIGATIONS
OF CECI AND ARE SECURED ONLY BY THE
COLLATERAL. RECOURSE ON THE NOTES WILL BE
LIMITED TO (i) THE COLLATERAL, (ii) THE
MAGMA NOTE RECOURSE ASSETS AND (iii) GENERAL
ASSETS OF THE COMPANY IN AN AMOUNT EQUAL TO
THE RESTRICTED PAYMENT RECOURSE AMOUNT.
HOLDERS OF THE NOTES WILL HAVE NO OTHER
RECOURSE TO THE GENERAL ASSETS OF THE
COMPANY.
Certain Covenants ...... The Indenture governing the Notes contains
certain covenants which, among other things,
will restrict the ability of Magma, the
Restricted Subsidiaries (as defined) of
Magma and the Eligible Joint Ventures (as
defined) of Magma to incur additional Debt
(as defined) (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 (as defined),
to enter into new lines of business, to make
certain investments, to issue Capital Stock
of Magma, 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." The Indenture
contains certain restrictions on the ability
of Magma to make equity investments in the
development of new projects unless the funds
for such investments are obtained from the
Company or other external sources. See
"Description of the Notes--Certain
Covenants--Limitation on Business and New
Magma Project Developments."
9
<PAGE>
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 redemption or
repurchase, (iii) failure of the Company to
grant or of the Trustee to have a perfected
security interest in the Collateral, (iv)
default in the performance or breach of any
covenant or representation contained in the
Indenture or the Notes, which breach
continues for 30 days after written notice
thereof, (v) the failure of the Company,
Magma or any Significant Subsidiary (as
defined) of the Company to pay when due
beyond any applicable grace period, or the
acceleration of, Debt (other than
Non-Recourse Debt of Significant
Subsidiaries of the Company) in excess of
$25 million, (vi) the entry by a court of
one or more judgments against the Company,
Magma or any Significant Subsidiary of the
Company for an aggregate amount in excess of
$25 million, subject to certain conditions,
and (vii) the occurrence of certain events
of bankruptcy, insolvency or reorganization
of the Company, Magma or any Significant
Subsidiary of the Company. See "Description
of the Notes--Events of Default."
10
<PAGE>
SUMMARY PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL INFORMATION
The summary pro forma condensed combined unaudited statement of earnings
data and the pro forma other financial data of the Company set forth in the
table below is derived from the Pro Forma Condensed Combined Unaudited
Financial Data found elsewhere in this Prospectus. Such pro forma financial
information is based upon the historical Consolidated Financial Statements of
the Company and Magma incorporated by reference into this Prospectus,
adjusted on the basis of purchase accounting to give effect to the Magma
Acquisition which was consummated in the three months ended March 31, 1995.
Such pro forma financial information reflects the effect of the initial
financing of the Magma Acquisition and does not reflect the effect of either
the Notes offered hereby or the Funding Corporation Offering, which is
expected to be consummated concurrently with the Offering. The pro forma
condensed combined statements of earnings for the year ended December 31,
1994, and the three months ended March 31, 1995 give effect to the Magma
Acquisition as if it had occurred at the beginning of the periods presented.
The pro forma financial information does not purport to represent what the
Company's results of operations would actually have been or to project the
Company's results of operations or financial position for any future period.
The acquisition of Magma is reflected in the historical balance sheet of the
Company as of March 31, 1995.
The summary pro forma financial information should be read in conjunction
with the Pro Forma Condensed Combined Unaudited Financial Data and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH
DECEMBER 31, 1994 31, 1995
----------------- --------------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C>
PRO FORMA STATEMENT OF EARNINGS DATA:
Total revenue .............................................................. $ 368,276 $ 88,610
Cost and expenses:
Plant operations ......................................................... 75,373 19,686
General and administrative and other ..................................... 26,954 6,761
Royalties ................................................................ 19,652 4,414
Other non-plant costs .................................................... 29,983 0
Depreciation and amortization ............................................ 60,116 15,741
Interest expenses (net of interest capitalized) .......................... 104,354 28,501
----------------- --------------
Total costs and expenses ................................................... 316,432 75,103
Income before income taxes ................................................. 51,844 13,507
Provision for income taxes ................................................. 15,116 3,882
----------------- --------------
Income from continuing operations .......................................... 36,728 9,625
Preferred dividends ........................................................ 5,010 1,080
----------------- --------------
Income available to common stockholders .................................... $ 31,718 $ 8,545
================= ==============
PRO FORMA OTHER FINANCIAL DATA:
Capital expenditures ...................................................... $ 137,271 $ 48,289
Total indebtedness ........................................................ 1,485,574 1,544,890
Pro forma Consolidated EBITDA(1)(2) ....................................... 245,872 57,749
Ratio of earnings to fixed charges(3) ..................................... 1.3 1.3
OTHER FINANCIAL DATA AS ADJUSTED TO GIVE EFFECT TO THE OFFERING, THE
FUNDING CORPORATION OFFERING AND COST SAVINGS:
Pro forma Consolidated Indenture EBITDA(2)(4) ............................. $ 159,532 $ 43,749
Pro forma Consolidated Fixed Charges(2)(4) ................................ $ 52,222 $ 14,641
Ratio of pro forma Consolidated Indenture EBITDA to pro forma Consolidated
Fixed Charges(5) ......................................................... 3.1 3.0
<FN>
- ---------------
(1) EBITDA means earnings before interest, taxes, depreciation and
amortization and excludes expenses related to the Merger and other
nonrecurring charges.
(2) The 1994 pro forma Consolidated EBITDA and pro forma Consolidated
Indenture EBITDA (as defined below) balances are before the
extraordinary item associated with defeasance of CECI's 12% Senior
Notes due 1995. Information concerning pro forma Consolidated EBITDA
and pro forma Consolidated Indenture EBITDA is presented here not as
a measure of pro forma operating results, but rather as a measure of
the Company's pro forma ability to service debt. Pro forma
Consolidated EBITDA and pro forma Consolidated Indenture EBITDA
should not be construed as alternatives either (i) to pro forma
operating income (determined in accordance with generally accepted
accounting principles) or (ii) to pro forma cash flows from operating
activities (determined in accordance with generally accepted
accounting principles).
(3) For purposes of computing pro forma 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
and the Partnerships, and (b) fixed charges, less 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).
(4) Pro forma "Consolidated Indenture EBITDA" and pro forma "Consolidated
Fixed Charges" are calculated in accordance with the respective
definitions of Consolidated EBITDA and Consolidated Fixed Charges
contained in the indenture relating to CECI's 10 1/4 % Senior
Discount Notes due 2004 (the "CECI Indenture"), which definitions are
comparable (as applied to CECI) to the definitions of such terms
contained in the Indenture described under "Description of the Notes
-- Certain Definitions," adjusted on the basis of purchase accounting
to give effect to the Magma Acquisition which was consummated in the
three months ended March 31, 1995. The pro forma Consolidated Fixed
Charges do not include interest on debt which is not recourse to
CECI. Pro forma Consolidated Fixed Charges and the ratio of pro forma
Consolidated Indenture EBITDA to pro forma Consolidated Fixed Charges
give effect to the change in interest expense reflecting proceeds
from the Offering at an interest rate of 9 7/8 % and the Funding
Corporation Offering at an average interest rate of 7.14%, applied to
reduce the Merger Facilities which have a current weighted average
interest rate of 8.96% and to reduce Salton Sea Project debt by
approximately $102 million. For the year ended December 31, 1994 and
the three months ended March 31, 1995, the weighted average interest
rate of the Salton Sea Project debt was 5.57% and 7.40%,
respectively. In addition, pro forma Consolidated Indenture EBITDA
gives effect to approximately $10 million in cost savings on an
annualized basis that has been realized from the consolidation of
offices and operations as a result of the Magma Acquisition.
(5) The ratio is calculated by dividing pro forma Consolidated Indenture
EBITDA by pro forma Consolidated Fixed Charges.
</TABLE>
11
<PAGE>
MAGMA SUMMARY CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING DATA
The following table presents summary consolidated historical financial and
operating data of Magma as of and for the years ended December 31, 1992, 1993
and 1994 and the three months ended March 31, 1994 and 1995. The unaudited
consolidated financial statements of Magma as of and for the three months
ended March 31, 1994 and 1995 reflect all adjustments necessary, in the
opinion of the Company's management (consisting only of normal recurring
adjustments), for a fair presentation of such financial data. The March 31,
1995 information reflects Magma's financial and operating results on a
purchase accounting basis for the 45 days it was 51% owned and the 35 days it
was 100% owned by the Company. (See the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995, which is incorporated by reference
in this Prospectus.) The financial data set forth below should be read in
conjunction with the historical consolidated financial statements of Magma
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -----------------------
1992 1993 1994 1994(1) 1995(1)
---------- ---------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ...................... $108,966 $167,138 $190,882 $ 40,419 $ 42,977
Operating revenues .................. 100,313 162,943 185,416 39,334 39,759
Income from operations .............. 49,667 74,913 58,381 13,657 10,202
Interest expense, net of capitalized
interest .......................... 6,831 9,626 12,469 2,836 9,651
Net income (2) ...................... $ 54,191 $ 52,135 $ 38,549 $ 9,355 $ 7,207
BALANCE SHEET DATA (AT PERIOD END):
Property, plant and equipment, net .. $113,922 $265,215 $252,863 $262,799 $ 812,860
Exploration and development costs,
net ............................... 52,001 107,069 96,709 103,529 87,432
Total assets ........................ 396,650 611,311 623,486 612,870 1,387,897
Project finance loans ............... 96,126 226,008 189,045 210,486 164,852
Total indebtedness .................. 96,126 226,008 189,045 210,486 664,852
Shareholders' equity ................ 282,260 351,918 389,816 360,881 502,716
OTHER FINANCIAL DATA:
Depreciation and amortization ....... $ 11,927 $ 21,692 $ 23,985 $ 5,910 $ 8,658
Capital expenditures ................ 12,043 8,434 15,215 2,154 20,803
Consolidated EBITDA (3) (4) ......... 68,425 106,231 124,393 22,403 28,511
Consolidated Indenture EBITDA (4) (5) $ 61,757 $102,140 $ 83,611 $ 20,690 $ 26,500
Ratio of Consolidated Indenture
EBITDA to Consolidated Fixed
Charges (5) ....................... 378.8 18.5 67.2 18.4 2.5
Ratio of earnings to fixed charges
(6) ............................... 8.3 8.8 5.4 5.8 1.6
<FN>
---------------
(1) Magma's operations are seasonal in nature, with a disproportionate
percentage of the income earned in the quarter ending September 30;
therefore, operating results and ratios for interim periods are not
indicative of the results for a full fiscal year.
(2) On January 1, 1992, Magma adopted Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes," resulting in a
cumulative effect adjustment increasing net income by $17.8 million
in 1992.
(3) EBITDA means earnings before interest, taxes, depreciation and
amortization and excludes 1994 expenses related to the Merger and
other nonrecurring 1994 expenses.
(4) Consolidated EBITDA and Consolidated Indenture EBITDA are presented
here not as a measure of operating results, but rather as a measure
of Magma's ability to service debt. Consolidated EBITDA and
Consolidated Indenture EBITDA and Consolidated Fixed Charges should
not be construed as alternatives 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).
<PAGE>
(5) "Consolidated Indenture EBITDA" and "Consolidated Fixed Charges" are
calculated in accordance with the respective definitions of
Consolidated EBITDA and Consolidated Fixed Charges in the Indenture
described under "Description of the Notes -- Certain Definitions."
(6) 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 Magma, including its
proportionate share of the pre-tax income of the Partnerships, and
(b) fixed charges, less 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). The ratio of earnings to fixed charges for the years
ending December 31, 1990 and 1991 was 5.0 and 5.9, respectively.
</TABLE>
12
<PAGE>
CECI SUMMARY CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING DATA
The following table presents summary consolidated historical financial and
operating data of CECI as of and for the years ended December 31, 1992, 1993,
and 1994 and the three months ended March 31, 1994 and 1995. The unaudited
consolidated financial statements of the Company as of and for the three
months ended March 31, 1994 and 1995 reflect all adjustments necessary in the
opinion of the Company's management (consisting only of normal recurring
adjustments), for a fair presentation of such financial data. The March 31,
1995 information includes the financial and operating results of Magma for
the 45 days it was 51% owned and the 35 days it was 100% owned by the
Company. (See the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995, which is incorporated by reference in this Prospectus.)
The financial data set forth below should be read in conjunction with the
historical consolidated financial statements of the Company incorporated by
reference in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
---------------------------------------- -------------------------
1992 1993 1994 1994(1) 1995(1)
------------ ------------ ------------ ----------- ------------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ...................... $127,529 $149,253 $ 185,854 $ 35,410 $ 86,685
Operating revenues .................. 117,342 132,059 154,562 30,819 76,895
Income from operations .............. 50,732 61,258 55,836 12,657 18,158
Interest expense, net of capitalized
interest .......................... 14,860 23,389 52,906 6,430 25,078
Net income .......................... $ 33,819(2) $ 47,174(3) $ 36,827(4) $ 6,600 $ 9,613
BALANCE SHEET DATA (AT PERIOD END):
Property, plant and equipment, net .. $393,958 $463,514 $ 561,643 $ 470,512 $1,483,758
Total assets ........................ 580,550 715,984 1,131,145 1,061,882 2,339,848
Project finance loans ............... 263,604 246,880 233,080 246,880 384,133
Total indebtedness .................. 299,334 382,610 796,529 747,551 1,544,890
Stockholders' equity ................ 168,764 211,503 179,991 196,270 485,403
OTHER FINANCIAL DATA:
Depreciation and amortization ....... $ 16,754 $ 17,812 $ 21,197 $ 4,798 $ 14,183
Capital expenditures ................ 32,446 87,191 122,056 11,796 48,289
Consolidated EBITDA (5) (6) ......... 82,346 102,459 129,939 23,885 31,353
Consolidated Indenture EBITDA (6) (7) $ 66,695 $ 80,712 $ 109,176 $ 17,835 $ 47,708
Ratio of Consolidated Indenture
EBITDA to Consolidated Fixed
Charges (6) (7) ................... 6.3 5.6 2.3 3.8 2.0
Ratio of earnings to fixed charges
(8) ............................... 3.2 2.8 1.7 2.1 1.5
<FN>
- ---------------
(1) The Company's operations are seasonal in nature, with a
disproportionate percentage of the income earned in the quarter
ending September 30; therefore, operating results and ratios for
interim periods are not indicative of the results for a full fiscal
year.
(2) The refinancing of the Coso Joint Ventures' project financing
resulted in an extraordinary loss in 1992 in the amount of $5.0
million.
(3) On January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes," resulting
in a cumulative effect adjustment increasing net income by $4.1
million in 1993.
(4) The Company's 12% Senior Notes due 1995 were defeased in the first
quarter of 1994 in connection with the issuance of the 10 1/4 %
Senior Discount Notes due 2004, resulting in an extraordinary loss in
1994 in the amount of $2.0 million.
(5) EBITDA means earnings before interest, taxes, depreciation and
amortization.
(6) The 1994 Consolidated EBITDA and Consolidated Indenture EBITDA
balances are before the extraordinary item associated with the
defeasance of CECI's Senior Notes. Information concerning
Consolidated EBITDA and Consolidated Indenture EBITDA is presented
here not as a measure of operating results, but rather as a measure
of the Company's ability to service debt. Consolidated EBITDA and
Consolidated Indenture EBITDA should not be construed as alternatives
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).
(7) "Consolidated Indenture EBITDA" and "Consolidated Fixed Charges" are
calculated in accordance with the respective definitions of
Consolidated EBITDA and Consolidated Fixed Charges contained in the
CECI Indenture, which definitions are comparable (as applied to CECI)
to the definitions of such terms contained in the Indenture described
under "Description of the Notes -- Certain Definitions." The
Consolidated Fixed Charges do not include interest on debt which is
not recourse to CECI.
(8) 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
(and for the three months ended March 31, 1995, the Partnerships),
and (b) fixed charges, less 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). The ratio of earnings to fixed charges for the years
ending December 31, 1990 and 1991 was 1.3 and 2.0, respectively.
</TABLE>
13
<PAGE>
RISK FACTORS
Prospective purchasers of the Notes offered hereby should consider
carefully all of the information contained in this Prospectus, including the
following:
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 contingencies. The Company has in development
or under construction (and Magma has under construction) projects
representing in the aggregate several times the MWs of those currently in
operation, including Magma's Salton Sea Expansion and Malitbog construction
projects (as described below). 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 and
construction is contingent upon, among other things, negotiation on terms
satisfactory to the Company or Magma of engineering, construction, fuel
supply and power sales contracts with other project participants, receipt of
required governmental permits and consents and timely implementation and
satisfactory completion of construction. Further, there can be no assurance
that the Company and Magma, which are substantially leveraged, will obtain
access to the substantial debt and equity capital required to continue to
develop and construct electric power projects or to refinance projects. The
future growth of the Company and Magma is dependent, in large part, upon the
demand for significant amounts of additional electrical generating capacity
and their 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 or Magma's efforts generally, will be successful. Any
material unremedied delay in, or unsatisfactory completion of, construction
of the Company's or Magma's projects could, under certain circumstances, have
an adverse effect on the Company's or Magma's results of operations and on
Magma's ability to make payments of principal of and interest on the Secured
Magma Note, which could, in turn, affect the Company's ability to meet its
obligations, including the payment of principal of, premium, if any and
interest on the Notes. No assurances can be given that the Company will
develop any future projects or that, if developed, such projects will be
developed through Magma or Magma's subsidiaries. In addition, the Indenture
contains certain restrictions on the ability of Magma to make equity
investments in the development of new projects. See "Description of the
Notes--Certain Covenants--Limitation on Business and New Magma Project
Developments."
DEVELOPMENT UNCERTAINTY OUTSIDE THE UNITED STATES. The Company has three
projects under construction outside the United States representing an
aggregate net capacity of 500 MW of electric generating capacity of which the
Company's aggregate net ownership interest is 409 MW and a number of projects
under award outside the United States. Of these construction projects, the
216 MW Malitbog geothermal project in the Philippines is wholly owned by
Magma. The financing and development of projects outside the United States
entail significant political and financial uncertainties (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 in respect of or material impairment of the value of the
project being developed, which the Company and Magma may not be capable of
fully insuring against. The uncertainty of the legal environment in certain
foreign countries in which the Company and Magma are developing and
constructing and in which the Company may develop, construct or acquire
projects could make it more difficult for the Company and Magma to enforce
their respective 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 and Magma's international projects may,
in certain cases, be terminated by the applicable foreign governments.
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
14
<PAGE>
sustainable output of geothermal reservoirs 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. In addition, geothermal power production poses
unusual risks of seismic activity. Accordingly, 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.
The success of a geothermal project depends on the quality of the
geothermal resource and operational factors relating to the extraction of the
geothermal fluids involved in such project. The quality of a geothermal
resource is affected by a number of factors, including the size of the
reservoir, the temperature and pressure of the geothermal fluids in such
reservoir, the depth and capacity of the production and injection wells, the
amount of dissolved solids and noncondensible gases contained in such
geothermal fluids and the permeability of the subsurface rock formations
containing such geothermal resource, including the presence, extent and
location of fractures in such rocks. The quality of a geothermal resource may
decline as a result of a number of factors, including the intrusion of
lower-temperature fluid into the producing zone. An incorrect estimate by the
Company or Magma of the quality of geothermal resource, or a decline in such
quality, could have a material adverse effect on the Company's or Magma's
results of operations.
In addition, both the cost of operations and the operating performance of
geothermal power plants may be adversely affected by a variety of operating
factors. Production and injection wells can require frequent maintenance or
replacement. Corrosion caused by high-temperature and high-salinity
geothermal fluids may compel the replacement or repair of certain equipment,
vessels or pipelines. New production and injection wells may be required for
the maintenance of current operating levels, thereby requiring substantial
capital expenditures.
COMPETITION. The international power production market is characterized by
numerous strong and capable competitors, many of which have more extensive
and more diversified developmental or operating experience (including
international experience) and greater financial resources than the Company.
Many of these competitors also compete in the domestic market. Further, in
recent years, the domestic power production industry has been characterized
by strong and increasing competition with respect to the industry's efforts
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" solicitations to satisfy new capacity demands. In the
domestic market, the Energy Policy Act of 1992 is expected to increase
competition.
PRESENT DEPENDENCE ON LARGE CUSTOMER. The Company and Magma, currently
rely on long-term SO4 Agreements with a single customer, SCE, to generate
substantially all of their operating revenues. Any material failure by SCE to
fulfill its contractual obligations under any of such contracts is likely to
have a material adverse effect on the Company's or Magma's results of
operations.
CONTRACT RISKS; POTENTIAL NEGATIVE IMPACT OF AVOIDED COST PRICING. Each of
the Company's SO4 Agreements provides for both capacity payments and energy
payments for a term of between 20 and 30 years. During the first ten years of
the term of each SO4 Agreement, energy payments are based on a pre-set
schedule. Thereafter, while the basis for the capacity payment remains the
same, the required energy payment is equal to SCE's Avoided Cost of Energy,
as determined by the California Public Utility Commission ("CPUC"). The
initial ten-year period expires in August 1997 for the Company's Navy I
Project, March 1999 for its BLM Project and January 2000 for its Navy II
Project. Such ten-year period expires in 1996 with respect to one of Magma's
projects (as hereinafter described), in 1999 for three of its projects and in
2000 for the remaining two projects that operate under SO4 Agreements.
Estimates of SCE's future Avoided Cost of Energy vary substantially in any
given year. The Company cannot predict the likely level of Avoided Cost of
Energy prices under its SO4 Agreements with SCE at the expiration of the
fixed-price periods. SCE's Avoided Cost of Energy as determined by the CPUC
is currently substantially below the forecast energy prices under the
Company's respective SO4 Agreements agreed to by SCE at the time such
agreements were executed and is expected to remain so
15
<PAGE>
over at least the near term. For example, for April 1995, the time
period-weighted average of SCE's Avoided Cost of Energy was 2 cents per kWh,
compared to the time period-weighted average for the first quarter of 1995
selling prices under the Company's respective SO4 Agreements for the energy
component of approximately 11.9 cents and 10.8 cents per kWh, for the Company
and Magma, respectively. Thus, the revenues generated by each of the
Company's and Magma's facilities operating under SO4 Agreements are likely to
decline significantly after the expiration of the fixed-price period.
SUBSTANTIAL LEVERAGE. Each of the Company and Magma is substantially
leveraged. As of March 31, 1995, the Company's total consolidated
indebtedness was $1,544.9 million, its total consolidated assets were
$2,339.8 million and its total stockholders' equity was $485.4 million. As of
such date, on a pro forma basis, after giving effect to the consummation of
the Offering and the Funding Corporation Offering and the application of the
net proceeds therefrom, the Company's total consolidated indebtedness
(including indebtedness of Magma) would have been $1,618.1 million (excluding
deferred income), its total consolidated assets would have been $2,414.8
million and its stockholders' equity would have been $485.4 million. As of
March 31, 1995, Magma's total consolidated indebtedness was $664.9 million,
its total consolidated assets were $1,387.9 million and its total
stockholder's equity was $502.7 million. As of such date, on a pro forma
basis, after giving effect to the consummation of the Offering and the
Funding Corporation Offering and the application of the net proceeds
therefrom, Magma's total consolidated indebtedness would have been $738.1
million (excluding deferred income), its total consolidated assets would have
been $1,462.9 million and its stockholder's equity would have been $502.7
million. The Company's substantial level of debt presents the risk that the
Company might not generate sufficient cash to service the Company's
indebtedness or that its leveraged capital structure could limit its ability
to finance the acquisition and development of additional projects, to compete
effectively or to operate successfully under adverse economic conditions. See
"Prospectus Summary--Summary Pro Forma Condensed Combined Unaudited Financial
Information," "--Magma Summary Consolidated Historical Financial and
Operating Data," "--CECI Summary Consolidated Historical Financial and
Operating Data" and "Capitalization."
IMPACT OF ENVIRONMENTAL, ENERGY AND OTHER REGULATIONS. The Company and
Magma are subject to a number of environmental laws and regulations affecting
many aspects of their present and future operations, including the
construction or permitting of new facilities, the drilling and operation of
new wells and the disposal of various geothermal solids. Such laws and
regulations generally require the Company and Magma to obtain and comply with
a wide variety of licenses, permits and other approvals. 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. The Company and Magma also remain subject to a varied and complex
body of environmental and energy 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 and Magma which could have an
adverse impact on their operations. In particular, the independent power
market in the United States is dependent on the existing energy regulatory
structure, including PURPA (as defined) and its implementation by utility
commissions in the various states. The structure of such federal and state
energy regulations have in the past, and may in the future, be the subject of
various challenges and restructuring proposals by utilities and other
industry participants. The implementation of regulatory changes in response
to such changes or restructuring proposals, or otherwise imposing more
comprehensive or stringent requirements on the Company and Magma, which would
result in increased compliance costs, could have a material adverse effect on
the Company's and Magma's results of operations.
CERTAIN CONSIDERATIONS RELATED TO THE COLLATERAL. There can be no
assurance that, in the event the Trustee were to exercise remedies under the
Indenture, the proceeds of the sale of any of the Collateral securing the
Notes pursuant to the Indenture and the related security documents (described
herein under "The Collateral" and "Description of the Notes--Security") would
be sufficient to satisfy any payment of the Notes. The Capital Stock of
Magma, which is assigned and pledged to the Trustee for its benefit and
16
<PAGE>
the benefit of the holders of the Notes, has not been registered under the
Securities Act or any state securities laws and, unless so registered, such
Capital Stock may not be offered or sold by the Trustee in exercising
remedies under the Indenture except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In addition, the ability of the
holders of Notes to realize upon the Collateral may be subject to certain
bankruptcy law limitations in the event of a bankruptcy. The Notes are
limited recourse obligations of CECI and are secured only by the Collateral.
Recourse on the Notes will be limited to the Collateral, the Magma Note
Recourse Assets and general assets of the Company in an amount equal to the
Restricted Payment Recourse Amount. Holders of the Notes will have no other
recourse to the general assets of the Company. Accordingly, any deficiency
claim may not be brought against CECI, except with respect to the Collateral,
the Magma Note Recourse Assets and general assets of the Company in an amount
equal to the Restricted Payment Recourse Amount.
CECI provides Magma with corporate level managerial, financial, accounting
and other administrative services. There can be no assurance that CECI would
continue to provide such services in the event the Trustee, on behalf of the
holders of the Notes, were to foreclose on the Collateral upon an "Event of
Default." Any interruption or termination of Magma's arrangements with CECI
could have a material adverse effect on Magma's financial condition and
results of operations and on the value of the Collateral.
HOLDING COMPANY STRUCTURE. CECI is a holding company which derives
substantially all of its operating income from its subsidiaries' and joint
ventures' ownership interests in the projects owned and operated by Magma,
the Coso Project and through other project subsidiaries. Magma is similarly a
holding company which derives substantially all of its operating income from
its subsidiaries' and joint ventures' operations. CECI expects that its
future development efforts, including any development through Magma, will be
similarly structured to involve operating subsidiaries, joint ventures and
partnerships.
Although the Notes are secured by the Collateral, 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. Payments of principal of, premium, if any, and interest on the Secured
Magma Note are not restricted and are intended to provide the Company with
the funds to make corresponding payments on the Notes. However, the
availability of distributions from the Company's and Magma's projects are
subject to the satisfaction of various covenants and conditions contained in
the applicable subsidiaries' and joint ventures' financing documents,
including the documents governing the Funding Corporation Securities, and in
the partnership agreements relating to the Partnership Plants. Furthermore,
CECI 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 CECI and Magma. The Company's subsidiaries, partnerships and
joint ventures are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Notes or to make any funds available therefor, whether by dividends, loans or
other payments, and do not guarantee the payment of interest on or principal
of the Notes. Any right of the Company to receive any assets of any of its
subsidiaries or other affiliates upon any liquidation or reorganization of
the Company (and the consequent right of the holders of the Notes to
participate in the distribution of, or to realize proceeds from, those
assets) will be effectively subordinated to the claims of any such
subsidiary's or other affiliates' creditors (including trade creditors and
holders of debt issued by such subsidiary or other affiliate). As of March
31, 1995, on a pro forma basis, after giving effect to the consummation of
the Offering and the Funding Corporation Offering and the application of the
net proceeds therefrom, there would have been approximately $1,255.0 million
of indebtedness and other liabilities, which represented CECI's proportionate
share of joint venture and subsidiary debt, which would be effectively senior
to the Notes, substantially all of which would have been secured by the
assets of such joint ventures and subsidiaries. See "The Funding Corporation
Offering," "Business--Domestic Projects--Other Company Domestic Projects in
Operation--The Coso Project" and "Description of the Notes--Ranking."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF NOTE PRICE. Prior to the
Offering, there has been no public market for the Notes. The Notes have been
approved for listing on the NYSE, subject to notice of
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<PAGE>
issuance. There can be no assurance, however, that an active trading market
for the Notes will develop or be sustained. If such a market were to develop,
the Notes could trade at prices that may be higher or lower than their
initial offering price depending upon many factors, including prevailing
interest rates, the Company's and Magma's operating results and the markets
for similar securities. 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.
THE COLLATERAL
DESCRIPTION OF THE COLLATERAL
Pursuant to the Indenture the Company will assign and pledge and cause to
be assigned and pledged to the Trustee (as defined) for its benefit and the
benefit of the holders of the Notes, a security interest in (i) all of the
Capital Stock of Magma now owned or hereafter acquired by the Company or any
of its subsidiaries, (ii) all Magma Equity Offering Pledged Shares (as
defined), if any and (iii) all dividends, cash, instruments and other
property and distributions and proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any of
the foregoing (all such stock and other property referred to in clauses (i),
(ii) and (iii), collectively, the "Collateral"). The holders of the Notes
will have no recourse to any assets of the Company, other than the
Collateral, the Magma Note Recourse Assets and general assets of the Company
in an amount equal to the Restricted Payment Recourse Amount. In addition,
Holders will not have a security interest in any assets of the Company, other
than the Collateral.
The security interest in the Collateral will be a first priority security
interest. However, absent any Default (as defined), (i) the Company and each
Magma Equity Holder (as defined) will be able to vote, as each sees fit in
its sole discretion, the Capital Stock of Magma it pledged, provided that no
vote may be cast, and no consent, waiver or ratification given or action
taken, which would be inconsistent with or violate any provision of the
Indenture, the Notes, the Secured Magma Note or any pledge agreement pursuant
to which shares of Capital Stock of Magma are pledged for the benefit of the
Trustee and the holders of the Notes (the "Pledge Agreements") and (ii) the
security interest in the dividends, cash, instruments or other property and
distributions paid or made from time to time in respect of the shares of
Capital Stock of Magma pledged under the Indenture will be automatically
released upon receipt by the pledgor of such dividends, cash, instruments or
other property and distributions.
The Company will not permit Magma to issue to any Person, create, assume
or otherwise cause or suffer to exist any Capital Stock unless (a)(i) such
Capital Stock is issued in a Magma Equity Offering, (ii) all of the net
proceeds therefrom are used to redeem the Notes as set forth under
"Description of the Notes--Redemption Upon Magma Equity Offering," (iii) (x)
the use of all of the net proceeds from such sale of Magma Capital Stock to
redeem the Notes shall not cause the aggregate principal amount of the Notes
redeemed with the net proceeds of all sales of Magma Capital Stock, together
with the aggregate principal amount of Notes redeemed with the net proceeds
of all Company Equity Offerings, to exceed 35% of the principal amount of the
Notes originally issued and (y) immediately following each such redemption,
at least $130 million principal amount of the Notes remain outstanding and
(iv) if any "person" or "group" (as such terms are used in Section 13(d) of
the Exchange Act) would acquire in such Magma Equity Offering 10% or more of
the Capital Stock of Magma, the Company, as a condition to delivering such
shares of Capital Stock to such person or group, will require such person or
group to pledge such Capital Stock to secure the Notes or (b) Magma issues
such Capital Stock to the Company or a subsidiary of the Company for fair
market value and such Capital Stock is pledged to secure the Notes.
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<PAGE>
USE OF PROCEEDS
The proceeds of the Offering of approximately $200 million will be loaned
by CECI to Magma in exchange for the Secured Magma Note. Magma intends to
immediately use such proceeds together with approximately $253 million of the
net proceeds of the Funding Corporation Offering and approximately $39
million from Magma's general corporate funds to repay the funds borrowed from
CECI in connection with the Magma Acquisition and simultaneously therewith
CECI will repay the Merger Facilities.
Concurrently with the Offering, the Funding Corporation is expected to
issue and sell the Funding Corporation Securities. The consummation of the
Offering is conditioned upon the repayment in full of the Merger Facilities.
See "The Funding Corporation Offering," "The Magma Acquisition" and
"Underwriting." The Merger Facilities are described under "The Magma
Acquisition."
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<PAGE>
THE FUNDING CORPORATION OFFERING
Concurrently with the Offering, the Funding Corporation, a special purpose
corporation and a wholly owned subsidiary of Magma, is expected to issue and
sell an aggregate of $475 million principal amount of its senior secured debt
securities in one or more series with an initial average life to maturity of
approximately seven years and a 15-year final maturity. The net proceeds from
the Funding Corporation Offering will be used for the following purposes: (i)
approximately $253 million to repay the Merger Facilities; (ii) approximately
$102 million to refinance existing indebtedness of Salton Sea Brine
Processing L.P. ("Salton Sea Brine") and Salton Sea Power Generation L.P.
(collectively with Salton Sea Brine and Fish Lake Power Company, the "Salton
Sea Guarantors"); and (iii) approximately $115 million to finance the
completion of construction of the Salton Sea Expansion Project . The Funding
Corporation Securities will be non-recourse to CECI and Magma. The Funding
Corporation Securities will be guaranteed (the "Guarantees") on a joint and
several basis by the Salton Sea Guarantors, and to the extent of available
cash flow, on a joint and several basis by Vulcan Power Company ("VPC") and
California Energy Operating Company ("CEOC" and, together with VPC, the
"Partnership Guarantors") and severally by Salton Sea Royalty Company (the
"Royalty Guarantor" and together with the Salton Sea Guarantors and
Partnership Guarantors, the "Guarantors").
The Funding Corporation Securities will be secured by a pledge of all of
the capital stock of the Funding Corporation. The Guarantees will be secured
(i) in the case of the Guarantee issued by the Salton Sea Guarantors, by a
lien on substantially all of the assets of the Salton Sea Guarantors, a
pledge of equity interests and an assignment of certain payments, and (ii) in
the case of the Partnership Guarantors and the Royalty Guarantor, by a lien
on substantially all of the revenues of such Guarantors and a pledge of
stock. The Royalty Guarantor has received an assignment of certain royalties
and other distribution rights of Magma. The Indenture for the Funding
Corporation Securities (the "Funding Corporation Indenture") generally
contains customary covenants, representations and redemption and default
provisions for such a project financing.
The terms of the Funding Corporation Securities will restrict the ability
of the Guarantors to pay dividends or make any other distributions to Magma
or CECI. If distributions are not made by the Guarantors, then the revenues
derived by the Guarantors, including all of the revenues derived from the
Salton Sea Projects and the Salton Sea Expansion Project, will not be
available to Magma or CECI and may not be used to make payments on the Notes.
Distributions are subject to prior satisfaction of certain conditions
including, but not limited to (i) no default or event of default under the
Funding Corporation Indenture has occurred; (ii) the meeting of a debt
service coverage ratio by the Guarantors, on a combined basis of 1.4 to 1
until 2000 and 1.5 to 1 thereafter; and (iii) for distributions after January
1, 1997, substantial completion (as defined in the Funding Corporation
Indenture) of the Salton Sea Expansion Project shall have occurred; provided
that if such condition is not satisfied (or if, prior to January 1, 1997, the
Salton Sea Expansion Project shall have been abandoned) no distributions
shall be made unless and until (A) substantial completion of the Salton Sea
Expansion Project has occurred prior to January 1, 1998 or (B) (1) a
specified portion of the Funding Corporation Securities are redeemed or (2)
the Rating Agencies confirm that the Funding Corporation Securities will
maintain their investment grade rating.
In connection with the Funding Corporation Offering, CECI has agreed to
fund or cause its subsidiaries or affiliates to fund all construction costs,
if any, in excess of the $135 million engineering, procurement, construction
and resource development budget for the Salton Sea Expansion Project, which
costs are required to be incurred to cause substantial completion of the
Salton Sea Expansion Project to occur before January 1, 1998. Such CECI
commitment terminates on January 1, 1998 or earlier under certain
circumstances involving redemption of Funding Corporation Securities or
confirmation by the Rating Agencies of their investment grade ratings.
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<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalizations of the
Company and Magma, at March 31, 1995 and as adjusted to give effect to the
consummation of the Offering and the Funding Corporation Offering and the
application of the proceeds therefrom. The capitalization of Magma reflects
its financial position on a purchase accounting basis after giving effect to
the Magma Acquisition. (See the Company's Form 10-Q for the quarter ended
March 31, 1995, which is incorporated by reference in this Prospectus.) The
following table should be read in conjunction with the other pro forma
financial information contained in this Prospectus and the respective
consolidated financial statements and notes thereto of the Company and Magma
incorporated by reference herein.
<TABLE>
<CAPTION>
MAGMA AS THE COMPANY
MAGMA(1) ADJUSTED THE COMPANY AS ADJUSTED
------------ ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
INDEBTEDNESS: (2)
Merger Facilities ................................... $ -- $ -- $ 500,000 $ --
Merger loan ......................................... 500,000 -- -- --
Funding Corporation Securities ...................... -- 475,000 -- 475,000
Limited recourse senior secured notes ............... -- -- -- 200,000
Secured Magma Note .................................. -- 200,000 -- --
Construction loans .................................. -- -- 53,028 53,028
Project loans ....................................... 164,852 63,080 384,133 282,361
Senior discount notes ............................... -- -- 442,879 442,879
Convertible subordinated debentures ................. -- -- 100,000 100,000
Convertible debt .................................... -- -- 64,850 64,850
------------ ------------- ------------- -------------
Total indebtedness .................................. 664,852 738,080 1,544,890 1,618,118
STOCKHOLDERS' EQUITY:
Preferred stock--Series A of no par value;
authorized 2,000 shares ............................ -- -- -- --
Magma Preferred Stock of $0.10 par value; authorized
1,000 shares ....................................... -- -- -- --
Common stock of $0.0675 par value; authorized 80,000
shares; outstanding 49,934 shares (3) .............. -- -- 3,378 3,378
Magma common stock of $0.01 par value; authorized
30,000 shares; outstanding one hundred shares ..... -- -- -- --
Additional paid-in capital .......................... 495,509 495,509 332,358 332,358
Retained earnings ................................... 7,207 7,207 151,257 151,257
Less treasury stock--102 shares at cost ............. -- -- (1,590) (1,590)
------------ ------------- ------------- -------------
Total stockholders' equity .......................... 502,716 502,716 485,403 485,403
------------ ------------- ------------- -------------
Total capitalization ................................ $1,167,568 $1,240,796 $2,030,293 $2,103,521
============ ============= ============= =============
<FN>
- ---------------
(1) The capitalization of Magma reflects its financial position on a
purchase accounting basis after giving effect to the Magma
Acquisition.
(2) See Notes 4, 5, 8 and 10 of Notes to the Consolidated Financial
Statements included in the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995, incorporated by reference herein.
(3) Does not include 17.6 million shares of Common Stock reserved at March
31, 1995 for issuance upon exercise of outstanding options and for shares
issuable upon the conversion of the convertible subordinated debentures
and the convertible debt. See Note 5 of Notes to the Consolidated
Financial Statements included in the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995, incorporated by reference
herein.
</TABLE>
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THE MAGMA ACQUISITION
On December 5, 1994, the Company and its subsidiary, CE Acquisition
Company, Inc. ("CE Sub"), signed a definitive Agreement and Plan of Merger
with Magma. Pursuant to such agreement, the Company completed a cash tender
offer for approximately 51% of Magma's common stock and assumed control of
Magma on January 10, 1995. On February 24, 1995, CE Sub merged with and into
Magma with Magma as the surviving company and Magma became a wholly owned
subsidiary of the Company. A total of approximately $957 million was required
to complete the Magma Acquisition, of which $500 million was borrowed under
the Merger Facilities, approximately $300 million was obtained from the
issuance and sale of 18,170,000 shares of the Company's Common Stock,
including the sale of 1,500,000 over-allotment shares and 1,500,000 shares
sold directly to Peter Kiewit Sons', Inc. ("PKS"), in a public offering that
was consummated on February 24, 1995 (the "Common Stock Offering"), and the
remainder was from the general corporate funds of the Company.
The Merger Facilities consist of (i) a $350 million principal amount term
loan maturing on October 31, 2000 and amortized in semi-annual payments which
commenced on April 30, 1995 ("Term Loan A"), (ii) a $75 million principal
amount term loan maturing on October 31, 2001 to be amortized in semi-annual
payments beginning April 30, 2001 ("Term Loan B") and (iii) a $75 million
principal amount term loan maturing on October 31, 2002 to be amortized in
semi-annual payments beginning April 30, 2002 ("Term Loan C"). As of April
30, 1995, the outstanding principal amount on Term Loan A, Term Loan B and
Term Loan C was $342 million, $75 million and $75 million, respectively.
Credit Suisse is the agent bank in connection with the Merger Facilities.
Loans under the Merger Facilities were made to the Company on a non-recourse
basis, and the Company loaned the proceeds of such loans to Magma in exchange
for a secured note. Loans under the Merger Facilities are secured by an
assignment and pledge by the Company of such note and 100% of the capital
stock of Magma.
The Company may, subject to certain terms and conditions, elect to have
the term loans bear interest based on either the Eurodollar Rate or the Base
Rate (as defined in the Merger Facilities). Interest on the term loans is
payable at spreads of 2.5% above the Eurodollar Rate or 1.5% above the Base
Rate for Term Loan A and 3.5% above the Eurodollar Rate or 2.5% above the
Base Rate for Term Loan B and Term Loan C. As of March 31, 1995, Term Loan A
bore interest at the rate of 8.7% per annum and Term Loan B and Term Loan C
each bore interest at the rate of 9.7% per annum.
The Offering is expected to be consummated concurrently with the Funding
Corporation Offering. The consummation of the Offering is conditioned upon
the repayment in full of the Merger Facilities and the release of the lien on
all of the collateral securing the Merger Facilities.
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<PAGE>
BUSINESS
THE COMPANY
California Energy Company, Inc. was founded in 1971 and 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.
With the completion of the Magma Acquisition, the Company became the
largest independent geothermal power producer in the world (on the basis of
the Company's estimate of the aggregate MW of electric generating capacity in
operation and capacity under construction). The Company has an aggregate net
ownership interest of 358 MW of electric generating capacity in power
production facilities in the United States having an aggregate net capacity
of 575 MW. All of these facilities are managed and operated by the Company
and are principally located in Southern California. In addition to the
electricity sales revenue earned from its net ownership position in such
facilities, the Company receives significant fee and royalty income from
operating certain of such plants and certain power plants which are owned by
unaffiliated third parties and from managing the production from the
geothermal resource for such facilities. Additionally, the Company has an
aggregate net ownership interest of 409 MW of electric generating capacity in
three geothermal power projects in the Philippines, having an aggregate net
capacity of 500 MW, which projects are financed and under construction, and
has a net ownership interest of 40 MW of electric generating capacity in an
additional project having a net capacity of 40 MW, which is under
construction in California. The Company is also developing seven additional
projects with executed power sales contracts or awards in the Philippines,
Indonesia and the United States. The Company is expected to have an
approximate net ownership interest of 899 MW in these development projects
(which represent an aggregate net capacity of 1,553 MW of additional
potential electric generating capacity). Substantial contingencies exist with
respect to development projects, including, without limitation, the need to
obtain financing, permits and licenses and the satisfactory completion of
construction.
MAGMA
Magma's domestic activities are currently centered in the Imperial Valley
of California and primarily consist of: (i) the operation of the Salton Sea
Project Plants with a 228 MW net capacity, (ii) the construction of the
Salton Sea Expansion with a 40 MW net capacity, and (iii) the potential
development of the BRPU Project with a 163 MW net capacity. Magma's
international activities currently consist of the construction of the
Malitbog Facility in the Philippines with a 216 MW net capacity. Four of the
Salton Sea Project Plants were developed by Magma and are owned by the
Partnerships in which Magma is the managing general partner and operator and
owns 50% interests. The remaining 50% interests in the Partnerships are owned
by subsidiaries of Mission Energy, which is an affiliate of SCE. The
remaining three Salton Sea Project Plants are indirectly wholly owned by
Magma and were purchased on March 31, 1993 from Union Oil Company of
California. The Salton Sea Expansion Project is also indirectly wholly owned
by Magma.
Each Partnership Plant sells its electricity to SCE under an SO4
Agreement. Each contract provides for capacity payments fixed at a constant
dollar amount over the 30-year term thereof and energy payments set at an
annually escalating rate for the first 10 years of the term and thereafter
equal to SCE's Avoided Cost of Energy, calculated on the basis of SCE's
marginal cost of generating energy. Magma and its subsidiaries also receive
royalties senior to each project's debt service for providing geothermal
resources to the Partnership Plants as well as a special priority partnership
distribution and a bonus if annual capacity exceeds certain specified
amounts. In addition, Magma (or a subsidiary) is reimbursed by, and receives
fees from, each of the Partnership Plants for providing operating and
maintenance services and receives fees for providing administrative services.
Magma consolidates one-half of the operating results of each Partnership
Plant in its financial statements. Magma also receives royalty income from
the Mammoth and East Mesa Plants, which are owned by unaffiliated third
parties.
Two of the Magma Plants sell their electricity to SCE under SO4 Agreements
which provide for fixed capacity and capacity bonus payments over the 30-year
term thereof and for energy payments which are fixed and do not escalate over
the first 10 years of the term and which are thereafter equal to SCE's
Avoided Cost of Energy. The third Magma Plant sells (and the Salton Sea Unit
IV is expected to sell) its
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<PAGE>
electricity to SCE under a negotiated agreement that provides for capacity
and energy payments that adjust quarterly over the 30-year term of the
contract based upon certain inflation based indices.
The Indenture contains certain restrictions on the ability of Magma to
make equity investments in the development of new projects unless the funds
for such investments are obtained from the Company or other external sources.
See "Description of the Notes--Certain Covenants--Limitation on Business and
New Magma Project Developments."
REASONS FOR THE MAGMA ACQUISITION
The Company believes that Magma is an excellent strategic fit and that the
acquisition of Magma will create significant benefits, including:
O EXPANSION AND ENHANCEMENT OF DEVELOPMENT EFFORTS
Development of new opportunities, particularly internationally, is a key
component of the Company's strategy. Since 1990 and prior to the Magma
Acquisition, the Company and Magma have each pursued international
development opportunities, primarily in Southeast Asia. By pursuing
additional development opportunities rather than competing with Magma for the
same opportunities, the Company expects to expand its development efforts to
cover additional projects and thereby more effectively capitalize on the
numerous opportunities in the growing international independent power market.
Furthermore, the Company and Magma now have the technology of both
companies available to them. The Company owns production technology
compatible with the relatively low mineral content of its wells at the Coso
project, and Magma owns technology compatible with the high levels of mineral
precipitates found in the geothermal resource at the Salton Sea Project
Plants. The Company expects that access to these technologies will enable it
to compete for new power development projects from geothermal reservoirs
encompassing a wide range of geothermal resource characteristics.
O BENEFITS OF INCREASED SIZE
The Company believes that size is an important factor in determining the
success of an independent power producer. This view is based on the Company's
belief that potential customers consider both the price of power and the
provider's capacity to fulfill its obligations as primary factors in the
selection of power suppliers. The Company's expanded size and capabilities
are expected to further enhance the Company's reputation and credibility with
sovereign governments and state utility customers and therefore enhance its
ability to successfully compete for new projects. Following the Magma
Acquisition, the Company has over $2 billion of total assets and an aggregate
net ownership interest of 1,706 MW of electric generating capacity in
projects in operation, under construction or in development, which projects
have an aggregate net generating capacity of 2,668 MW. The Company also
believes that the acquisition of Magma creates the opportunity to reduce the
Company's average cost per kWh by expanding its asset base, without
materially expanding its cost structure. This is expected to allow the
Company to be more price competitive with other geothermal power producers
and traditional fossil fuel power plants, which the Company believes will be
its primary competition in the future.
O OPERATIONAL AND ADMINISTRATIVE COST SAVINGS
Based in part on its experience in restructuring the operations of the
Company since 1991 and its experience with Magma in the first quarter of
1995, management of the Company believes that it can achieve significant cost
savings upon the combination of Magma and the Company. Through the
implementation of the Company's existing organizational structure, management
policies and cost controls, the Company presently expects that the cost of
duplicate functions will be substantially eliminated and that the
productivity of its combined operating and administrative staff will be
significantly increased. Based on its efforts to date, the Company believes
that it has implemented various measures which, for the first 12 months of
operations following consummation of the Merger, are expected to result in a
reduction of approximately 0.5 cents per kWh in the costs of Magma's
operations.
O DIVERSIFICATION IN SOURCES OF REVENUE AND OPERATIONS
The combination of the Company's and Magma's operations increased the
Company's sources of revenue and increased the number of operating sites
(including projects under construction) from eight
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<PAGE>
to 16. The Company believes that the resulting diversification in sources of
revenue and operations can be expected to reduce the risk profile of the
Company, thereby enhancing its overall credit position and improving its
access to capital in relation to competitors with more concentrated sources
of revenue and operations.
GEOTHERMAL ENERGY
Geothermal energy is a clean, renewable and generally sustainable energy
source that releases significantly lower levels of emissions than result from
energy generation based on the burning of fossil fuels. Geothermal energy is
derived from the natural heat of the earth when water comes sufficiently
close to hot molten rock to heat the water to temperatures of 400 degrees
Fahrenheit or more. The heated water then ascends naturally toward the
surface of the earth where it can be extracted by drilling geothermal wells.
The energy necessary to operate a geothermal power plant is typically
obtained from several such wells, which are drilled using established
technology similar to that employed in the oil and gas industry.
GEOTHERMAL ENERGY
#############################################################################
IMAGE OMITTED
[Schematic representing Geothermal Energy]
#############################################################################
Geothermal production wells are normally located within approximately one
to two miles of the power plant as geothermal fluids cannot be transported
economically over longer distances. From the well heads, the heated fluid
flows through pipelines to a series of separators where it is separated into
water, brine and steam. The steam is passed through a turbine which drives a
generator to generate electricity. Once the steam has passed through the
turbine, it is then cooled and condensed back into water which, along with
any brine, is returned to the geothermal reservoir via injection wells.
Geothermal plants in the United States are eligible to be qualifying
facilities ("QFs") under the Public Utility Regulatory Policies Act of 1978
("PURPA"), which provides for certain beneficial Federal regulatory
treatment. The
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<PAGE>
geothermal reservoir is a renewable source of energy if natural ground water
sources and re-injection of extracted geothermal fluids are adequate over the
long term to replenish the geothermal reservoir after the withdrawal of
geothermal fluids.
The generation of electric power from geothermal resources has certain
advantages when compared to other methods of electric power generation.
Geothermal energy facilities produce significantly less emissions than fossil
fuel power plants. Geothermal energy facilities typically have higher capital
costs but tend to have significantly lower variable costs than fossil fuel
based power plants. The utilization of geothermal power is preferred by
certain governments so as to minimize the import, or maximize the export, of
hydrocarbons. Geothermal power facilities also enjoy certain tax benefits in
the United States.
GEOTHERMAL RESOURCE--"RING OF FIRE"
Geothermal energy is most prevalent where the different sections or plates
of the Earth's crust meet. Productive geothermal resources are found
throughout the Pacific Rim (the so-called "Ring of Fire"), including the
western United States, Latin America, Hawaii, Indonesia, the Philippines,
Malaysia and New Zealand. These areas are experiencing high rates of
population growth and increased demand for new electric generating capacity.
AREAS OF POTENTIAL GEOTHERMAL ACTIVITY
#############################################################################
IMAGE OMITTED
[Map depicting Areas of Potential Geothermal Activity]
#############################################################################
THE GLOBAL POWER MARKET
The opportunity for independent power generation has expanded from a
United States market consisting of cogeneration and small power production
projects to a global competitive market for power generation. Many foreign
countries have privatization programs patterned after developments in the
independent power market in the United States.
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
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<PAGE>
companies as well as to lessen reliance on imported fuels. According to the
Utility Data Institute, independent power producers were responsible for the
installation of approximately 30,000 MW, or 50%, of the U.S. electric
generation capacity which has been placed in service since 1988.
As the size of the 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 through 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. As a result of this increased competition, it
may be difficult to obtain a power sales agreement for a proposed project in
the United States, and the terms and conditions of any such contract may be
less favorable than those in prior agreements.
Large amounts of new electric power generating capacity are required in
developing countries. The movement toward privatization in some developing
countries has created significant new markets outside the United States. In
1990, the World Bank estimated that developing countries will need
approximately 380,000 MW of new power generating capacity through the end of
the decade. The need for such rapid expansion has caused many countries to
select private power development as their only practical alternative and to
restructure their legislative and regulatory systems 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 attractive long-term power
contracts. The Company intends to take advantage of opportunities in these
new markets and to develop, construct and acquire power generation projects
outside the United States.
STRATEGY
Domestically, the Company is focusing on market opportunities in which it
believes it has relative competitive advantages due to its geotechnical,
project management and operating expertise. In addition, the Company expects
to continue diversification into other environmentally responsible sources of
energy primarily through selected acquisitions of partially developed or
existing power generating projects and contracts.
The Company presently believes that the international independent power
market holds the majority of new opportunities for financially attractive
private power development in the next several years, in large part because
the demand for new generating capacity is growing more rapidly in emerging
nations than in the United States. In developing its international strategy,
the Company pursues 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 PKS or local partners are expected to provide it
with a competitive advantage. The Company has financed and has under
construction three projects representing an aggregate of 409 MW of net
ownership of electric generating capacity in the Philippines. In addition,
the Company is currently pursuing a number of other electric power project
opportunities in countries, including the Philippines and Indonesia. These
countries are ideally suited for the Company to develop, finance and operate
power projects successfully because of their excellent population
demographics, extensive geothermal resources and stated commitments to the
development of private power programs. The Company's development efforts
include both so-called "greenfield" development as well as the acquisition of
or participation in the joint venture development of projects which are under
development or already operating. In greenfield development, the Company
attempts to negotiate 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.
In pursuing its international strategy, the Company intends to own a
significant equity interest in, and to operate, the projects it develops or
acquires. In order to compete more effectively internationally, the Company's
strategy is to attempt to diversify its project portfolio, extend its future
equity funding capacity through joint ventures and utilize fixed-price,
turnkey construction contracts with contractors experienced
27
<PAGE>
in the construction of power plants or other infrastructure facilities. The
Company also believes that it is important in foreign transactions to work
with local partners who are knowledgeable concerning local culture, politics
and commercial practices and who provide a visible local presence and local
project representation.
With respect to emerging market projects, the Company's policy is to
attempt to minimize currency risks, including the devaluation of local
currencies versus the U.S. dollar, as well as the risk of availability of
hard currency convertibility. To date, all of the Company's executed power
sales contracts contain provisions which index the Company's returns to U.S.
dollars or provide for the payment of capacity payments in U.S. dollars. To
the extent possible, the Company attempts to secure "political risk"
insurance from the Overseas Private Investment Corporation ("OPIC") or
similar multilateral agencies to limit its risk in emerging market countries.
In addition, the Company endeavors to involve the World Bank, export credit
agencies or multilateral funding sources in its international project
financings. The Company believes multilateral lending agencies and foreign
source financing and political risk insurance are available for certain
international private power projects, particularly those utilizing indigenous
fuel sources in renewable or otherwise environmentally responsible generating
facilities. The Company believes that the involvement of these institutions
will enhance an international project's position in emerging market
countries.
The Company has an international joint venture agreement with PKS which
the Company believes enhances the Company's capabilities in foreign power
markets. The joint venture agreement is limited to international activities
and provides that both parties have a right of first refusal with respect to
certain international projects and that if both the Company and PKS agree to
participate in a project, they will share all development costs equally. Each
of the Company and PKS will provide 50% of the equity required for financing
a project developed by the joint venture, and the Company will operate and
manage such project. The agreement creates 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 PKS and a preferred participant in the construction
consortium and PKS will be an equal equity participant and the preferred
turnkey construction contractor. 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.
In order to augment its technical capabilities, in 1993 the Company
acquired The Ben Holt Co. ("BHCO"), 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.
BHCO is a joint venture participant with a PKS affiliate in the EPC
consortium for the construction of the Mahanagdong project in the Philippines
and it is anticipated that BHCO will enter into similar arrangements with PKS
affiliates for the construction of planned projects in Indonesia.
The Indenture restricts the ability of Magma to make equity investments in
the development of new projects which are not already operating or under
construction unless the funds for such investments are obtained from CECI or
other external sources. See "Description of the Notes--Certain Covenants--
Limitation on Business and New Magma Project Developments."
THE COMPANY'S PROJECTS
The Company has net ownership interests of an aggregate of (i) 358 MW in
13 projects in operation representing an aggregate net capacity of 575 MW of
electric generating capacity, (ii) 449 MW in four projects under construction
representing an aggregate net capacity of 540 MW of electric generating
capacity and (iii) 899 MW in seven projects in development stages with signed
power sale agreements or under award representing an aggregate net capacity
of 1,553 MW of electric generating capacity. The following tables set out the
Company's various projects in operation, under construction and in
development pursuant to signed power sales agreements or awarded mandates.
28
<PAGE>
DOMESTIC PROJECTS
PROJECTS IN OPERATION
<TABLE>
<CAPTION>
FACILITY
FACILITY NET NET
GROSS CAPACITY OWNERSHIP DATE OF
CAPACITY (IN INTEREST COMMERCIAL CONTRACT CONTRACT POWER
PROJECT(1) (IN MW)(2) MW)(3)(4) (IN MW) LOCATION OPERATION EXPIRATION TYPE PURCHASER(5)
- ------------------ ---------- ---------- ---------- ------------------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
*Vulcan(6) ........ 41 34 17 Imperial Valley, CA 2/1986 2/2016 SO4 SCE
*Hoch (Del
Ranch)(6) ....... 46 38 19 Imperial Valley, CA 1/1989 12/2018 SO4 SCE
*Elmore(6) ........ 46 38 19 Imperial Valley, CA 1/1989 12/2018 SO4 SCE
*Leathers(6) ...... 46 38 19 Imperial Valley, CA 1/1990 12/2019 SO4 SCE
*Salton Sea I ..... 10 10 10 Imperial Valley, CA 7/1987 6/2017 Negotiated SCE
*Salton Sea II ... 20 20 20 Imperial Valley, CA 4/1990 4/2020 SO4 SCE
*Salton Sea III .. 54 50 50 Imperial Valley, CA 2/1989 2/2019 SO4 SCE
Navy I ............ 96 88 41 China Lake, CA 8/1987 8/2011 SO4 SCE
BLM ............... 96 88 42 China Lake, CA 3/1989 3/2019 SO4 SCE
Navy II ........... 96 88 44 China Lake, CA 1/1990 1/2010 SO4 SCE
Yuma .............. 55 50 50 Yuma, AZ 5/1994 5/2024 Negotiated SDG&E
Roosevelt Hot
Springs(7) ....... 25 23 17 Milford, UT 5/1984 1/2021 Gathered Steam UP&L
Desert Peak ....... 10 10 10 Desert Peak, NV 12/1985 12/1995 Negotiated SPPC
---------- ---------- -----------
Total in Operation 641 575 358
---------- ---------- -----------
</TABLE>
PROJECT UNDER CONSTRUCTION
<TABLE>
<CAPTION>
FACILITY FACILITY NET PROJECTED
GROSS NET OWNERSHIP COMMERCIAL
CAPACITY CAPACITY INTEREST OPERATION CONTRACT CONTRACT POWER
PROJECT (IN MW)(2) (IN MW)(3) (IN MW) LOCATION DATE EXPIRATION(8) TYPE PURCHASER(5)
- ------------- ---------- ---------- ----------- ------------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
*Salton Sea
Expansion ... 40 40 40 Imperial Valley, CA 1996(est.) CO+30 Negotiated SCE
</TABLE>
PROJECTS WITH SIGNED POWER SALES CONTRACTS OR AWARDED DEVELOPMENT RIGHTS (9)
<TABLE>
<CAPTION>
FACILITY FACILITY
GROSS NET NET PROJECTED
CAPACITY CAPACITY OWNERSHIP COMMERCIAL
(IN (IN INTEREST OPERATION CONTRACT CONTRACT POWER
PROJECT MW)(10) MW)(3)(10) (IN MW) LOCATION DATE EXPIRATION(8) TYPE PURCHASER(5)
- ----------------- ---------- ---------- ----------- ------------------- ------------ ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
*BRPU(11) ........ 163 163 163 Imperial Valley, CA TBD TBD FSO4 SCE
Newberry ......... 30 30 30 Bend, OR 1997 CO+50 Negotiated BPA/EWEB
---------- ---------- -----------
Total Contracted/
Awarded 193 193 193
---------- ---------- -----------
Total Domestic
Projects 874 808 591
---------- ---------- -----------
<FN>
- ---------------
* OWNED BY MAGMA.
(1) Excludes royalty income received by Magma from the Mammoth and East
Mesa Plants.
(2) Actual MW may vary depending on operating and reservoir conditions
and plant design. Facility Gross Capacity (in MW) for projects in
operation or under construction, as the case may be, represents gross
electric output of the facility prior to subtraction of the parasitic
load. Parasitic load is electrical output used by the facility and
not made available for sale to utilities or other outside purchasers.
Facility Gross Capacity (in MW) does not necessarily reflect electric
output available for sale to utilities or other purchasers.
(3) Facility Net Capacity (in MW) represents Facility Gross Capacity (in
MW) less parasitic load.
(4) With respect to the Vulcan, Hoch (Del Ranch), Elmore and Leathers
projects (each of which is 50% owned by Magma) and the Salton Sea II
and Salton Sea III projects (each of which is 100% owned by Magma),
this represents contract nameplate.
(5) Southern California Edison Co. (SCE); San Diego Gas & Electric
Company (SDG&E); Utah Power & Light Company (UP&L); Sierra Pacific
Power Company (SPPC); Bonneville Power Authority (BPA); and Eugene
Water and Electric Board (EWEB).
(6) In addition to the electricity sales revenue earned from its net
ownership position in such facilities, the Company receives
significant fee and royalty income from operating such plants and
managing the production from the geothermal resource for such
facilities.
(7) Represents the MW/hour equivalent of delivered steam.
(8) Commercial Operation (CO) plus number of years.
(9) The Indenture contains certain restrictions on the ability of Magma
to make equity investments in the development of new projects. See
"Description of the Notes--Certain Covenants--Limitation on Business
and New Magma Project Developments."
(10) Actual MW may vary depending on operating and reservoir conditions
and final plant design. Facility Gross Capacity (in MW) for awarded
projects equals maximum sales amount. Significant contingencies exist
in respect of signed power sales contracts and awards, including
without limitation, the need to obtain financing, permits and
licenses, and the satisfactory completion of construction.
(11) SCE and SDG&E are currently challenging the BRPU award; accordingly,
no power sales contracts are currently signed. Magma has negotiated a
buyout and option agreement relating to the SCE BRPU award (69 MW)
which is subject to a confidentiality agreement and to CPUC approval.
</TABLE>
29
<PAGE>
INTERNATIONAL PROJECTS
PROJECTS UNDER CONSTRUCTION
<TABLE>
<CAPTION>
FACILITY FACILITY NET PROJECTED
GROSS NET OWNERSHIP COMMERCIAL
CAPACITY CAPACITY INTEREST OPERATION CONTRACT CONTRACT POWER
PROJECT (IN MW)(1) (IN MW)(2) (IN MW) LOCATION DATE EXPIRATION(3) TYPE PURCHASER(4)
- ------------------------ ---------- ---------- ----------- ------------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
*Malitbog-Phase I and II 231 216 216 Leyte, the 1996-1997 CO+10 Build, Own, PNOC- EDC
Philippines Transfer (GOP)(5)
Upper Mahiao ............ 128 119 119 Leyte, the 1996 CO+10 Build, Own, PNOC- EDC
Philippines Transfer (GOP)(5)
Mahanagdong(6) .......... 180 165 74 Leyte, the 1997 CO+10 Build, Own, PNOC- EDC
--- --- --- Philippines Transfer (GOP)(5)
Total Under Construction 539 500 409
---------- ---------- -----------
</TABLE>
PROJECTS WITH SIGNED POWER SALES CONTRACTS OR AWARDED DEVELOPMENT RIGHTS (7)
<TABLE>
<CAPTION>
FACILITY
FACILITY NET NET PROJECTED
GROSS CAPACITY OWNERSHIP COMMERCIAL
CAPACITY (IN INTEREST OPERATION CONTRACT CONTRACT POWER
PROJECT (IN MW)(8) MW)(2)(8) (IN MW)(8) LOCATION DATE EXPIRATION(3) TYPE PURCHASER(4)
- ---------------------------- ---------- ---------- ----------- -------------- ---------- ------------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alto Peak ................... 70 70 70 Leyte, the 1997 CO+10 Build, Own, PNOC-EDC
Philippines Transfer (GOP)(5)
Dieng(6) .................... 400 400 188 Central Java, 1997-1999 CO+30 Build, Own, PLN (GOI)
Indonesia Transfer
Patuha(6) ................... 400 400 140 Western Java, 1997-1999 CO+30 Build, Own, PLN (GOI)
Indonesia Transfer
Casecnan(9) ................. 140 140 98 Luzon, the 1998 CO+20 Build, Own, NIA (GOP) (5)
Philippines Transfer
Bali(9)(10) ................. 350 350 210 Bali, Indonesia 1998-1999 CO+30 Build, Own, PLN (GOI)
--- --- --- Transfer
Total Contracted/ Awarded 1,360 1,360 706
---------- ---------- -----------
Total International Projects 1,899 1,860 1,115
---------- ---------- -----------
Total Projects 2,770 2,660 1,698
========== ========== ===========
<FN>
- ---------------
* OWNED BY MAGMA.
(1) Actual MW may vary depending on operating and reservoir conditions
and plant design. Facility Gross Capacity (in MW) for projects under
construction represents gross electric output of the facility prior
to subtraction of the parasitic load. Parasitic load is electrical
output used by the facility and not made available for sale to
utilities or other outside purchasers. Facility Gross Capacity (in
MW) does not necessarily reflect electric output available for sale
to utilities or other purchasers.
(2) Facility Net Capacity (in MW) represents Facility Gross Capacity (in
MW) less parasitic load.
(3) Commercial Operation (CO) plus number of years.
(4) Philippine National Oil Company-Energy Development Company
(PNOC-EDC); Government of the Philippines (GOP); P.T. PLN (Persero)
(PLN); Government of Indonesia (GOI); and Philippine National
Irrigation Administration (NIA).
(5) Government of the Philippines undertaking supports PNOC-EDC's and
NIA's respective obligations.
(6) PKS has elected to exercise its ownership option pursuant to its
joint venture agreement with the Company.
(7) The Indenture contains certain restrictions on the ability of Magma
to make equity investments in the development of new projects. See
"Description of the Notes--Certain Covenants--Limitation on Business
and New Magma Project Developments."
(8) Actual MW may vary depending on operating and reservoir conditions
and final plant design. Facility Gross Capacity (in MW) for awarded
projects equals maximum sales amount. Significant contingencies exist
in respect of signed power sales contracts and awards, including
without limitation, the need to obtain financing, permits and
licenses, and the satisfactory completion of construction.
(9) PKS has not indicated whether it intends to exercise its ownership
option pursuant to its joint venture agreement with the Company and
such net ownership interest remains subject to the PKS option. The
Casecnan project is a combined hydroelectric and irrigation project
and will also sell water to NIA.
(10) Geothermal resource development rights have been awarded and the
power sales contract is subject to negotiation.
</TABLE>
30
<PAGE>
The following summary project descriptions are qualified in their entirety
by reference to the Company's 1994 10-K and the other documents incorporated
herein by reference.
DOMESTIC PROJECTS
MAP OF THE WESTERN UNITED STATES
#############################################################################
IMAGE OMITTED
[Map of the Western United States]
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MAGMA DOMESTIC PROJECTS IN OPERATION
Imperial Valley Projects. Magma currently operates seven geothermal power
plants in the Imperial Valley in California. Four of these Salton Sea Project
Plants were developed by Magma and are owned by the Partnerships in which
Magma is the managing general partner and operator and owns 50% interests.
These Partnership Plants consist of the Vulcan, Hoch (Del Ranch), Elmore and
Leathers projects (the "Vulcan Project," the "Hoch (Del Ranch) Project," the
"Elmore Project" and the "Leathers Project," respectively). The remaining
three operating Salton Sea Project Plants are wholly owned by subsidiaries of
Magma and were purchased on March 31, 1993 from Union Oil Company of
California. These geothermal power plants consist of the Salton Sea I project
(the "Salton Sea I Project"), the Salton Sea II project (the "Salton Sea II
Project") and the Salton Sea III project (the "Salton Sea III Project"). In
the case of the Vulcan Project, a subsidiary of Magma controls certain
geothermal resources supplying the Vulcan Project plant for which Magma
receives certain royalties. In the case of the other three Partnership
Plants, Magma controls the geothermal resources and receives royalty payments
senior to related project debt service from the Hoch (Del Ranch), Elmore and
Leathers Project partnerships. In 1994, such royalties together with the
royalties from the Mammoth Plants and East Mesa Plant (as defined below)
totaled $21.1 million. Magma's share of the aggregate electricity revenues
received by the Partnerships Plants and the Magma Plants for 1994 was $158.4
million. In addition, Magma and its
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<PAGE>
subsidiaries receive revenue for managerial services which totaled
approximately $6.0 million in 1994. In each case, a subsidiary of Magma is
the managing general partner of each of the Partnership Plants, and Magma
consolidates one-half of the operating results of each Partnership Plant into
its financial statements. A subsidiary of Magma operates each of the Salton
Sea Project Plants. The project financing indebtedness from the Funding
Corporation Offering restricts the ability of certain of Magma's subsidiaries
to make dividends or distributions to Magma. See "The Funding Corporation
Offering."
The Salton Sea Projects operated at a combined contract nameplate factor
(excluding scheduled maintenance hours) of 86.8% in the three months ended
March 31, 1995 and 90.9% in the year ended December 31, 1994. The Partnership
Plants operated at a combined contract nameplate factor of 102.3% in the
three months ended March 31, 1995 and 103.8% in the year ended December 31,
1994.
Vulcan. The Vulcan Project sells electricity to SCE under a 30-year SO4
Agreement that commenced on February 10, 1986. The Vulcan Project has a
contract capacity and contract nameplate of 29.5 MW and 34 MW, respectively.
Under the SO4 Agreement, SCE is obligated to pay the Vulcan Project a
capacity payment, a capacity bonus payment and an energy payment.
The price for contract capacity payments is fixed for the life of the SO4
Agreement. The contract energy payment is fixed and increases each year for
the first ten years, which period expires on February 9, 1996. Thereafter,
the energy payments will be based on SCE's Avoided Cost of Energy. The energy
payment per kWh is 11.8 cents for 1995 and 12.6 cents for 1996 (until
February 6, 1996). Thereafter, the energy payments will be based on SCE's
Avoided Cost of Energy. The Vulcan Project is unleveraged.
Hoch (Del Ranch). The Hoch (Del Ranch) Project sells electricity to SCE
under a 30-year SO4 Agreement that commenced on January 2, 1989. The contract
capacity and contract nameplate are 34 MW and 38 MW, respectively. The
provisions of such SO4 Agreement are substantially the same as the SO4
Agreement with respect to the Vulcan Project.
The price for contract capacity payments is fixed for the life of the SO4
Agreement. The energy payments per kWh for the first ten-year period, which
expires on December 31, 1998, are fixed at rates ranging from 11.8 cents for
1995 to 14.6 cents for 1998. Thereafter, the energy payments will be based on
SCE's Avoided Cost of Energy.
The Hoch (Del Ranch) Project partnership entered into a $66 million
secured credit facility with commercial banks in March 1988. The final
maturity date of the term loans is September 15, 2001. The secured credit
agreement was amended to allow for the issuance of commercial paper and
medium-term notes supported by a letter of credit as an alternative to
borrowing directly from the banks.
Elmore. The Elmore Project sells electricity to SCE under a 30-year SO4
Agreement that commenced on January 1, 1989. The contract capacity and
contract nameplate are 34 MW and 38 MW, respectively. The provisions of such
SO4 Agreement are substantially the same as the SO4 Agreement with respect to
the Vulcan Project.
The price for contract capacity payments is fixed for the life of the SO4
Agreement. The energy payments per kWh for the first ten-year period, which
expires on December 31, 1998, are fixed at rates ranging from 11.8 cents in
1995 to 14.6 cents in 1998. Thereafter, the energy payments will be based on
SCE's Avoided Cost of Energy.
The Elmore Project partnership entered into a $66 million secured credit
facility with commercial banks in March 1988. The final maturity date of the
term loans is September 15, 2001. The secured credit agreement was amended
and restated on April 18, 1990 to allow for the issuance of commercial paper
and medium-term notes supported by a letter of credit as an alternative to
borrowing directly from the banks.
Leathers. The Leathers Project sells electricity to SCE pursuant to a
30-year SO4 Agreement that commenced on January 1, 1990. The contract
capacity and contract nameplate are 34 MW and 38 MW, respectively. The
provisions of such SO4 Agreement are substantially the same as the SO4
Agreement with respect to the Vulcan Project.
The price for contract capacity payments is fixed for the life of the SO4
Agreement. The energy payments per kWh for the first ten-year period, which
expires on December 31, 1999, are fixed at rates ranging from 11.8 cents in
1995 to 15.7 cents in 1999. Thereafter, the energy payments will be based on
SCE's Avoided Cost of Energy.
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<PAGE>
The Leathers Project partnership entered into an $82 million secured
credit facility with commercial banks in March 1988. The final maturity date
of the term loans is September 15, 2002. The secured credit agreement was
amended to allow for the issuance of commercial paper and medium-term notes
supported by a letter of credit as an alternative to borrowing directly from
the banks.
Salton Sea I Project. The Salton Sea I Project sells electricity to SCE
pursuant to a 30-year negotiated power purchase agreement, as amended (the
"Salton Sea I PPA"), that commenced on July 1, 1987 which provides for
capacity and energy payments. The initial contract capacity and contract
nameplate are each 10 MW. The Salton Sea I Project may add subsequent
increments of contract capacity. See "--Magma Domestic Project in
Construction -- Salton Sea Expansion Project."
The capacity payment is based on a firm capacity price which is currently
$127.80/kW-year. The contract capacity payment adjusts quarterly based on
various inflation related indices for the term of the Salton Sea I PPA. The
energy payment is calculated using a Base Price (defined as the initial value
of the energy payment (4.056 cents per kWh)), which is subject to quarterly
adjustments based on a basket of indices. The time period weighted average
energy payment for the Salton Sea I Project was 4.9 cents per kWh during the
first quarter of 1995. As the Salton Sea I PPA is not an SO4 Agreement, the
energy payments do not revert to SCE's Avoided Cost of Energy.
Salton Sea II Project. The Salton Sea II Project sells electricity to SCE
pursuant to a 30-year modified SO4 Agreement that commenced on April 5, 1990.
The contract capacity and contract nameplate are 15MW (16.5 MW during on-peak
periods) and 20 MW, respectively. The contract requires SCE to make capacity
payments, capacity bonus payments and energy payments. The price for contract
capacity and contract capacity bonus payments is fixed for the life of the
modified SO4 Agreement. The energy payments for the first ten-year period,
which period expires on April 4, 2000, are levelized at a time period
weighted average of 10.6 cents per kWh. Thereafter, the monthly energy
payments will be equal to SCE's Avoided Cost of Energy. For the period April
1, 1994 through March 31, 2004, SCE is entitled to receive, at no cost, 5% of
all energy delivered in excess of 80% of contract capacity.
Salton Sea III Project. The Salton Sea III Project sells electricity to
SCE pursuant to a 30-year modified SO4 Agreement. The contract capacity is
47.5 MW and the contract nameplate is 49.8 MW. The modified SO4 Agreement
requires SCE to make capacity payments, capacity bonus payments and energy
payments for the life of the SO4 Agreement. The price for contract capacity
payments is fixed at $175/kW per year. The energy payments for the first
ten-year period, which period expires on February 13, 1999, are levelized at
a time period weighted average of 9.8 cents per kWh. Thereafter, the monthly
energy payments will be equal to SCE's Avoided Cost of Energy.
The partnerships that own the Magma Plants are parties to a secured credit
facility with commercial banks. The agreement provides for a $130 million
term loan broken into two tranches, (i) tranche A, which covers units 1 and 2
in the original principal amount of $37 million with a final maturity date of
March 15, 2000, and (ii) tranche B, which covers unit 3 in the original
principal amount of $93 million with a final maturity date of January 31,
1999. In addition, the agreement provides for a renewable working capital
loan in the aggregate principal amount of $5 million.
Mammoth Plants. Magma receives royalty revenues from a 10 MW and a 12 MW
contract nameplate geothermal power plant (the "First Mammoth Plant" and the
"Second Mammoth Plant", respectively, and referred to herein, collectively,
as the "Mammoth Plants") at Mammoth Lakes, California. Electricity from the
Mammoth Plants is sold by a third party to SCE under two long-term power
sales agreements. The First Mammoth Plant and the Second Mammoth Plant began
commercial operations in 1985 and 1991, respectively. Magma leases both
property and geothermal resources to support the Mammoth Plants in return for
certain base royalty and bonus royalty payments. For the First Mammoth Plant
and the Second Mammoth Plant, the base royalties are 12.5% and 12%,
respectively, of gross electricity sales revenues. The bonus royalty for each
of the Mammoth Plants is 50% of the excess of annual gross electricity sales
revenues over an annual revenue standard based on the Mammoth Plants
operating at 85% of contract capacity.
33
<PAGE>
The East Mesa Plant. Magma also receives royalty revenues from a 37 MW
contract nameplate geothermal power plant (with two units) at East Mesa in
Imperial Valley, California (the "East Mesa Plant"). Electricity from the
plant is sold by a third party to SCE pursuant to two SO4 Agreements formerly
held by Magma, and Magma is entitled to receive a senior payment of 4% of
gross electricity sales revenues and a junior payment of 10% of gross
electricity sales revenues. To date, such junior payment has not been
received; amounts previously accrued for the junior royalty have been
expensed.
OTHER COMPANY DOMESTIC PROJECTS IN OPERATION
The Coso Project. In 1979, the Company entered into a 30-year contract
(the "Navy Contract") with the United States Department of the Navy (the
"Navy") to develop geothermal power facilities located on approximately 5,000
acres of the Naval Air Weapons Station at China Lake, California (150 miles
northeast of Los Angeles). In 1985, the Company entered into a 30-year lease
(the "BLM Lease") with the United States Bureau of Land Management ("BLM")
for approximately 19,000 acres of land adjacent to the land covered by the
Navy Contract. The Navy Contract and the BLM Lease provide for certain
royalty payments as a percentage of gross revenue and certain other formulas.
The Company formed three joint ventures (the "Coso Joint Ventures") with one
primary joint venture partner, Caithness Corporation ("Caithness"), to
develop and construct the three facilities which comprise the Navy I project
(the "Navy I Project"), the BLM project (the "BLM Project") and the Navy II
project (the "Navy II Project") (collectively, the "Coso Project").
The Coso Joint Ventures are as follows: (i) Coso Finance Partners, which
owns the Navy I Project (the "Navy I Partnership"), (ii) Coso Energy
Developers, which owns the BLM Project (the "BLM Partnership"), and (iii)
Coso Power Developers, which owns the Navy II Project (the "Navy II
Partnership" and, together with the Navy I Partnership and the BLM
Partnership, the "Coso Partnerships"). The Company holds indirect ownership
interests of approximately 46% in the Navy I Partnership; approximately 48%
in the BLM Partnership, after payout to the Company and Caithness; and 50% in
the Navy II Partnership. The Company consolidates its respective share of the
operating results of the Coso Partnerships into its financial statements. In
addition, the Company indirectly holds rights to certain cash flows from its
partners in the BLM Project, and, to a lesser extent, the Navy I Project and
Navy II Project. Each of the Coso Joint Ventures is managed by a management
committee which consists of two representatives from the Company and two
representatives from the Company's partners. The Company operates the Coso
Project, for which it receives fees from the Coso Partnerships.
The Coso Project sells all electricity generated by the respective plants
pursuant to three long-term SO4 Agreements between the Navy I Partnership,
the BLM Partnership and the Navy II Partnership, respectively, and SCE. These
SO4 Agreements provide for capacity payments, capacity bonus payments and
energy payments. SCE makes fixed annual capacity payments to the Coso
Partnerships, and to the extent that capacity factors exceed certain
benchmarks is required to make capacity bonus payments. The price for
capacity and capacity bonus payments is fixed for the life of the SO4
Agreements. Energy is sold at increasing fixed rates for the first ten years
of each contract and thereafter at SCE's Avoided Cost of Energy. The fixed
price periods of the SO4 Agreements extend until August 1997, March 1999 and
January 2000 for each of the Navy I, BLM and Navy II Partnerships,
respectively, at rates ranging from 11.0 cents per kWh in 1994 to 14.6 cents
per kWh in 2000. The Company's share of the revenues received by the Coso
Partnerships for 1993 and 1994 was $124.7 million and $137 million,
respectively.
The physical facilities used for geothermal energy production are
substantially the same at the Navy I, BLM and Navy II Projects.
The Navy I Project. The geothermal resource for the Navy I Project
currently is produced from approximately 32 wells. The Navy I Project
consists of three turbine generators, each with approximately 32 MW of
electrical generating capacity. The Navy I Project has an aggregate gross
electrical generating capacity of approximately 96 MW. Based on an assumed
net capacity of 80 MW, the Navy I Project operated at an average operating
capacity factor of 114.0% in the year ended December 31, 1994 and 113.4% in
the three months ended March 31, 1995.
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The BLM Project. The BLM Project's geothermal resource currently is
produced from approximately 20 wells. The BLM Project consists of three
turbine generators. Two of these turbine generators are located at the BLM
East site in a dual flash system, each with a nameplate capacity of 29 MW;
and one is located at the BLM West site in a single flash system, with a
nameplate capacity of 29 MW. The BLM Project has an aggregate gross
electrical generating capacity of approximately 96 MW. Based on an assumed
capacity of 80 MW, the BLM Project operated at an average operating capacity
factor of 99.5% in the year ended December 31, 1994 and 105.0% in the three
months ended March 31, 1995.
The Navy II Project. The geothermal resource for the Navy II Project
currently is produced from approximately 25 wells. The Navy II Project
consists of three individual turbine generators, each with approximately 32
MW of electrical generating capacity. The Navy II Project has an aggregate
gross electrical capacity of approximately 96 MW. Based on an assumed net
capacity of 80 MW, the Navy II Project operated at an average operating
capacity factor of 105.9% in the year ended December 31, 1994 and 112.1% in
the three months ended March 31, 1995.
In December 1992, the Coso Joint Ventures refinanced the existing bank
debt on the Coso Project with the proceeds of the sale of approximately $560
million in non-recourse senior secured notes (the "Coso Notes") in a private
placement pursuant to Rule 144A under the Securities Act. The Coso Notes were
issued by Coso Funding Corp. ("Coso Funding"), a corporation owned by the
Coso Joint Ventures and formed exclusively for the purpose of issuing the
Coso Notes. Coso Funding lent the Coso Joint Ventures substantially all of
the net proceeds of the sale of the Coso Notes. At the time of their
issuance, the Coso Notes were rated "Baa3" by Moody's Investors Services,
Inc. ("Moody's"), "BBB-" by Standard and Poor's Rating Group ("S&P") and
"BBB" by Duff & Phelps Credit Rating Co., all investment grade ratings. The
outstanding balance of the Coso Notes on March 31, 1995 was $454.7 million
with a remaining average life of 3.0 years, and the average interest rate on
the Coso Notes for the year ended December 31, 1994 was 8.1%. The obligations
of each Coso Partnership under the loans from Coso Funding are non-recourse
to the Company (other than Coso Funding and its subsidiaries). Coso Funding
may look solely to each Coso Partnership's pledged assets for satisfaction of
such Coso Partnership's loan. In addition, the loans are cross-collateralized
by certain support loans 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.
Yuma. During 1992, the Company acquired a development stage 50 MW natural
gas-fired cogeneration project in Yuma, Arizona (the "Yuma Project"). The
Yuma Project is designed to be a QF under PURPA and to provide 50 MW of
electricity to San Diego Gas & Electric Company ("SDG&E") under an existing
30-year power purchase contract. The electricity is sold at SDG&E's Avoided
Cost of Energy. The power is wheeled to SDG&E over transmission lines
constructed and owned by Arizona Public Service Company ("APS"). An agreement
for interconnection and a firm transmission service agreement have been
executed between APS and the Yuma Project entity and have been accepted for
filing by the Federal Energy Regulatory Commission ("FERC").
The Yuma Project commenced commercial operation in May 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 QF, which is
a requirement of its SDG&E contract. Since the industrial entity has the
right under its contract 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 QF. 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 QF or build a greenhouse at the site for which the Company
believes it would obtain QF status. A natural gas supply and transportation
agreement has been executed with Southwest Gas Corporation, terminable under
certain circumstances by the Company and Southwest Gas Corporation. The Yuma
Project is unleveraged other than intercompany debt.
Roosevelt Hot Springs. The Company operates and owns an approximately 70%
interest in a geothermal steam field which supplies geothermal steam to a 25
MW power plant owned by Utah Power & Light Company ("UP&L") located on the
Roosevelt Hot Springs property under a 30-year steam sales
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contract. The Company obtained approximately $20.3 million of cash under a
pre-sale agreement with UP&L whereby UP&L paid in advance for the steam
produced by the steam field. The Company must make certain penalty payments
to UP&L if the steam produced does not meet certain quantity and quality
requirements.
Desert Peak. The Company is the owner and operator of a 10 MW geothermal
plant at Desert Peak, Nevada that is currently selling electricity to Sierra
Pacific Power Company under a power sales agreement that expires December 31,
1995 and that may be extended on a year-to-year basis as agreed by the
parties. The current price for electricity under this contract is 6.6 cents
per kWh, comprising an energy payment of 2.1 cents per kWh (which is
adjustable pursuant to an inflation-based index) and a capacity payment of
4.5 cents per kWh. The Company is currently negotiating the terms of an
extension to this contract.
MAGMA DOMESTIC PROJECT IN CONSTRUCTION
Salton Sea Expansion Project. Subsidiaries of Magma are currently in the
process of expanding the capacity of the Magma Plants through the
construction of an additional geothermal power plant ("Salton Sea Unit IV")
and of reducing the operating and maintenance costs of the Salton Sea I
Project and the Salton Sea III Project by incorporating the pH Modification
Process in the Salton Sea I Project and Salton Sea III Project. The pH
Modification Project, together with the construction of Salton Sea Unit IV,
is referred to herein as the "Salton Sea Expansion Project."
The Salton Sea I Project had an option to supply an additional 20 MW of
power to SCE under the Salton Sea I PPA (the "Salton Sea Option"). In
addition, Magma, through its wholly-owned subsidiary, Fish Lake Power
Company, acquired in 1992 a modified ISO4 Agreement (the "Fish Lake PPA") to
supply electric power to SCE from a 16 MW geothermal power plant proposed to
be built at Fish Lake in Esmeralda County, Nevada (the "Fish Lake Project").
The CPUC has approved the restructuring of (i) the Salton Sea Option and
(ii) the Fish Lake PPA, whereby the originally contemplated Fish Lake Project
would not be developed at its originally proposed site in Nevada and,
instead, the Salton Sea Unit IV would be developed adjacent to the Salton Sea
III Project under an amended and restated 30-year power sales agreement (the
"Salton Sea IV PPA") which combines and consolidates the Salton Sea Option
and the Fish Lake PPA.
The Salton Sea Unit IV PPA provides for contract capacity payments on 34
MW of capacity at two different rates based on the respective contract
capacities deemed attributable to the original Salton Sea Option (20 MW) and
to the original Fish Lake PPA (14 MW). The capacity payment price for the 20
MW portion adjusts quarterly based upon specified indices and the capacity
payment price for the 14 MW portion is a fixed levelized rate. The energy
payment (for deliveries up to a rate of 39.6 MW) is at a fixed price for
55.6% of the total energy delivered by Salton Sea Unit IV and is based on an
energy payment schedule for 44.4% of the total energy delivered by Salton Sea
Unit IV. The contract has a 30-year term but SCE is not required to purchase
the 20 MW of capacity and energy originally attributable to the Salton Sea
Option after June 30, 2017, the original termination date of the Salton Sea I
PPA.
Salton Sea Unit IV will employ the pH Modification Process. The Salton Sea
Unit IV project is being designed by The Dow Chemical Company, which is also
managing the construction of the project. Based on the procurement and
construction schedule, commercial operation is presently expected to begin by
mid-year 1996.
The pH Modification Process which is employed at the Salton Sea II Project
has operated successfully since the Salton Sea II Project began operations in
1990. The Company believes that incorporating the pH Modification Process
will enable the Salton Sea I Project, Salton Sea III Project and the Salton
Sea Unit IV project to achieve a reduction in operating and maintenance costs
and increased unit availability. The Company has estimated that operating and
maintenance costs for plants utilizing the pH Modification Process are
approximately 50% less than for its plants utilizing the existing
"crystalizer/clarifier process." The pH Modification Process was developed by
Union Oil Company of California and is licensed to Magma. Significant overall
operating and maintenance cost savings are expected to be realized as a
result of implementing the pH Modification Process.
The targeted completion date for the Salton Sea Expansion Project is
mid-year 1996. The total initial budgeted cost of the Salton Sea Expansion
Project is $135 million. In connection with the Funding
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Corporation Offering, CECI will agree to fund all construction costs, if any,
which may be incurred in connection with the construction of the Salton Sea
Expansion Project over and above such budgeted amount.
DOMESTIC PROJECTS IN DEVELOPMENT -- GENERAL
The following is a summary description of certain information concerning
the Company's and Magma's projects in development in the United States. 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 or Magma's efforts generally, will be successful. The
Indenture also restricts Magma from making equity investments in the
development of new projects which are not already operating or under
construction unless the funds for such investments are obtained from CECI or
other external sources. See "Description of the Notes--Certain
Covenants--Limitation on Business and New Magma Project Developments."
MAGMA DOMESTIC PROJECT IN DEVELOPMENT
The BRPU Award. Pursuant to an order of the CPUC dated June 22, 1994
(confirmed on December 21, 1994) (the "BRPU Award"), Magma was awarded 163 MW
of power production through a bidding process adopted by the CPUC under its
1992 Biennial Resource Plan Update ("BRPU"). According to the BRPU Award,
subsidiaries of Magma have the right to sell 69 MW to SCE and 94 MW to SDG&E,
with in-service dates in 1997 and 1998. The FERC has held that the BRPU Award
violates PURPA, and both SCE and SDG&E have to date challenged and may
continue to challenge the BRPU Award on both substantive and procedural
grounds. Accordingly, there can be no assurance that power sales agreements
will be executed in respect of the BRPU Award or whether any of such projects
will be completed.
In light of the regulatory uncertainty concerning the BRPU awards
resulting from such IOU challenges, in March 1995 Magma entered into a buyout
and capacity option agreement with SCE relating to 69 MW of capacity awarded
to Magma as a winning bidder in the BRPU solicitation. The agreement (which
is subject to CPUC approval) provides for three lump sum termination payments
by SCE in lieu of signing a power sales agreement for the 69 MW of BRPU
capacity. The amount of the termination payments is subject to a
confidentiality agreement but provides SCE's rate payers with substantial
savings when compared to payments that would otherwise be made to Magma over
the life of the proposed BRPU power sales agreement. The agreement also
provides SCE with an option, which can be exercised at any time prior to
February 2, 2002, to negotiate a power sales agreement for 69 MW of
geothermal capacity and energy on commercially reasonable prices and terms,
without giving effect to the termination payments previously paid.
COMPANY DOMESTIC PROJECT IN DEVELOPMENT
Newberry. Under a Bonneville Power Administration ("BPA") geothermal pilot
program, the Company is developing a 30 MW net geothermal project within the
Newberry known geothermal resource area of Deschutes County, Oregon (the
"Newberry Project"). Pursuant to two power sales agreements executed in
September 1994, after the final environmental impact statement for the
Newberry Project was issued, the Company agreed to sell 20 MW to BPA and 10
MW to Eugene Water and Electric Board ("EWEB") from the Newberry Project. In
addition, BPA and EWEB together have an option to purchase up to an
additional 100 MW of production from the Newberry 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 Newberry Project is currently expected to commence commercial
operation in 1997. The power sales agreements provide that under certain
circumstances the contracts may be utilized at an alternative location.
Completion of the Newberry Project is subject to a number of significant
uncertainties and cannot be assured.
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INTERNATIONAL PROJECTS
INTERNATIONAL PROJECTS IN CONSTRUCTION --GENERAL
The following is a summary description of certain information concerning
the Company's and Magma's projects in construction in the Philippines and
Indonesia. Since these projects are still in construction, however, there can
be no assurance that this information will not change materially over time.
MAP OF THE PHILIPPINES
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[Map of the Philippines]
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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.
According to the 1993 Power Development Program of the National Power
Corporation of the Philippines ("NAPOCOR"), demand for electricity in the
Philippines exceeds supply. NAPOCOR has also reported that its ability to
sustain desired levels of electric production from existing facilities has
been limited due to frequent breakdowns in many of its older electric
generating plants. As a result, the Philippines has experienced severe power
outages, with Manila suffering significant daily brownouts during much of
1993 and periodic brownouts during 1994. 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 No. 7648,
granted President Ramos emergency powers to remedy the Philippine energy
crisis, including authority to (i) exempt power projects from public bidding
requirements, (ii) increase power rates and (iii) reorganize NAPOCOR. Until
1987, NAPOCOR had a monopoly on power generation and transmission in the
Philippines. In 1987, then President Aquino issued Executive Order No. 215,
which granted 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 authorized private development of priority
infrastructure projects on a "build-operate-transfer" and a "build-transfer"
basis. In addition, under that Act, such power projects were made 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
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incorporated into such projects. In 1994, certain amendments to Republic Act
No. 6957 were approved by the Philippine Congress and signed into law
(Republic Act No. 7718). Among other things, such amendments provide for the
financing of "unsolicited proposals" on a "build-operate-transfer" basis.
In an effort to remedy the shortfall of electricity, the Philippines,
NAPOCOR and the Philippine National Oil Company-Energy Development
Corporation ("PNOC-EDC") continue to jointly solicit bids for private power
projects. Among private power projects selected through this solicitation
process were the Upper Mahiao (the "Upper Mahiao Project"), Mahanagdong (the
"Mahanagdong Project"), Malitbog (the "Malitbog Project") and Alto Peak (the
"Alto Peak Project") geothermal power projects, as described below.
Geothermal power has been identified as a preferred alternative by the
Philippine Government due to the domestic availability and the minimal
environmental effects of geothermal power in comparison 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.
The Company and Magma have financed and commenced construction of the
Upper Mahiao, Mahanagdong and Malitbog Projects, which have an aggregate net
capacity of 500 MW, of which the Company's aggregate net ownership interest
is 409 MW. The Malitbog Project is 100% owned by Magma and has a net capacity
and net ownership interest of 216 MW.
MAP OF INDONESIA AND NEIGHBORING COUNTRIES
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[Map of Indonesia and Neighboring Countries]
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INDONESIA. Indonesia, which has the world's fourth largest population, has
experienced rapid growth in electricity demand. The Company believes that
load growth has exceeded 13% per annum since 1980. Furthermore, the Company
believes that rapid expansion in industrial growth has created a backlog of
unconnected industrial users in excess of 4,000 MW. In its sixth five-year
plan, the Indonesian government has called for the addition of 12,000 MW of
additional generating capacity by 1999. The long range plan calls for an
additional 15,000 MW to be added by the year 2004. The plans call for
approximately 75% of this capacity to be added by independent power
producers. Although Indonesia is a member of OPEC and is also the world's
largest exporter of liquified natural gas, the Government of
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Indonesia has announced that it wishes to maintain sufficient amounts of oil
for export, which will require a shift to coal-fired generation and the use
of other energy sources, such as geothermal.
It is estimated that Indonesia has sufficient geothermal steam potential
to generate 16,000 MW, centered in the Java and Sumatra areas (the two most
populous of the 13,000 islands in Indonesia). To date, less than 150 MW of
geothermal facilities have been commissioned.
The Indonesian state-owned utility has recently been converted to a
limited liability company, P.T. PLN (Persero) ("PLN"), as a first step toward
the privatization of its two largest generating subsidiaries. The main
objective of Indonesia's electric energy policy has been to secure a
continuity of supply at reasonable rates for households (more than 50% of
which have been reported to have no power) and to minimize the utilization of
hydrocarbons. Rural electrification will remain an important component of the
energy policy as PLN is targeting the addition of 2 million customers a year.
Indonesia is rated "Baa3" by Moody's and "BBB" by S&P. The Company
believes that Indonesia represents an attractive development opportunity, as
it combines growing power needs with ample geothermal resources and
creditworthy contract parties.
MAGMA INTERNATIONAL PROJECT IN CONSTRUCTION
Malitbog. In December 1994, Magma closed the financing and commenced
construction of the Malitbog Project, a 231 gross MW geothermal project,
which will be located on the island of Leyte. The Malitbog Project is being
built, owned and operated by Visayas Geothermal Power Company ("VGPC"), a
Philippine general partnership that is wholly owned, indirectly, by Magma.
VGPC will sell 100% of its capacity on substantially the same basis as
described below for the Upper Mahiao Project to PNOC-EDC, which in turn will
sell the power to NAPOCOR.
The Malitbog Project has a total project cost of approximately $280
million, including interest during construction and project contingency
costs. A consortium of international banks and OPIC have provided a total of
$210 million of construction and term loan facilities, the $135 million
international bank portion of which is supported by political risk insurance
from OPIC. Magma's equity contribution to VGPC was $70 million, which is
covered by political risk insurance from OPIC.
The Malitbog Project is being constructed by Sumitomo Corporation
("Sumitomo") pursuant to a fixed-price, date-certain, turnkey supply and
construction contract (the "Malitbog EPC"). The Malitbog EPC provides that
certain liquidated damages will be paid by Sumitomo for failure to meet
certain performance standards on scheduled test dates, including the payment
of any liquidated damages or penalties required to be paid by VGPC to
PNOC-EDC under an energy conversion agreement executed on September 10, 1993
(the "Malitbog ECA") (subject to limitations on the total amount of
liquidated damages payable by Sumitomo). The Malitbog EPC also provides for
the payment of certain liquidated damages on a per unit basis if upon
completion of the facility tests do not demonstrate such unit's ability to
operate at a net generating capacity of at least 74.1 MW. The liquidated
damages for each generating unit are capped at 13 1/3 % of the total Malitbog
EPC price. Pursuant to a reimbursement undertaking, Magma has agreed to
reimburse Sumitomo for draws, if any, by PNOC-EDC on the construction bond
provided by Sumitomo on behalf of Magma in excess of the liquidated damage
amounts provided in the Malitbog EPC.
Sumitomo is one of the principal trading and investment companies in
Japan, and has built power plants around the world, often on a turnkey basis.
As of March 31, 1995, Sumitomo had a credit rating of "Aa3" from Moody's. The
Malitbog EPC requires Sumitomo to provide engineering, procurement,
construction, start-up and testing services with respect to the facility.
Construction of the facility has begun, with commercial operation of unit
1 scheduled to commence in July 1996 and commercial operation of unit 2 and
unit 3 scheduled to commence in July 1997.
Under the terms of the Malitbog ECA, VGPC will develop, construct, own and
operate the Malitbog Project, convert steam supplied by PNOC-EDC at no cost
into electricity and deliver such electricity, on behalf of PNOC-EDC to
NAPOCOR. The Malitbog ECA specifies a minimum total net power- generating
capacity of 216 MW for the Malitbog Project and provides for a two-phase
construction period of three identical 77 gross MW units.
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The Malitbog Project will be located on land provided by PNOC-EDC at no
cost. The electrical energy produced by the facility will be sold to PNOC-EDC
on a "take-or-pay" basis. Specifically, PNOC-EDC will be obligated to make
payments (the "Capacity Payments") to VGPC based upon the available capacity
of the Malitbog Project. The Capacity Payments equal 100% of total revenues.
The Capacity Payments will be payable so long as the Malitbog Project is
available to produce electricity, even if the Malitbog Project is not
operating due to scheduled maintenance, because PNOC-EDC fails to supply
steam to the Malitbog Project as required or because NAPOCOR is unable (or
unwilling) to accept delivery of electricity from the Malitbog Project. In
addition, PNOC-EDC must continue to make the Capacity Payments if there is a
force majeure event (e.g., war, nationalization, etc.) that affects the
operation of the Malitbog Project and that is within the reasonable control
of PNOC-EDC or the Government of the Philippines or any agency or authority
thereof. The Capacity Payments are designed to cover, under expected
operating conditions, the Malitbog Project's operating and maintenance
expenses and VGPC's debt service and to provide a return on investment to the
partners in VGPC. A substantial majority of the Capacity Payments are
required to be made by PNOC-EDC in dollars. The portion of Capacity Payments
payable by PNOC-EDC in pesos is expected to vary over the term of the
Malitbog ECA from 10% of VGPC's revenues in the early years of the
Cooperation Period (as defined below) to 23% of VGPC's revenues at the end of
the Cooperation Period. Payments made in pesos will generally be made to a
peso-denominated account and will be used to pay peso-denominated operation
and maintenance expenses with respect to the Malitbog Project and Philippine
withholding taxes, if any, on the Malitbog Project's debt service. The
Government of the Philippines has entered into a performance undertaking (the
"Performance Undertaking"), which provides that all of PNOC-EDC's obligations
pursuant to the Malitbog ECA carry the full faith and credit of, and are
affirmed and guaranteed by, the Government of the Philippines.
The Malitbog ECA requires that completion of the first generating unit
("Unit 1") occur on or prior to July 25, 1996 and that completion of the
second and third generating units (respectively, "Unit 2" and "Unit 3") occur
on or prior to July 25, 1997, in each case subject to extension upon the
occurrence of certain events (each such date, a "Guaranteed Completion
Date"). VGPC will be subject to certain penalties if any generating unit does
not achieve commercial operation by the applicable Guaranteed Completion
Date, and PNOC-EDC may, in its sole discretion, terminate the Malitbog ECA if
any generating unit does not achieve commercial operation within 90 days of
the applicable Guaranteed Completion Date. Pursuant to the terms of the
consent agreement (the "PNOC-EDC Consent Agreement") entered into by PNOC-EDC
and VGPC, among others, PNOC-EDC has agreed that it will not so terminate the
Malitbog ECA without providing the lenders and OPIC an additional 90 days
within which to cure such abandonment. If the lenders and OPIC are proceeding
with due diligence and in good faith to cure such abandonment, such period
may be extended for an additional 90 days with PNOC-EDC's consent (which
shall not be unreasonably withheld). In the event of such a termination, VGPC
will transfer all of its right, title and interest in the Malitbog Project to
PNOC-EDC upon payment by PNOC-EDC of the buy-out price for each generating
unit that is not so delayed, but without compensation for any generating unit
that is so delayed.
The Malitbog ECA will expire on the date that is ten years after the date
of commencement of commercial operation of Unit 3 (such period, the
"Cooperation Period"). Upon expiration of the Malitbog ECA, VGPC will be
obligated to transfer the Malitbog Project to PNOC-EDC, on an "as is" basis,
without cost or compensation and free and clear of all liens, including any
liens of the lenders.
PNOC-EDC is obligated to purchase VGPC's interest in the facility under
certain circumstances, including (i) certain material changes in policies or
laws which adversely affect VGPC's interest in the project, (ii) any event of
force majeure which delays performance by more than 90 days and (iii) certain
other events. Prior to completion of the Malitbog Project, the buy-out price
generally will be equal to 110% of all costs incurred through the date of the
buy-out. In a post-completion buy-out, the price will be the net present
value of the capital cost recovery fees that would have been due for the
remainder of the Cooperation Period with respect to such generating unit(s).
OTHER COMPANY INTERNATIONAL PROJECTS IN CONSTRUCTION
Upper Mahiao. In 1994, the Company closed the financing and commenced
construction of the Upper Mahiao Project, a 128 gross MW geothermal project
to be located in the Greater Tongonan area
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of the island of Leyte in the Philippines. The Upper Mahiao Project is being
built, owned and operated by CE Cebu Geothermal Power Company, Inc. ("CE
Cebu"), a Philippine corporation that is approximately 100% indirectly owned
by the Company. It will sell 100% of its capacity on a "take-or-pay" basis
(described below) to PNOC-EDC, which in turn will sell the power to NAPOCOR
for distribution to the island of Cebu, located about 40 miles west of Leyte.
The Upper Mahiao Project will have a total project cost of approximately
$218 million, including interest during construction, project contingency
costs and a debt service reserve fund. A consortium of international banks
has committed to provide approximately $162 million in a project-financed
construction loan, supported by political risk insurance from the
Export-Import Bank of the United States ("ExIm Bank"). The largest portion of
the term loan for the project will also be provided by ExIm Bank. The
Company's equity contribution to the Upper Mahiao Project is $56 million.
Subject to the pledge of the project company's stock to the lenders, the
Company has arranged for political risk insurance of its equity investment
through OPIC. The financing is collateralized by all the assets of the
project.
The Upper Mahiao Project is being constructed by Ormat, Inc. ("Ormat") and
its affiliates pursuant to supply and construction contracts (collectively,
the "Upper Mahiao EPC"), 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, the Philippines and
internationally. The Upper Mahiao EPC provides liquidated damage protection
of up to 30% of the Upper Mahiao EPC price. Ormat's performance under the
Upper Mahiao EPC is backed by a completion guaranty of Ormat, by letters of
credit in the amount of such 30% limitation and by a limited guaranty of
Ormat Industries, Ltd., an Israeli corporation and the parent of Ormat, in
each case for the benefit of the project lenders.
Under the terms of an energy conversion agreement, executed on September
6, 1993 (the "Upper Mahiao ECA"), CE Cebu will build, own and operate the
Upper Mahiao Project during the approximately two-year construction period
and the ten-year cooperation period, after which ownership will be
transferred to PNOC-EDC at no cost.
The Upper Mahiao Project will be located on land 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
serves to recover the capital costs of the project, to recover fixed
operating costs and 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 U.S. dollars and paid in Philippine pesos at the then-current
exchange rate, except for the Energy Fee, which will be used to pay
Philippine peso-denominated expenses. The convertibility of Philippine peso
receipts into U.S. dollars is insured by OPIC. Significant portions of the
Capacity Fee and Energy Fee will be indexed to U.S. and Philippine inflation
rates, respectively. PNOC-EDC's payment requirements, and its other
obligations under the Upper Mahiao ECA, are supported by the Government of
the Philippines through a performance undertaking.
The payment of the Capacity Fee 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 Upper Mahiao Project and that is within the reasonable
control of PNOC-EDC or the government 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
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date may be extended for force majeure and other reasons under the Upper
Mahiao ECA), the Upper Mahiao Project may, under certain circumstances, be
deemed "abandoned," in which case the Upper Mahiao 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) certain
material changes in policies or laws which 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 Upper Mahiao Project, the buy-out price will be equal to
all costs incurred through the date of the buy-out, including all Upper
Mahiao 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 discount rate based on the last published Commercial
Interest Reference Rate of the Organization for Economic Cooperation and
Development) of the total remaining amount of Capacity Fees over the
remaining term of the Upper Mahiao ECA.
Mahanagdong. In 1994 the Company also closed the financing and commenced
construction of the Mahanagdong Project, a 180 gross 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 during construction is indirectly
owned 50% by the Company and 50% by PKS. Up to a 10% financial interest in CE
Luzon may be sold at completion to another industrial company at the option
of such company. The Mahanagdong Project will sell 100% of its capacity on a
similar basis as described above for the Upper Mahiao Project to PNOC-EDC,
which in turn will sell the power to NAPOCOR for distribution to the island
of Luzon.
Mahanagdong has a total project cost of approximately $320 million,
including interest during construction, project contingency costs and a debt
service reserve fund. The capital structure consists of a project financing
construction and term loan of approximately $240 million provided by OPIC,
ExIm Bank and a consortium of international banks, and approximately $80
million in equity contributions. Political risk insurance from ExIm Bank has
been obtained for the commercial lenders. The Company's equity investment for
the Mahanagdong Project will be approximately $40 million. Subject to the
pledge of the project company's stock to the lenders, the Company has
arranged for political risk insurance on its equity investment through OPIC.
The financing is collateralized by all the assets of the project.
The Mahanagdong Project is being constructed by a consortium (the "EPC
Consortium") of Kiewit Construction Group, Inc. ("KCG") and BHCO pursuant to
fixed-price, date-certain, turnkey supply and construction contracts
(collectively, the "Mahanagdong EPC"). The obligations of the EPC Consortium
under the Mahanagdong EPC are supported by a guaranty of KCG at an aggregate
amount equal to approximately 50% of the Mahanagdong EPC price. The
Mahanagdong EPC provides for maximum liability for liquidated damages of up
to $100.5 million and total liability of up to $201 million. KCG, a wholly
owned subsidiary of PKS, is 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 1994 included transportation projects, including
highways, bridges, airports and railroads, power facilities, buildings and
sewer and waste disposal systems, and water supply systems, utility
facilities, dams and reservoirs. KCG accounts for 70.0% of PKS's revenues,
contributing $2.1 billion in revenues in 1994. KCG has an extensive
background in power plant construction.
BHCO will provide design and engineering services for the EPC Consortium,
holding a 20% interest. The Company has provided a guaranty of BHCO's
obligations under the Mahanagdong EPC Contract.
The terms of an energy conversion agreement (the "Mahanagdong ECA"),
executed on September 18, 1993, are substantially similar to those of the
Upper Mahiao ECA. The Mahanagdong ECA provides for an approximately
three-year construction period and a ten-year cooperation period. At the end
of the cooperation period, the facility will be transferred to PNOC-EDC at no
cost. All of PNOC-EDC's obligations under the Mahanagdong ECA are supported
by the Government of the Philippines through a performance undertaking. The
capacity fees are expected to be approximately 97% of total revenues at the
design capacity levels, and the energy fees are expected to be approximately
3% of such total revenues.
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INTERNATIONAL PROJECTS IN DEVELOPMENT --GENERAL
The following is a summary description of certain information concerning
the Company's projects in development in Indonesia and the Philippines. 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. Presently, Magma does
not have any international projects under development. The Indenture contains
certain restrictions on the ability of Magma to make equity investments in
the development of new projects. See "Description of the Notes--Certain
Covenants--Limitation on Business and New Magma Project Developments."
COMPANY INTERNATIONAL PROJECTS IN DEVELOPMENT
Alto Peak. The Alto Peak project is a smaller geothermal project in the
same general area of Leyte as the Upper Mahiao, Mahanagdong and Malitbog
Projects. The Company and PNOC-EDC have executed a 70 MW net Energy
Conversion Agreement, dated May 7, 1994. The general terms and conditions are
similar to the Malitbog ECA. However, PNOC-EDC has not finalized the steam
conditions (pressure, composition and ph) pending completion of the drilling
and testing the geothermal wells that will supply steam to such project.
Accordingly, completion of the Alto Peak project is subject to a number of
significant uncertainties and cannot be assured.
Casecnan. In November 1994, the Company signed a "Project Agreement" with
the Philippine National Irrigation Administration ("NIA") to develop an
estimated $320 million combined irrigation and hydroelectric power generation
project (the "Casecnan Multipurpose Project"). Such project will deliver
excess water from the Casecnan and Denip (Cagayan) watershed in Northern
Luzon to the Pampanga watershed and the Pantabangan Reservoir for irrigation
use in the Central Luzon Valley. The Casecnan Multipurpose Project, which has
satisfied the requirements for an unsolicited proposal under the amended BOT
law, will also provide approximately 140 MW of net electric generation
capacity to the Luzon grid.
The project agreement is structured as a build, operate and transfer
agreement under which NIA will supply the water for the project and provides
for a 20-year cooperation period with significant "take-or-pay" obligations
for water and electricity. At the end of the 20-year cooperation period, the
Casecnan Multipurpose Project will be transferred to NIA and NAPOCOR at no
cost. The Company anticipates commencing construction in 1995.
Completion of such project remains subject to a number of significant
uncertainties, including arranging financing, obtaining certain required
permits and licenses and completing construction, none of which can be
assured.
Dieng. On December 2, 1994, a subsidiary of the Company executed a joint
operation contract (the "Dieng JOC") for the development of the geothermal
steam field and geothermal power facilities at the Dieng geothermal field,
located in Central Java (the "Dieng Project") with Perusahaan Pertambangan
Minyak Dan Gas Bumi Negara ("Pertamina"), the Indonesian national oil
company, and executed a "take-or-pay" energy sales contract (the "Dieng ESC")
with both Pertamina and PLN, the Indonesian national electric utility.
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 Joint Venture"). The
Dieng Joint Venture is structured with subsidiaries of the Company having a
minimum 47% interest, subsidiaries of PKS having the option to take a 47%
interest and P.T. HEA having a 6% interest in the Dieng Project.
Pursuant to the Dieng JOC and ESC, Pertamina will grant to the Dieng Joint
Venture the geothermal field and the wells and other facilities presently
located thereon and the Dieng Joint Venture will build, own and operate power
production units with an aggregate capacity of up to 400 MW. The Dieng Joint
Venture will accept the field operation responsibility for developing and
supplying the geothermal steam and fluids required to operate the plants. The
Dieng JOC is structured as a build-own-transfer agreement and will expire
(subject to extension by mutual agreement) on the date which is the later of
(i) 42 years following effectiveness of the Dieng JOC and (ii) 30 years
following the date of commencement of commercial generation of the final unit
completed. Upon the expiration of the proposed Dieng JOC, all facilities will
be transferred to Pertamina at no cost. The Dieng Joint Venture is required
to pay Pertamina a production allowance equal to three percent of the Dieng
Joint Venture's net operating income from the
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Dieng Project, plus a further amount based upon the negotiated value of
existing Pertamina geothermal production facilities that the Company expects
will be made available by Pertamina.
Pursuant to the Dieng ESC, PLN agreed to purchase and pay for all of the
Project's capacity and energy output on a "take or pay" basis regardless of
PLN's ability to accept such energy made available from the Dieng Project for
a term equal to that of the Dieng JOC. The price paid for electricity
includes a base energy price per kWh multiplied by the number of kWhs the
plants deliver or are "capable of delivering," whichever is greater. Energy
price payments are also subject to adjustment for inflation. PLN will also
pay a capacity payment based on plant capacity. All such payments are payable
in U.S. dollars.
The Company presently intends to begin well testing by the second quarter
of 1995 and to commence construction of an initial 55 MW unit in the 4th
quarter of 1995, and then to proceed on a modular basis with construction of
three additional units to follow shortly thereafter, resulting in an
aggregate first phase net capacity at this site of 220 MW. The Company
estimates that the total project cost of these units will be approximately
$450 million. The next phase is expected to expand the total capacity to 400
MW. The cost of the full Dieng Project is estimated to approximate $1
billion. The Company anticipates a consortium consisting of KCG and BHCO will
submit a proposal for the design and construction of the Dieng Project and
that a subsidiary of the Company will be responsible for operating and
managing the Dieng Project.
The Dieng field has been explored domestically for over 20 years, and BHCO
has been active in the area for more than five years. Pertamina has drilled a
total of 27 wells to date. 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 further. These steps, none
of which can be assured, include obtaining required regulatory permits and
approvals, completing the well testing, entering into a construction
agreement and other project contracts, and arranging financing.
Patuha. The Company is also developing a geothermal power plant with
respect to the Patuha geothermal field in Java, Indonesia (the "Patuha
Project"). The Company has entered into a joint venture (the "Patuha Joint
Venture") for Patuha with P.T. Enerindo Supra Abadi ("P.T. ESA"), an
Indonesian company. 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 will 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 PKS
will have the option to take a 45% interest in the Patuha Project.
On December 2, 1994, the Patuha Joint Venture executed both a joint
operation contract and an energy sales contract, each of which currently
contains terms substantially similar to those described above for the Dieng
Project. The Patuha Joint Venture intends to proceed on a modular basis
similar to the Dieng Project, with an aggregate capacity of up to 400 MW. The
Company estimates that the total cost will be approximately $1 billion. The
Company presently intends to begin well testing and further exploration in
the fourth quarter of 1995 with construction of the first unit expected to
begin by 1996.
The Company anticipates a consortium consisting of KCG and BHCO will
submit a proposal for the design and construction of the Patuha Project and
that a subsidiary of the Company will be responsible for operating and
managing the Patuha Project. 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.
Bali. The Company and PT Panutan Group, an Indonesian consortium of
energy, oil, gas and mining companies, have formed a joint venture to pursue
the development of geothermal resources in Bali (the "Bali Project") and to
obtain a power sales contract from PLN.
The Company presently intends to develop the Bali Project and other
possible projects in Indonesia using a structure similar to that contemplated
for the Dieng Project.
The Bali 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 Bali Project or that it will proceed or reach
commercial operation.
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DESCRIPTION OF THE NOTES
The Notes will be issued under an Indenture (hereinafter referred to as
the "Indenture") between the Company and The Bank of New York (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 limited recourse senior secured obligations of the
Company which will be secured by a pledge of the Collateral. The Company will
lend the proceeds of the Offering to Magma in exchange for the Secured Magma
Note. Except as noted below, the holders of the Notes will not have any
recourse to the general assets of the Company and any claim against the
Company for payment of the principal of, premium, if any, and interest on the
Notes will be limited to the Collateral, the Magma Note Recourse Assets and
the Restricted Payment Recourse Amount. The Notes will be limited to $200
million aggregate principal amount and will mature on June 30, 2003.
The principal of, premium, if any, and interest on the Notes will be
payable, and the Notes may be exchanged or transferred, at the office or
agency of the Company in the Borough of Manhattan, The City of New York
(which initially will be the principal corporate trust office of the
Trustee), or at such additional offices or agencies as the Company from time
to time may designate for such purpose. At the option of the Company, payment
of interest may be made by check mailed to the address of the Person entitled
thereto as such address may appear in the Security Register. While the Notes
are represented by Global Notes, the Company will make payments of principal
and interest by wire transfer to the Depositary or its nominee, as the case
may be, which will distribute payments to beneficial holders in accordance
with its customary procedures. The Notes (other than Global Notes and
beneficial interests therein) are transferable and exchangeable at the office
of the Security Registrar. The Company has initially appointed the Trustee as
the Paying Agent and the Security Registrar.
Interest on the Notes will accrue at the rate of 9 7/8 % per annum and
will be payable semi-annually in arrears on each June 30 and December 30,
commencing December 30, 1995, to the Holders thereof at the close of business
on the preceding June 15 and December 15, respectively. Interest on overdue
principal and (to the extent permitted by applicable law) on overdue interest
will accrue at a rate of 1% in excess of the rate per annum borne by the
Notes. Interest on the Notes will be computed on the basis of a 360-day year
of 12 30-day months.
The Notes will be issued without coupons and in fully registered
book-entry form only in denominations of $1,000 and integral multiples
thereof.
The Company is subject to the informational reporting requirements of
Sections 13 and 15(d) under the Exchange Act and, in accordance therewith,
files certain reports and other information with the Commission. See
"Available Information." In addition, if Sections 13 and 15(d) cease to apply
to the Company, the Company will covenant in the Indenture to file comparable
reports and information with the Trustee and the Commission, and mail such
reports and information to the Holders of the Notes at their registered
addresses, for so long as any Notes remain outstanding. The Company will also
include in such reports and information such information regarding Magma as
would be required from time to time by the Commission or the Exchange Act,
and, if such information regarding Magma is not required, the Company will
include summary financial information regarding Magma's revenues and
operating expenses.
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OPTIONAL REDEMPTION
The Notes may be redeemed at the Company's option, in whole or in part, at
any time on or after June 30, 2000 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 June 30 of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------------------- ----------------
<S> <C>
2000 ............... 104.93750%
2001 ............... 102.46875%
2002 and thereafter 100.00000%
</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, by
lot or otherwise in such manner as the Trustee deems to be fair and
reasonable.
The Notes will not be subject to any mandatory sinking fund.
REDEMPTION UPON COMPANY EQUITY OFFERING
At any time, or from time to time, on or prior to June 30, 1998, the
Company may, at its option, use all or a portion of the net cash proceeds of
one or more Company Equity Offerings (as defined below), within 90 days of
such offering, to redeem up to an aggregate of 35% of the principal amount of
the Notes originally issued (taken together with any Notes redeemed pursuant
to the provisions described below under "Redemption Upon Magma Equity
Offering"), at a redemption price equal to 109.875% of the principal amount
thereof plus accrued interest to the redemption date, provided that
immediately following such redemption, at least $130 million principal amount
of Notes remain outstanding. In order to effect the foregoing redemption with
the proceeds of any Company Equity Offering, the Company shall send the
redemption notice not later than 30 days prior to the redemption date. The
Trustee shall select the Notes or portions thereof to be redeemed pro rata,
by lot or by any other method the Trustee shall deem fair and reasonable.
As used in the preceding paragraph, "Company Equity Offering" means an
underwritten public offering of Capital Stock (other than Redeemable Capital
Stock) of the Company or a wholly owned Subsidiary of the Company, other than
Magma and its Subsidiaries, pursuant to a registration statement filed with
the Commission in accordance with the Securities Act or an offering of such
Capital Stock exempt from registration under the Securities Act.
REDEMPTION UPON MAGMA EQUITY OFFERING
The Company shall use all of the net cash proceeds of any Magma Equity
Offering (as defined below), within 60 days of such offering, to redeem up to
an aggregate of 35% of the principal amount of the Notes originally issued
(taken together with any Notes redeemed pursuant to the provisions described
above under "Redemption Upon Company Equity Offering"), at a redemption price
equal to 109.875% of the principal amount thereof plus accrued interest to
the redemption date, provided that immediately following such redemption, at
least $130 million principal amount of Notes remain outstanding. See "Certain
Covenants--Limitation on Issuance of Capital Stock of Magma" below. The
Company shall send the redemption notice not later than 30 days prior to the
redemption date. The Trustee shall select the Notes or portions thereof to be
redeemed pro rata, by lot or by any other method the Trustee shall deem fair
and reasonable.
As used in the preceding paragraph, "Magma Equity Offering" means an
underwritten public offering of Capital Stock of Magma (other than Redeemable
Capital Stock) by Magma pursuant to a registration statement filed with the
Commission in accordance with the Securities Act or an offering of such
Capital Stock exempt from registration under the Securities Act, in each case
for fair market value; provided that a Magma Equity Offering shall not
include an issuance of Capital Stock of Magma to the Company or its
Subsidiaries for fair market value.
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RANKING
The Notes will be limited recourse senior secured obligations of the
Company which will be secured by a pledge of the Collateral. The Company will
lend the proceeds of the Notes to Magma in exchange for the Secured Magma
Note. The terms of the Secured Magma Note will be substantially identical to
the terms of the Notes. The Secured Magma Note will be secured by an
assignment of certain unencumbered assets of Magma.
The Company's liability under the Indenture and the Notes and the
Trustee's and the Holders' rights to recover against the Company under the
Indenture is limited to (i) the Collateral, (ii) the Magma Note Recourse
Assets and (iii) general assets of the Company in an amount equal to the
Restricted Payment Recourse Amount and the proceeds realized by the Trustee
upon the sale or other realization of such assets. The holders of the Notes
will have a security interest in the Collateral, but will not have a security
interest in the Magma Note Recourse Assets and the other general assets of
the Company.
Subject to the limited recourse set forth in the immediately preceding
paragraph, the Company agrees to pay any and all expenses (including
reasonable counsel fees and expenses) incurred by the Trustee in enforcing
any rights under the Notes.
As of March 31, 1995, Magma's total consolidated indebtedness was $664.9
million (excluding deferred income), its total consolidated assets were
$1,387.9 million and its stockholders' equity was $502.7 million. As of such
date, on a pro forma basis, after giving effect to the consummation of the
Offering and the Funding Corporation Offering and the application of the net
proceeds therefrom, Magma's total consolidated indebtedness would have been
$738.1 million (excluding deferred income), its total consolidated assets
would have been $1,462.9 million and its stockholders' equity would have been
$502.7 million. As of March 31, 1995, the Company's total consolidated
indebtedness (including Magma) was $1,544.9 million (excluding deferred
income), its total consolidated assets were $2,339.8 million and its
stockholders' equity was $485.4 million. As of such date, on a pro forma
basis, after giving effect to the consummation of the Offering and the
Funding Corporation Offering and the application of the net proceeds
therefrom, the Company's total consolidated indebtedness (including
indebtedness of Magma) would have been $1,618.1 million (excluding deferred
income), its total consolidated assets would have been $2,414.8 million and
its stockholders' equity would have been $485.4 million. See "Prospectus
Summary--Summary Pro Forma Condensed Combined Unaudited Financial
Information," "--Magma Summary Consolidated Historical Financial and
Operating Data," "--CECI Summary Consolidated Historical Financial and
Operating Data" and "Capitalization." The Indenture does not limit the amount
of Non-Recourse Debt which may be incurred by the Company or Magma or at the
subsidiary or project level. As a result, the Notes are effectively
subordinated to any secured Non-Recourse Debt of Magma and to indebtedness
and other obligations of the Company's or Magma's subsidiaries and the
partnerships and joint ventures in which the Company or Magma has direct or
indirect interests. As of March 31, 1995, on a pro forma basis, after giving
effect to the consummation of the Offering and the Funding Corporation
Offering and the application of the net proceeds therefrom there would have
been approximately $1,255.0 million of indebtedness and other liabilities,
which represented CECI's proportionate share of joint venture and subsidiary
debt, which would be effectively senior to the Notes, substantially all of
which would have been secured by the assets of such joint ventures and
subsidiaries. See "Risk Factors-- Substantial Leverage."
SECURITY
Pursuant to the Indenture the Company will assign and pledge and cause to
be assigned and pledged to the Trustee, for its benefit and the benefit of
the holders of the Notes, a security interest in (i) all of the Capital Stock
of Magma now owned or hereafter acquired by the Company or any of its
Subsidiaries, (ii) all Magma Equity Offering Pledged Shares, if any and (iii)
all dividends, cash, instruments and other property and distributions and
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any of the foregoing. Notwithstanding the
foregoing, as long as no Default has occurred and is continuing, the Lien on
the dividends, cash, instruments or other property and distributions paid or
made from time to time in respect of the shares of Capital Stock of Magma
pledged under the Indenture will be automatically released upon receipt by
the pledgor of such dividends, cash, instruments or other property and
distributions.
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The security interest in the Collateral will be a first priority security
interest. However, absent any Default, the Company and each Magma Equity
Holder will be able to vote, as each sees fit in its sole discretion, the
Capital Stock of Magma it pledged, provided that no vote may be cast, and no
consent, waiver or ratification given or action taken, which would be
inconsistent with or violate any provision of the Indenture, the Notes, the
Secured Magma Note or any Pledge Agreement.
Upon satisfaction by the Company of the conditions to its legal defeasance
option or its covenant defeasance option or the discharge of the Indenture,
the Lien granted under the Indenture and each Pledge Agreement on all the
Collateral will terminate and all the Collateral will be released without any
further action by the Trustee or any other person.
If an Event of Default occurs under the Indenture, the Trustee, on behalf
of the Holders of the Notes, in addition to any rights or remedies available
to it under the Indenture or Pledge Agreements, may take such action as it
deems advisable to protect and enforce its rights in the Collateral,
including the institution of foreclosure proceedings. The proceeds received
by the Trustee from any foreclosure will be applied by the Trustee first to
pay the expenses of such foreclosure and fees and other amounts then payable
to the Trustee under the Indenture or the Pledge Agreements and, thereafter,
to pay the Default Amount on the Notes. However, the Trustee's right under
the Indenture or the Pledge Agreements to dispose of the Collateral upon an
Event of Default could be significantly impaired if CECI or a Magma Equity
Holder were to become the subject of a case under Title 11 of the United
States Code (the "Bankruptcy Code") prior to the Trustee's having disposed of
the Collateral. Under the Bankruptcy Code, secured creditors, such as the
Trustee, are prohibited from disposing of their collateral, without
bankruptcy court approval. Moreover, even upon an Event of Default, the
Bankruptcy Code would permit the debtor to continue to vote the Capital Stock
of Magma or to otherwise use the Collateral if the Trustee is given "adequate
protection" of its interest in the Collateral.
The holders of the Notes will have no recourse to any assets of the
Company, other than the Collateral, the Magma Note Recourse Assets and
general assets of the Company in an amount equal to the Restricted Payment
Recourse Amount. In addition, Holders will not have a security interest in
any assets of the Company, other than the Collateral.
GLOBAL NOTES
The Notes will be issued in the form of registered global notes that will
be deposited with, or on behalf of, the Depositary and registered in the name
of the Depositary's nominee. Unless and until exchanged in whole or in part
for Notes in certificated registered form, the Global Notes may not be
transferred except as a whole by the Depositary to another nominee of the
Depositary or to a successor depositary or a nominee of such successor.
Upon the issuance of the Global Notes, the Depositary will credit on its
book-entry registration and transfer system, the principal amount of the
Notes represented by the Global Notes to accounts of participant institutions
that have accounts with the Depositary. The accounts to be credited shall be
designated by the Underwriters, dealers or agents. Owners of beneficial
interests in the Global Notes that are not participants or Persons that may
hold through participants but desire to purchase, sell or otherwise transfer
ownership of the Notes by book-entry on the records of the Depositary may do
so only through participants and Persons that may hold through participants.
Because the Depositary can only act on behalf of participants and Persons
that may hold through participants, the ability of an owner of a beneficial
interest in the Global Notes to pledge Notes to Persons that do not
participate in the book-entry registration and transfer system of the
Depositary, or otherwise take actions in respect of such Notes, may be
limited. In addition, the laws of some states require that certain purchasers
of securities take physical delivery of such securities in definitive form.
Such limits and such laws may impair the ability to transfer or pledge
beneficial interests in the Global Notes.
So long as the Depositary, or its nominee, is the registered owner of a
Global Note, the Depositary or its nominee, as the case may be, will be
considered the sole owner or Holder of such Global Note for all purposes
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under the Indenture. Except as provided below, owners of beneficial interests
in a Global Note will not be entitled to have Notes registered in their name,
will not receive or be entitled to receive physical delivery of the Notes in
certificated form and will not be considered the owners or Holders thereof
under the Indenture.
Accordingly, each Person owning a beneficial interest in a Global Note
must rely on the procedures of the Depositary and, if such Person is not a
participant, on the procedures of the participant through which such Person
owns its interest, to exercise any rights of a Holder under the Indenture.
The Company understands that under existing industry practices, in the event
that the Company requests any action of Holders or that an owner of a
beneficial interest in such Global Note desires to take any action that the
Depositary, as the Holder of the Global Notes, is entitled to take under the
Indenture, the Depositary would authorize the participants holding the
relevant beneficial interests to take such action, and such participants
would authorize beneficial owners holding through such participants to take
such action or would otherwise act upon the instructions of beneficial owners
holding through them.
Payment of principal of, premium, if any, and interest on the Global Notes
will be made to the Depositary or its nominee, as the case may be, as the
sole registered owner of the Global Notes. None of the Company, the Trustee,
any paying agent or the registrar for the Notes will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the Global Notes or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Depositary has advised the Company and the Trustee that its current
practice is upon receipt of any payment of principal, premium, if any, or
interest, to immediately credit the accounts of the participants with such
payment in amounts proportionate to their respective holdings in principal
amount of beneficial interest in the Global Notes as shown in the records of
the Depositary. Payments by participants to owners of beneficial interests in
the Global Notes held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name", and will be the
responsibility of such participants. Owners of beneficial interests in the
Global Notes that hold through the Depositary under a book-entry format (as
opposed to holding certificates directly) may experience some delay in the
receipt of interest payments since the Depositary will forward payments to
its participants, which in turn will forward them to Persons that hold
through participants or such owners.
If the Depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by the Company or the
Depositary within ninety days, the Company will issue Notes in definitive
form in exchange for the Global Notes. In addition, the Company or the
Depositary may at any time and in its sole discretion determine not to have
the Notes represented by the Global Notes and, in such event, the Company
will issue Notes in definitive form in exchange for the Global Notes. In
either instance, an owner of a beneficial interest in the Global Notes will
be entitled to have Notes equal in principal amount to such beneficial
interest registered in its name and will be entitled to physical delivery of
such Notes in definitive form. Notes so issued in definitive form will be
issued in denominations of $1,000 and integral multiples thereof and will be
issued in registered form only, without coupons.
The Depositary has advised the Company and the Underwriter as follows: The
Depositary is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary was created to hold securities of participants and to
facilitate the clearance and settlement of securities transactions among the
participants in deposited securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. Participants include securities brokers
and dealers (including the Underwriter), banks, trust companies, clearing
corporations and certain other organizations, some of which (and/or their
representatives) own the Depositary. Access to the Depositary's book-entry
system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants"). Persons
who are not participants may
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beneficially own securities held by the Depositary only through participants
or indirect participants. The rules applicable to the Depositary and the
participants are on file with the Commission. The Depositary agrees with and
represents to its participants that it will administer its book-entry system
in accordance with its rules and bylaws and requirements of law.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriter in immediately
available funds. All payments of principal and interest will be made by the
Company in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers
is generally settled in clearing-house or next-day funds. In contrast, the
Notes are expected to trade in the Same-Day Funds Settlement System of the
Depositary until maturity, and, to the extent that secondary market trading
activity in the Notes is effected through the facilities of the Depositary,
such trades will be settled in immediately available funds.
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 permit Magma to 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
Magma would be equal to or greater than 2.0 to 1.
Notwithstanding the foregoing, Magma may Incur each and all of the
following: (i) Magma Refinancing Debt, (ii) Debt of Magma 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 of Magma or an Eligible Joint Venture
(other than to another Restricted Subsidiary of Magma or another Eligible
Joint Venture), or any transfer of Magma's ownership interest, or a portion
thereof, in such Restricted Subsidiary or such Eligible Joint Venture or the
interest, or a portion thereof, of Kiewit in a Permitted Joint Venture or an
Eligible Joint Venture (which transfer has the effect of causing such
Restricted Subsidiary or such Eligible Joint Venture to cease to be a
Restricted Subsidiary or an Eligible Joint Venture, as the case may be), will
be deemed to be an Incurrence of Debt that is subject to the provisions of
this covenant other than this clause (ii), (iii) Debt in an aggregate
principal amount not to exceed $50 million outstanding at any one time may be
issued under or in respect of Permitted Working Capital Facilities, (iv)
Non-Recourse Debt Incurred in respect of a Permitted Facility in which Magma
has a direct or indirect interest, provided that in the case of any
Non-Recourse Debt Incurred by Magma, such Debt is expressly subordinated to
the Secured Magma Note, and the final Stated Maturity of such Non-Recourse
Debt will not be sooner than the Stated Maturity of the Notes and the Secured
Magma Note, (v) Debt in respect of Currency Protection Agreements or Interest
Rate Protection Agreements, (vi) Purchase Money Debt, provided that the
amount of such Debt (net of any original issue discount) does not exceed 90%
of the fair market value of the Property acquired, (vii) the Notes and other
Debt outstanding as of the date of original issuance of the Notes (other than
Debt to the extent that it is extinguished, retired, defeased or repaid in
connection with the original issuance of the Notes), including Debt that is
Incurred in respect of interest or discount on such Debt (or Redeemable Stock
issued as dividends in respect of Redeemable Stock) pursuant to the terms of
the agreement or instrument that governs such Debt (or such Redeemable Stock)
as in effect on the date of original issuance of the Notes, (viii) the
Secured Magma Note and (ix) Debt in an aggregate principal amount not to
exceed $50 million outstanding at any one time.
Limitation on Subsidiary Debt
The Company will not permit any Restricted Subsidiaries of Magma 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
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Notes, (ii) Debt owed by a Restricted Subsidiary or an Eligible Joint Venture
to Magma or another Restricted Subsidiary of Magma or another Eligible Joint
Venture that either directly or indirectly owns all or a portion of Magma's
interest in, or directly or indirectly is owned by, such Restricted
Subsidiary or such Eligible Joint Venture, as the case may be, and that does
not own any Permitted Facility or a direct or indirect interest therein,
other than the Permitted Facility or any other Permitted Facility that is
located on the same localized geothermal reservoir or a direct or indirect
interest therein owned by such Restricted Subsidiary or Eligible Joint
Venture, (iii) Non-Recourse Debt Incurred in respect of a Permitted Facility
in which such Restricted Subsidiary or such Eligible Joint Venture has a
direct or an indirect interest (which may include Construction Financing
provided by Magma to the extent permitted under the covenant described under
"Limitation on Restricted Payments" below as a "Permitted Investment"), (iv)
Subsidiary Refinancing Debt, (v) Acquired Debt, (vi) Debt in respect of
Currency Protection Agreements or Interest Rate Protection Agreements and
(vii) Permitted Funding Company Loans.
Limitation on Restricted Payments
The Company will not permit Magma or any of Magma's 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) Magma 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
Magma, 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 of the Company, as evidenced by an Officers'
Certificate, or, if more than $15 million, by the Board of Directors of the
Company, 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 Magma 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 S&P and Moody's (or if both do not make a rating of the Notes
publicly available, an equivalent Rating Category is made publicly available
by another Rating Agency), then 75% (instead of 50%) of the Adjusted
Consolidated Net Income (if more than zero) with respect to such fiscal
quarter will be included pursuant to this clause (i), and provided further
that if Adjusted Consolidated Net Income for such period is less than zero,
then minus 100% of the amount of such net loss, plus (ii) 100% of the
aggregate net cash proceeds received by Magma 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), (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 Magma 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," and (D) the Company
in the form of a capital contribution or other equity advance but only to the
extent that such capital contribution or other equity advance increases the
shareholders' equity account on Magma's balance sheet, 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 Magma, 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 Magma 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
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payments are not included in the calculation of Adjusted Consolidated Net
Income, provided further that if Investments of the types specified in
clauses (iv) and (v) of the definition of "Restricted Payment" have been made
in any Person and such Person thereafter becomes a Restricted Subsidiary or
an Eligible Joint Venture, then the aggregate amount of such Investments (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 (such aggregate available amount, the "Available
Restricted Payment Amount"). 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. Notwithstanding the foregoing,
the Company may permit Magma, its Restricted Subsidiaries and the Eligible
Joint Ventures to make any Restricted Payments so long as the Company
receives 100% of the amount of such Restricted Payment; provided, however,
that, subject to the following two sentences, the holders of the Notes will
have recourse to a portion of the general assets of the Company in an amount
equal to the aggregate amount of any Restricted Payments to the Company,
which together with the aggregate amount of all other Restricted Payments
made by Magma, its Restricted Subsidiaries and the Eligible Joint Ventures
(such amount to be determined in accordance with clause (c) above), exceeds
the Available Restricted Payment Amount (the "Restricted Payment Recourse
Amount"). At the Company's option, either (i) the Available Restricted
Payment Amount shall be increased or (ii) the Restricted Payment Recourse
Amount shall be reduced, in either case, by an amount equal to the amount of
any (A) repayment by the Company to Magma or its Restricted Subsidiaries or
Eligible Joint Ventures of any loans or advances made to the Company by the
entity that receives such repayment and (B) capital contributions or other
equity advances by the Company to Magma or its wholly owned Restricted
Subsidiaries, but only to the extent that such capital contribution or other
equity advance increases the shareholders' equity account on Magma's or such
wholly owned Restricted Subsidiary's balance sheet, provided that the
aggregate amount of such increases and reductions shall not exceed the
aggregate amount of Restricted Payments that constituted or increased the
Restricted Payment Recourse Amount pursuant to the immediately preceding
sentence. The amount of any increase in the Available Restricted Payment
Amount or reduction in the Restricted Payment Recourse Amount made pursuant
to the immediately preceding sentence shall not also be used to increase the
Available Restricted Payment Amount pursuant to the calculation set forth in
clause (c) above.
None of Magma or 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 Magma or an Eligible Joint Venture ceases
to be a Restricted Subsidiary or an Eligible Joint Venture (other than as a
result of being designated as an Unrestricted Subsidiary), although any
subsequent Investment made by Magma, its Restricted Subsidiaries and the
Eligible Joint Ventures in such Person will be Investments that will be
subject to the foregoing paragraph unless and until such time as such Person
becomes a Restricted Subsidiary or an Eligible Joint Venture. Notwithstanding
the foregoing, (i) the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary, in the manner provided in the definition of
"Unrestricted Subsidiary," will be an Investment that will be subject to the
foregoing paragraph and (ii) the transfer of Magma's interest (or any portion
thereof) in an entity that has been deemed to be an Eligible Joint Venture,
directly or indirectly, to an Unrestricted Subsidiary will be an Investment
(to the extent of the interest transferred) that will be subject to the
foregoing paragraph.
Restricted Payments are defined in the Indenture to exclude Permitted
Payments, which include Permitted Investments. See "Certain Definitions"
below.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries
The Company will not permit Magma or any of Magma's 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 Magma, any other Restricted Subsidiary or any other Eligible Joint
Venture, (b) make payments in respect of any
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Debt owed to Magma, any other Restricted Subsidiary of Magma or any Eligible
Joint Venture, (c) make loans or advances to Magma or to any other Restricted
Subsidiary of Magma 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 Magma 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 Magma, 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
the applicable jurisdiction, (iv) in connection with the execution and
delivery of an electric power or thermal energy purchase contract, or other
contract related to the output or product of, or services rendered by a
Permitted Facility, to which such Restricted Subsidiary or such Eligible
Joint Venture is the supplying party or other contracts with customers,
suppliers and contractors to which such Restricted Subsidiary or such
Eligible Joint Venture is a party and where such Restricted Subsidiary or
such Eligible Joint Venture is engaged, directly or indirectly, in the
development, design, engineering, procurement, construction, acquisition,
ownership, management or operation of such Permitted Facility, provided that
the President or the Chief Financial Officer of the Company determines in
good faith, as evidenced by an Officers' Certificate, that such encumbrances
or restrictions are required to effect such contracts and are not materially
more restrictive, taken as a whole, on the ability of the applicable
Restricted Subsidiary or the applicable Eligible Joint Venture to make the
payments, distributions, loans, advances or transfers referred to in clauses
(a) through (d) above than encumbrances and restrictions, taken as a whole,
customarily accepted (or, in the absence of any industry custom, reasonably
acceptable) in comparable financings or comparable transactions in the
applicable jurisdiction, (v) in connection with any Acquired Debt, provided
that such encumbrance or restriction was not incurred in contemplation of
such Person becoming a Restricted Subsidiary or an Eligible Joint Venture and
provided further that such encumbrance or restriction does not extend to any
other Property of such Person at the time it became a Restricted Subsidiary
or an Eligible Joint Venture, (vi) in connection with the Incurrence of any
Debt permitted under clause (iv) of the provision described in the second
paragraph of "Limitation on Subsidiary Debt" above, provided that, in the
case of Debt owed to Persons other than Magma 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 Magma, 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 permit Magma or any of Magma's
Restricted Subsidiaries or any Eligible Joint Venture
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to make any Asset Disposition unless (i) Magma, 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 of the Company, as evidenced by
an Officers' Certificate, or, if more than $15 million, by the Board of
Directors of the Company, 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 Magma as described in the first sentence of the covenant
described under "Limitation on Business and New Magma Project Developments"
below, and (iii) unless otherwise required under the terms of Senior Debt, at
Magma's election, the Net Cash Proceeds are either (A) invested in the
business of Magma, any of its Restricted Subsidiaries or any Eligible Joint
Venture or (B) applied to the payment of any Debt of Magma or any of its
Restricted Subsidiaries or any Eligible Joint Venture (or as otherwise
required under the terms of such Debt), provided that, no such payment of
Debt (x) under Permitted Working Capital Facilities or any other revolving
credit agreement will count for this purpose unless the related loan
commitment, standby facility or the like will be permanently reduced by an
amount equal to the principal amount so repaid or (y) owed to Magma, a
Restricted Subsidiary thereof or an Eligible Joint Venture will count for
this purpose, provided further that such investment or such payment, as the
case may be, must be made within 365 days from the later of the date of such
Asset Disposition or the receipt by Magma, such Restricted Subsidiary or such
Eligible Joint Venture of the Net Cash Proceeds related thereto. Any Net Cash
Proceeds from Asset Dispositions that are not applied as provided in clause
(A) or (B) of the preceding sentence will constitute "Excess Proceeds."
Excess Proceeds will be applied, as described below, to make an offer (an
"Excess Proceeds Offer") to purchase Notes at a purchase price equal to 100%
of the principal amount thereof, plus accrued interest, if any, to the date
of purchase.
Notwithstanding anything in the foregoing to the contrary, Magma, 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 of the Company, as evidenced by an Officers'
Certificate, or, if more than $25 million, by the Board of Directors of the
Company, as evidenced by a Board resolution, provided, further 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.
To the extent that any or all of the Net Cash Proceeds of any Foreign
Asset Disposition are prohibited from (or delayed in) being repatriated to
the United States by applicable local law, the portion of such Net Cash
Proceeds so affected will not be required to be applied at the time provided
above but may be retained by any Restricted Subsidiary or any Eligible Joint
Venture so long, but only so long, as the applicable local law does not
permit (or delays) repatriation to the United States. If such Net Cash
Proceeds are transferred by the Restricted Subsidiary or Eligible Joint
Venture that conducted the Foreign Asset Disposition to another Restricted
Subsidiary or Eligible Joint Venture, the Restricted Subsidiary or Eligible
Joint Venture receiving such Net Cash Proceeds must not be directly or
indirectly obligated on any Debt owed to any Person other than Magma. The
Company will take or cause Magma or 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 of the Company determines, in good faith, as evidenced by
an Officers' Certificate, that repatriation of any or all of the Net
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Cash Proceeds of any Foreign Asset Disposition would have a material adverse
tax consequence to Magma, 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, Magma
may apply such Net Cash Proceeds pursuant to such provision.
If the Notes tendered pursuant to an Excess Proceeds Offer have an
aggregate purchase price that is less than the Excess Proceeds available for
the purchase of the Notes, Magma 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 Excess Proceeds Offer pursuant to
this covenant if the Excess Proceeds available therefor are less than $10
million, provided that the lesser amounts of such Excess Proceeds will be
carried forward and cumulated for each 36 consecutive month period for
purposes of determining whether an Excess Proceeds Offer is required with
respect to any Excess Proceeds of any subsequent Asset Dispositions. Any such
lesser amounts so carried forward and cumulated need not be segregated or
reserved and may be used for general corporate purposes, provided that such
use will not reduce the amount of cumulated Excess Proceeds or relieve the
Company of its obligation hereunder to make an Excess Proceeds Offer with
respect thereto.
The Company will make an Excess Proceeds Offer by mailing to each Holder,
with a copy to the Trustee, within 30 days after the receipt of Excess
Proceeds that cause the cumulated Excess Proceeds to exceed $10 million, a
written notice that 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 "Excess
Proceeds Purchase Date"), that will contain certain information concerning
the business of the Company and Magma that the Company believes in good faith
will enable the Holders to make an informed decision and that will contain
information concerning the procedures applicable to the Excess Proceeds Offer
(including, without limitation, the right of withdrawal) and the effect of
such Excess Proceeds Offer on the Notes tendered. Holders that elect to have
their Notes purchased will be required to surrender such Notes at least one
Business Day prior to the Excess Proceeds Purchase Date. If at the expiration
of the Excess Proceeds Offer period the aggregate purchase price of the Notes
properly tendered by Holders pursuant to the Excess Proceeds Offer exceeds
the amount of such Excess Proceeds, the Notes or portions of Notes to be
accepted for purchase will be selected by the Trustee in such manner as the
Trustee deems to be fair and appropriate in the circumstances.
If the Company is prohibited by applicable law from making the Excess
Proceeds Offer or purchasing Notes thereunder, the Company need not make an
Excess Proceeds Offer pursuant to this covenant for so long as such
prohibition is in effect.
The Company will comply with all applicable tender offer rules, including,
without limitation, Rule 14e-1 under the Exchange Act, in connection with an
Excess Proceeds Offer.
Limitation on Transactions with Affiliates
The Company will not permit Magma or any of Magma's 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 Magma, 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 Magma, such Restricted Subsidiary or such Eligible Joint
Venture, (ii) such business, transaction or series of related transactions is
on terms no less favorable to Magma, such Restricted Subsidiary or such
Eligible Joint Venture than those that could be obtained in a comparable
arm's length transaction with a Person that is not such an Affiliate and
(iii) with respect to such business, transaction or series of related
transactions that has a fair market value or involves aggregate payments
equal to, or in excess of, $10 million, such business,
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transaction or series of transactions is approved by a majority of the Board
of Directors of the Company (including a majority of the disinterested
directors of the Company), which approval is set forth in a Board resolution
delivered to the Trustee certifying that, in good faith, the Board of
Directors of the Company believes that such business, transaction or series
of transactions complies with clauses (i) and (ii) above.
In addition to the foregoing, without complying with clause (iii) above,
the Company may provide to Magma, its Restricted Subsidiaries or any Eligible
Joint Venture (i) general corporate administrative and management services,
including, without limitation, procurement, construction, engineering,
construction administration, legal, accounting, financial, money management,
risk management, personnel, administration and business planning services and
(ii) operating and management services, in each case, as may be required by
Magma, its Restricted Subsidiaries or the Eligible Joint Ventures from time
to time, provided that such services are furnished (x) in the ordinary course
of business and (y) consistent with past business practices.
Limitation on Liens
The Company will not permit Magma to Incur any Debt that is secured,
directly or indirectly, with, and the Company will not permit Magma or any of
Magma's Restricted Subsidiaries or any Eligible Joint Venture to grant, a
Lien on the Property of Magma, 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 Magma, 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 Magma, any of its Restricted Subsidiaries or any Eligible Joint Venture
and (y) do not extend to any other Property of Magma, 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 Magma or a
Restricted Subsidiary, the President or Chief Financial Officer of the
Company determines in good faith, as evidenced by an Officers' Certificate,
that such Liens are required in order to effect such financing and are not
materially more restrictive, taken as a whole, than Liens, taken as a whole,
customarily accepted (or in the absence of industry custom, reasonably
acceptable) in comparable financings or comparable transactions in the
applicable jurisdiction, (iv) Liens existing on the date of the original
issuance of the Notes, (v) Liens incurred to secure Debt incurred by Magma 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 Magma 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 Magma in any Subsidiary of
Magma or any Joint Venture, (vii) Liens in respect of extensions, renewals,
refundings or refinancings of any Debt secured by the Liens referred to in
the foregoing clauses, provided that the Liens in connection with such
renewal, extension, refunding or refinancing will be limited to all or part
of the specific property that was subject to the original Lien, (viii) Liens
incurred to secure obligations in respect of letters of credit, bankers'
acceptances, surety, bid, operating and performance bonds, performance
guarantees or other similar instruments or obligations (or reimbursement
obligations with respect thereto) (in each case, to the extent incurred in
the ordinary course of business), (ix) any Lien arising by reason of (A) any
judgment, decree or order of any court, so long as such Lien is being
contested in good faith and is appropriately bonded, and any appropriate
legal proceedings that may have been duly initiated for the review of such
judgment, decree or order have not been finally terminated or the period
within which such proceedings may be initiated has not expired, (B) taxes,
duties, assessments, imposts or other governmental charges that are not yet
delinquent or are being contested in good faith, (C) security for payment of
worker's compensation or other insurance, (D) security for the performance of
tenders, contracts (other than contracts for the payment of money) or leases,
(E) deposits to secure public or statutory obligations, or to secure
permitted contracts for the
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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 Magma, any of its
Restricted Subsidiaries or any Eligible Joint Venture or (H) leases and
subleases of real property that do not materially interfere with the ordinary
conduct of the business of Magma, any of its Restricted Subsidiaries or any
Eligible Joint Venture and that are made on customary and usual terms
applicable to similar properties, (x) Liens, in addition to the foregoing,
that secure obligations not in excess of $5 million in the aggregate, or (xi)
Liens granted in connection with the Funding Corporation Securities and the
Secured Magma Note. The Company may not grant a Lien on (i) any Capital Stock
of Magma, except for the Lien securing the Notes or (ii) the Magma Note
Recourse Assets.
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 principal amount 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 Magma or their
Subsidiaries Incur additional Debt, whether through recapitalizations or
otherwise.
Within 30 days following a Change of Control, the Company will mail a
notice to each Holder, with a copy to the Trustee, stating (1) that a Change
of Control has occurred and that such Holder has the right to require the
Company to purchase such Holder's Notes at the purchase price described above
(the "Change of Control Offer"), (2) the circumstances and relevant facts
regarding such Change of Control (including information with respect to pro
forma historical income, cash flow and capitalization of both the Company and
Magma 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 interest on any Note
not tendered or purchased will continue to accrue, (5) any Note properly
tendered pursuant to the Change of Control Offer will cease to accrue
interest after the Purchase Date (assuming sufficient moneys for the purchase
thereof are deposited with the Trustee), (6) that Holders electing to have a
Note purchased pursuant to a Change of Control Offer will be required to
surrender the Note, with the form entitled "Option of Holder To Elect
Purchase" on the reverse of the Note completed, to the paying agent at the
address specified in the notice prior to the close of business on the fifth
Business Day prior to the Purchase Date, (7) that a Holder will be entitled
to withdraw such Holder's election if the paying agent receives, not later
than the close of business on the third Business Day (or such shorter periods
as may be required by applicable law) preceding the Purchase Date, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of Notes the Holder delivered for purchase, and a statement
that such Holder is withdrawing his election to have such Notes purchased and
(8) that Holders that elect to have their Notes purchased only in part will
be issued new Notes having a principal amount equal to the portion of the
Notes that were surrendered but not tendered and purchased.
On the Purchase Date, the Company will (i) accept for payment all Notes or
portions thereof tendered pursuant to the Change of Control Offer, (ii)
deposit with the Trustee money sufficient to pay the purchase price of all
Notes or portions thereof so tendered for purchase and (iii) deliver or cause
to be delivered to the Trustee the Notes properly tendered together with an
Officers' Certificate identifying the Notes or portions thereof tendered to
the Company for purchase. The Trustee will promptly mail, to the Holders of
the Notes properly tendered and purchased, payment in an amount equal to the
purchase price, and promptly authenticate and mail to each Holder a new Note
having a principal amount equal to any portion of such Holder's Notes that
were surrendered but not tendered and purchased, the Company will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Purchase Date.
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If the Company is prohibited by applicable law from making the Change of
Control Offer or purchasing Notes thereunder, the Company need not make a
Change of Control Offer pursuant to this covenant for so long as such
prohibition is in effect.
The foregoing provisions may not necessarily afford the Holders of the
Notes protection in the event of a highly leveraged transaction, including a
reorganization, restructuring, merger or other similar transaction involving
the Company that may adversely affect the Holders because (i) such
transactions may not involve a shift in voting power or beneficial ownership
or, even if they do, may not involve a shift of the magnitude required under
the definition of "Change of Control" to trigger the provisions or (ii) such
transactions may include an actual shift in voting power or beneficial
ownership to Kiewit which is excluded under the definition of "Change of
Control" from the amount of shares involved in determining whether or not the
transaction involves a shift of the magnitude required to trigger the
provisions.
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 and New Magma Project Developments
The Company will cause Magma and Magma's 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 permit
Magma, any of Magma's 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 Magma as described in the preceding sentence
(collectively, the "Ineligible Investments") other than as a part of an
Investment or an acquisition of Property that is predominantly and directly
related to the business of Magma 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 Magma and its consolidated
Restricted Subsidiaries (as determined in accordance with GAAP) as determined
in good faith by the Chief Financial Officer of the Company, as evidenced by
an Officers' Certificate, Magma, 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
Investments to exceed the 10% Limit, must return to compliance with the 10%
Limit by disposing of Ineligible Investments or otherwise, provided that such
18-month period may be extended up to an additional six months if, despite
Magma's active efforts during such 18-month period to dispose of such
Ineligible Investments or to otherwise come into compliance with such 10%
Limit, Magma is unable to do so because of regulatory restrictions or delays
or adverse market conditions.
The Company will not permit Magma or any of its Restricted Subsidiaries or
Eligible Joint Ventures to make any Significant Equity Investment in
connection with the development of any new electric power or thermal energy
generation facility or infrastructure facility constituting a Permitted
Facility (other than any Permitted Facility presently owned by Magma or one
of its Restricted Subsidiaries or an Eligible Joint Venture or under
construction by Magma or one of its Restricted Subsidiaries or an Eligible
Joint Venture) at any time that CECI owns or controls a majority of the
voting power of the Voting Stock or other Capital Stock of Magma; provided,
however, that the foregoing restriction shall not apply (i) if Magma has debt
securities outstanding at the time of such investment which have an
Investment Grade rating or (ii) to any such Significant Equity Investment to
the extent that the source of funds therefor is attributable to an equity
investment in Magma or its Restricted Subsidiary or any Eligible Joint
Venture, as applicable, made by the Company or another entity other than
Magma or any Subsidiary of Magma or any Eligible Joint Venture. For purposes
hereof, "Significant Equity Investment" shall mean an investment in common
stock, preferred stock or partnership interests which is more than $100,000
but shall expressly exclude any such equity interests acquired by any such
entity solely in exchange for services.
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Limitation on Certain Sale-Leasebacks
The Company will not permit Magma or any of Magma's 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 Magma, Magma 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) Magma, 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 by the Company in
good faith as evidenced by an Officers' Certificate delivered to the Trustee
in respect of a transaction involving less than $25 million, or, if equal to
or in excess of $25 million, by the Board of Directors by the Company, 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 Magma's Restricted Subsidiaries or any
Eligible Joint Venture to create, assume or otherwise cause or suffer to
exist any Preferred Stock except: (i) Preferred Stock outstanding on the date
of the Indenture, including Preferred Stock issued as dividends in respect of
such Preferred Stock pursuant to the terms of the agreement or instrument
that governs such Preferred Stock as in effect on the date of original
issuance of the Notes, (ii) Preferred Stock held by Magma, a Restricted
Subsidiary of Magma or an Eligible Joint Venture, (iii) Preferred Stock
issued by a Person prior to the time (a) such Person becomes a Restricted
Subsidiary or an Eligible Joint Venture, (b) such Person merges with or into
another Restricted Subsidiary or another Eligible Joint Venture or (c) a
Restricted Subsidiary or an Eligible Joint Venture merges with or into such
Person (in a transaction in which such Person becomes a Restricted Subsidiary
or an Eligible Joint Venture), provided that such Preferred Stock was not
issued in anticipation of such Person becoming a Restricted Subsidiary or an
Eligible Joint Venture or of such merger, (iv) Preferred Stock issued or
agreed to be issued by a Restricted Subsidiary or an Eligible Joint Venture
in connection with the financing of the construction, design, engineering,
procurement, equipping, developing, operation, ownership, management,
servicing or acquisition of a Permitted Facility or the retirement of Debt or
Preferred Stock secured by such Permitted Facility or in order to enhance the
repatriation of equity, advances or income or the increase of after-tax funds
available for distribution to the owners of such Permitted Facility, (v)
Preferred Stock issued or agreed to be issued by a Restricted Subsidiary or
an Eligible Joint Venture in satisfaction of legal requirements applicable to
a Permitted Facility or to maintain the ordinary course of conduct of such
Restricted Subsidiary's or such Eligible Joint Venture's business in the
applicable jurisdiction and (vi) Preferred Stock that is exchanged for, or
the proceeds of which are used to refinance, any Preferred Stock permitted to
be outstanding pursuant to clauses (i) through (v) hereof (or any extension,
renewal or refinancing thereof), having a liquidation preference not to
exceed the liquidation preference of the Preferred Stock so exchanged or
refinanced and having a redemption period no shorter than the redemption
period of the Preferred Stock so exchanged or refinanced.
Limitation on Issuance of Capital Stock of Magma
The Company will not permit Magma to issue to any Person, create, assume
or otherwise cause or suffer to exist any Capital Stock unless (a) (i) such
Capital Stock is issued in a Magma Equity Offering, (ii) all of the net
proceeds therefrom are used to redeem the Notes as set forth under
"Redemption Upon Magma Equity Offering" above, (iii) (x) the use of all of
the net proceeds from such sale of Magma Capital Stock to redeem the Notes
shall not cause the aggregate principal amount of the Notes redeemed with the
net proceeds of all sales of Magma Capital Stock, together with the aggregate
principal amount
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of Notes redeemed with the net proceeds of all Company Equity Offerings, to
exceed 35% of the principal amount of the Notes originally issued and (y)
immediately following each such redemption, at least $130 million principal
amount of the Notes remains outstanding and (iv) if any "person" or "group"
(as such terms are used in Section 13(d) of the Exchange Act) would acquire
in such Magma Equity Offering 10% or more of the Capital Stock of Magma, the
Company, as a condition to delivering such shares of Capital Stock to such
person or group, will require such person or group (a "Magma Equity Offering
Purchaser") to pledge such Capital Stock (the "Magma Equity Offering Pledged
Shares") to secure the Notes in accordance with the terms described under
"Security" above or (b) Magma issues such Capital Stock to the Company or a
Subsidiary of the Company for fair market value and such Capital Stock is
pledged to secure the Notes in accordance with the terms described under
"Security" above.
MERGERS, CONSOLIDATIONS AND SALES OF ASSETS
The Company may not, and will not permit Magma to, 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 or Magma, as the
case may be, will be the continuing Person, or the Person (if other than the
Company or Magma, as the case may be) formed by such consolidation or into
which the Company or Magma, as the case may be, is merged or to which the
Property of the Company or Magma, as the case may be, 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,
or Magma under the Secured Magma Note, as the case may be, (ii) immediately
after giving effect to such transaction, no Event of Default and no event or
condition that through the giving of notice or lapse of time or both would
become an Event of Default will have occurred and be continuing, (iii)
immediately after giving effect to such transaction on a pro forma basis,
Magma or the surviving entity would be able to Incur at least $1 of Debt
under the provision described in the first paragraph of "Limitation on Debt"
above and (iv) the Net Worth of the Company or Magma or the surviving entity,
as the case may be, on a pro forma basis after giving effect to such
transaction (without giving effect to the fees and expenses incurred in
respect of such transaction), is not less than the Net Worth of the Company
or Magma, as the case may be, immediately prior to such transaction.
None of Magma, any of its Restricted Subsidiaries or any Eligible Joint
Ventures may merge with or into, or be consolidated with, an Unrestricted
Subsidiary of Magma, 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 or consolidation.
Notwithstanding the foregoing, this provision will not restrict the
Company from engaging in any transaction if Magma expressly assumes in
writing all the obligations of the Company under the Notes and the Indenture.
SECURED MAGMA NOTE
The Company shall loan all of the proceeds of the Notes to Magma in
exchange for the Secured Magma Note. The Secured Magma Note will contain
terms substantially identical to the terms of the Notes and the Indenture as
they relate to Magma. The Company expects to make payments of the principal
of, premium, if any, and interest on the Notes, including upon an optional
redemption or repurchase of the Notes pursuant to the provisions of the
Indenture, including upon an offer to purchase the Notes in accordance with
the covenants regarding a Change of Control or an Asset Disposition, from
corresponding payments by Magma to the Company pursuant to the Secured Magma
Note.
The Secured Magma Note will be secured by an assignment of certain
unencumbered assets of Magma. The Company may not consent to any sale,
assignment, transfer, exchange or other disposition of, or any grant of any
option with respect to the such unencumbered assets or consent to the
creation or incurrence of or permit to exist any Lien or option in favor of,
or any claim of any Person with respect to, any of such unencumbered assets
(or any part thereof), or any interest therein that would materially
adversely affect the interest of the Holders.
The Company may not modify or consent to a modification of, consent to any
waiver of the terms of or acquiesce in any nonperformance by Magma of its
obligations under, the terms of the Secured Magma
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Note (except as expressly provided therein), unless Magma shall expressly
assume in writing all the obligations of the Company under the Indenture and
the Notes. In addition, the Company may not accelerate the maturity of the
Secured Magma Note following an event of default thereunder, unless it is
directed to do so by the Trustee or the Holders of a majority in principal
amount of the Outstanding Notes.
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
payment of 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, an Asset Disposition or a redemption of the Notes or the related
definitions, (ii) make any change that adversely affects the Holders' rights
to and in the Collateral or (iii) reduce the percentage of Notes, the consent
of the Holders of which is required for any such modification, without in
each case the consent of the Holders of all Notes then outstanding.
Notwithstanding the foregoing, the Company shall not make any changes in, or
grant waivers of the terms of, the Secured Magma Note without the consent of
the Holders of the required percentage of the Notes to a corresponding change
in the Indenture or the Notes.
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) (x) failure to make an offer required under
either of the covenants described under "Limitation on Dispositions" or
"Purchase of Notes Upon a Change of Control" above or a failure to purchase
Notes tendered in respect of such offer, (y) failure of the Company to grant
a security interest in the Collateral as described under "Security" above or
(z) failure of the Trustee to have a perfected security interest in the
Collateral as described under "Security" above (other than a failure to have
a perfected security interest in non-material Collateral of a Magma Equity
Offering Purchaser which failure would not have a material adverse effect on
the interest of the holders of the Notes), (iv) default in the performance,
or breach, of any covenant, representation, agreement or warranty contained
in the Indenture and the Notes (or of any Magma Equity Holder in a Pledge
Agreement, as a result of any action or inaction by the Company or any of its
Subsidiaries) and such failure continues for 30 days after written notice is
given to the Company (and the defaulting Magma Equity Holder in the case of a
default under a Pledge Agreement, as a result of any action or inaction by
the Company or any of its Subsidiaries) by the Trustee or the Holders of at
least 25% in principal amount of the outstanding Notes, as provided in the
Indenture, (v) default on any other Debt of the Company or Magma or any of
their Significant Subsidiaries (other than Non-Recourse Debt of any such
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 Magma
and their Significant Subsidiaries (not including Non-Recourse Debt of any
such Significant Subsidiaries) that is in default as to principal, or the
maturity of which has been accelerated, aggregates $25 million or more, (vi)
the entry by a court of one or more judgments or orders against the Company
or Magma or any of their Significant Subsidiaries for the payment of money
that in the aggregate exceeds $25 million (excluding the amount thereof
covered by insurance or by a bond written by a Person other than an Affiliate
of the Company or Magma), which judgments or orders have not been vacated,
discharged or satisfied or stayed pending appeal within 60 days from the
entry thereof, provided that such a judgment or order will not be an Event of
Default if such judgment or order does not require any payment by the Company
or Magma or any of their Significant Subsidiaries, except to the extent that
such judgment is only against Property that secures Non-Recourse
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Debt that was permitted under the Indenture, and Magma could, at the
expiration of the applicable 60 day period, after giving effect to such
judgment or order and the consequences thereof, Incur at least $1 of Debt
under the provision described in the first paragraph of "Limitation on Debt"
above, and (vii) certain events involving bankruptcy, insolvency or
reorganization of the Company or Magma or any of their Significant
Subsidiaries.
The Indenture provides that the Trustee may withhold notice to the Holders
of any default (except in payment of principal of, premium, if any, or
interest on the Notes and any payment required in connection with a Change of
Control or an Asset Disposition) if the Trustee considers it in the interest
of the 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 Magma or any of
their Significant Subsidiaries) 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 Magma or
any of their Significant Subsidiaries occurs, the Indenture provides that the
Default Amount of all Notes will become immediately due and payable.
The Holders of a majority in principal amount of the Notes then
outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee under the
Indenture, subject to certain limitations specified in the Indenture,
provided that the Holders of Notes must have offered to the Trustee
reasonable indemnity against expenses and liabilities. The Indenture requires
the annual filing by the Company with the Trustee of a written statement as
to compliance with the principal covenants contained in the Indenture.
DEFEASANCE
Legal Defeasance
The Indenture provides that the Company will be deemed to have paid and
will be discharged from any and all obligations in respect of the Notes, on
the date after the conditions referred to in (A), (B), (C) and (D) below have
been satisfied, 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, to hold
monies for payment in trust to redeem the Notes and to secure the Notes) if,
among other things, (A) the Company has deposited with the Trustee, in trust,
money and/or U.S. Government Obligations that through the payment of interest
and principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of, premium, if any, and
accrued interest on the Notes, on the respective Stated Maturities of the
Notes or, if the Company makes arrangements satisfactory to the Trustee for
the redemption of the Notes prior to their Stated Maturity, on any earlier
redemption date in accordance with the terms of the Indenture and the Notes,
(B) the Company has delivered to the Trustee (i) either (x) an Opinion of
Counsel to the effect that Holders will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred and the Company had paid
or redeemed such Notes on the applicable dates, which Opinion of Counsel must
be based upon a ruling of the Internal Revenue Service to the same effect or
a change in applicable federal income tax law or related Treasury regulations
after the date of the Indenture or (y) a ruling directed to the Trustee or
the Company received from the Internal Revenue Service to the same effect as
the aforementioned Opinion of Counsel, (ii) an Opinion of Counsel to the
effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940, (iii) an Opinion of Counsel, delivered after
the passage of 91 days following the deposit of moneys and/or U.S. Government
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Obligations as provided in clause (A), to the effect that such deposit does
not constitute a payment voidable under any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, including, but not limited to, Section 544, 547 or 548 of the
Bankruptcy Code or Article 2, Section 15 or Article 10 of the New York Debtor
and Creditor Law, as they may be amended from time to time and (iv) an
Opinion of Counsel to the effect that the Holders have a valid first priority
security interest in the funds deposited, (C) (i) 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 (ii) no Default or Event of Default under clause (vii) under
"Events of Default" shall have occurred and be continuing at any time during
the period ending on the 91st day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period), and (iii) 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) the satisfaction of such other conditions as may be required by the
Indenture. Upon satisfaction of the foregoing provisions and after the
passage of 91 days following the deposit of moneys and/or U.S. Government
Obligations as provided in clause (A), the Lien on all the Collateral shall
be released. Notwithstanding the provisions of clause (B)(iii) and (C)(ii)
above, the Company will be deemed to have paid and will be discharged from
any and all obligations in respect of the Notes prior to the end of such
91-day period and the Lien on the Collateral shall be discharged, if and at
such time as, in addition to satisfying the other conditions set forth above,
the Company shall have delivered to the Trustee (i) a Current Appraisal as of
a date no more than 30 days prior to the date of such irrevocable deposit
reflecting the Appraised Fair Market Value of the Collateral (1) in an amount
equal to or greater than 110% of the amount of such irrevocable deposit or
(2) if the Current Appraisal sets forth a range (the "Range") for the
Appraised Fair Market Value of the Collateral, (x) the lowest Appraised Fair
Market Value of the Collateral in the Range must be in an amount greater than
100% of the amount of such irrevocable deposit and (y) the median of the
Range of the Appraised Fair Market Value of the Collateral must be in an
amount equal to or greater than 110% of the amount of such irrevocable
deposit, and (ii) an Opinion of Counsel to the effect that based on such
Current Appraisal, the irrevocable deposit will not constitute a payment
voidable under any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, including, but not
limited to, Section 544, 547 or 548 of the U.S. Bankruptcy Code or Article 2,
Section 15 or Article 10 of the New York Debtor and Creditor Law, as they may
be amended from time to time.
Covenant Defeasance
The Indenture further provides that the provisions of clause (iii) under
"Mergers, Consolidations and Sales of Assets" above and all the covenants
described herein under "Certain Covenants" above, clause (iv) under "Events
of Default" above with respect to such covenants and with respect to clause
(iii) under "Mergers, Consolidations and Sales of Assets" above, clauses (i)
and (iii) with respect to certain offers for the Notes required by certain
covenants, clauses (v) and (vi) under "Events of Default" above and upon
satisfaction of certain conditions all of the covenants under "Security"
above will cease to be applicable to the Company, Magma, Magma's Restricted
Subsidiaries and the Eligible Joint Ventures upon the satisfaction of the
provisions described in clauses (A), (B)(ii), (iii) and (iv), (C) and (D) of
the preceding paragraph or the last sentence 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
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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 subject to the limitations on
recourse described herein.
THE TRUSTEE
The Bank of New York is the Trustee under the Indenture.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in
accordance with, the laws of the State of New York, including Section 5-1401
of the New York General Obligations Law, but otherwise without regard to
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.
"Acquired Debt" is defined to mean Debt Incurred by a Person prior to the
time (i) such Person becomes a Restricted Subsidiary of Magma or an Eligible
Joint Venture, (ii) such Person merges with or into a Restricted Subsidiary
of Magma or an Eligible Joint Venture, or (iii) a Restricted Subsidiary of
Magma or an Eligible Joint Venture merges with or into such Person (in a
transaction in which such Person becomes a Restricted Subsidiary of Magma or
an Eligible Joint Venture), provided that, after giving effect to such
transaction, the Non-Recourse Debt of such Person could have been Incurred
pursuant to clause (iii) of the provision described under "Limitation on
Subsidiary Debt" above and all the other Debt of such Person could have been
Incurred by Magma at the time of such merger or acquisition pursuant to the
provision described in the first paragraph of "Limitation on Debt" above, and
provided further that such Debt was not Incurred in connection with, or in
contemplation of, such merger or such Person becoming a Restricted Subsidiary
of Magma or an Eligible Joint Venture.
"Acquisition Debt" is defined to mean Debt of any Person existing at the
time such Person is merged into Magma 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 Magma (but excluding
Debt of such Person that is extinguished, retired or repaid in connection
with such merger or acquisition).
"Adjusted Consolidated Net Income" is defined to mean for any period, for
any Person (the "Referenced Person") the aggregate Net Income (or loss) of
the Referenced Person and its consolidated Subsidiaries for such period
determined in conformity with GAAP, provided that the following items will be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the Net Income (or loss) of any other Person (other than a Subsidiary of
the Referenced Person) in which any third Person has an interest, except to
the extent of the amount of dividends or other distributions actually paid in
cash to the Referenced Person during such period, or after such period and on
or before the date of determination, by such Person in which the interest is
held, which dividends and distributions will be included in such computation,
(ii) solely for the purposes of calculating the amount of Restricted Payments
that may be made pursuant to the provision described in clause (c) of the
first paragraph of "Limitation on Restricted Payments" above (and in such
case, except to the extent includable pursuant to clause (i) above), the Net
Income (if positive) of any other Person accrued prior to the date it becomes
a Subsidiary of the Referenced Person or is merged into or consolidated with
the Referenced Person or any of its Subsidiaries or all or substantially all
the Property of such other Person are acquired by the Referenced Person or
any of its Subsidiaries, (iii) the Net Income (if positive) of any Subsidiary
of the Referenced Person to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary to such Person or to
any other Subsidiary of such Net Income is not at the time permitted by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary, (iv) any gains or losses (on an after-tax
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basis) attributable to Asset Sales (except, solely for the purposes of
calculating the amount of Restricted Payments that may be made pursuant to
the provision described in clause (c) of the first paragraph of "Limitation
on Restricted Payments" above, any gains or losses of Magma and any of its
Restricted Subsidiaries from Asset Sales of Capital Stock of Unrestricted
Subsidiaries), (v) the cumulative effect of a change in accounting principles
and (vi) any amounts paid or accrued as dividends on Preferred Stock of any
Subsidiary of the Referenced Person that is not held by the Referenced Person
or another Subsidiary thereof. When the "Referenced Person" is Magma, the
foregoing references to "Subsidiaries" will be deemed to refer to "Restricted
Subsidiaries."
"Affiliate" of any Person is defined to mean any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled
by" and "under common control with") when used with respect to any Person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through
the ownership of voting securities, by contract or otherwise. For the purpose
of the covenant described under "Limitation on Transactions with Affiliates"
above, the term "Affiliate" will be deemed to include only Kiewit, any entity
directly or indirectly owning beneficially 10% or more of the Voting Stock of
Magma 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.
"Appraised Fair Market Value" means the then current fair market value of
the Collateral as set forth in the Current Appraisal performed by a qualified
and reputable independent nationally recognized investment banking firm
selected by the Company which is regularly engaged in the valuation of
businesses and their securities, which appraisal is, in the opinion of such
investment banking firm, prepared in accordance with customary valuation
methods. "Independent" means, with respect to any Person, that such Person
(i) is in fact independent, (ii) does not have any direct financial interest
or any material indirect financial interest in the Company, Magma or any of
their Affiliates (other than customary compensation for performing services)
and (iii) is not connected with the Company, Magma or any of their Affiliates
as an officer, employee, trustee, partner, director or Person performing
similar functions.
"Asset Acquisition" is defined to mean (i) an investment by Magma, any of
its Subsidiaries or any Joint Venture in any other Person pursuant to which
such Person will become a direct or indirect Subsidiary of Magma or a Joint
Venture in which Magma is a participant or will be merged into or
consolidated with Magma, any of its Subsidiaries or any Joint Venture in
which Magma is a participant or (ii) an acquisition by Magma, any of its
Subsidiaries or any Joint Venture in which Magma is a participant of the
Property of any Person other than Magma, any of its Subsidiaries or any Joint
Venture in which Magma is a participant 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 Magma, any of its Restricted Subsidiaries or any Eligible
Joint Venture to any Person (other than to Magma, a Restricted Subsidiary of
Magma or an Eligible Joint Venture and other than in the ordinary course of
business) of any Property of Magma, any of its Restricted Subsidiaries or any
Eligible Joint Venture other than any shares of Capital Stock of the
Unrestricted Subsidiaries. Notwithstanding the foregoing to the contrary, the
term "Asset Disposition" will include the sale, transfer, conveyance or other
disposition of any shares of Capital Stock of any Unrestricted Subsidiary to
the extent that Magma or any of its Restricted Subsidiaries or any Eligible
Joint Venture made an Investment in such Unrestricted Subsidiary pursuant to
clause (vii) of the definition of "Permitted Payment," and the Company will
cause Magma and each of Magma's Restricted Subsidiaries and the Eligible
Joint Ventures to apply pursuant to the covenant described under "Limitation
on Dispositions" that portion of the Net Cash Proceeds from the sale,
transfer, conveyance or other disposition of such Unrestricted Subsidiary
that is equal to the portion of the total Investment in such Unrestricted
Subsidiary that is represented by the Investment that was made pursuant to
clause
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(vii) of the definition of "Permitted Payment." For purposes of this
definition, any disposition in connection with directors' qualifying shares
or investments by foreign nationals mandated by applicable law will not
constitute an Asset Disposition. In addition, the term "Asset Disposition"
will not include (i) any sale, transfer, conveyance, lease or other
disposition of the Capital Stock or Property of Restricted Subsidiaries or
Eligible Joint Ventures pursuant to the terms of any power sales agreements
or steam sales agreements to which such Restricted Subsidiaries or such
Eligible Joint Ventures are parties on the date of the original issuance of
the Notes or pursuant to the terms of any power sales agreements or steam
sales agreements, or other agreements or contracts that are related to the
output or product of, or services rendered by, a Permitted Facility as to
which such Restricted Subsidiary or such Eligible Joint Venture is the
supplying party, to which such Restricted Subsidiaries or such Eligible Joint
Ventures become a party after such date if the President or Chief Financial
Officer of the Company determines in good faith (evidenced by an Officers'
Certificate) that such provisions are customary (or, in the absence of any
industry custom, reasonably necessary) in order to effect such agreements and
are reasonable in light of comparable transactions in the applicable
jurisdiction, (ii) any sale, transfer, conveyance, lease or other disposition
of Property governed by the covenant described under "Mergers, Consolidations
and Sales of Assets" above, (iii) any sale, transfer, conveyance, lease or
other disposition of any Cash Equivalents, (iv) any transaction or series of
related transactions consisting of the sale, transfer, conveyance, lease or
other disposition of Capital Stock or Property with a fair market value
aggregating less than $5 million and (v) any Permitted Payment or any
Restricted Payment that is permitted to be made pursuant to the covenant
described under "Limitation on Restricted Payments" above. The term "Asset
Disposition" also will not include (i) the grant of or realization upon a
Lien permitted under the covenant described under "Limitation on Liens" above
or the exercise of remedies thereunder, (ii) a sale-leaseback transaction
involving substantially all the Property constituting a Permitted Facility
pursuant to which a Restricted Subsidiary of Magma or an Eligible Joint
Venture sells the Permitted Facility to a Person in exchange for the
assumption by that Person of the Debt financing the Permitted Facility, and
the Restricted Subsidiary or the Eligible Joint Venture leases the Permitted
Facility from such Person, (iii) dispositions of Capital Stock, contract
rights, development rights and resource data made in connection with the
initial development of Permitted Facilities, or the formation or
capitalization of Restricted Subsidiaries or Eligible Joint Ventures in
respect of the initial development of Permitted Facilities, in respect of
which only an insubstantial portion of the prospective Construction Financing
that would be required to commence commercial operation has been funded or
(iv) transactions determined in good faith by the Chief Financial Officer of
the Company, 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 Magma. Any Asset Disposition that results from the
bona fide exercise by any governmental authority of its claimed or actual
power of eminent domain need not comply with the provisions of clauses (i)
and (ii) of the covenant described under "Limitation on Dispositions" above.
Any Asset Disposition that results from a casualty loss need not comply with
the provisions of clause (i) of the covenant described under "Limitation on
Dispositions" above.
"Asset Sale" is defined to mean the sale or other disposition by Magma,
any of its Subsidiaries or any Joint Venture in which Magma is a participant
(other than to Magma, another Subsidiary of Magma or another Joint Venture in
which Magma is a participant) of (i) all or substantially all of the Capital
Stock of any Subsidiary of Magma or any Joint Venture in which Magma is a
participant or (ii) all or substantially all of the Property that constitutes
an operating unit or business of Magma, any of its Subsidiaries or any Joint
Venture in which Magma is a participant.
"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.
"Available Restricted Payment Amount" is defined under "Certain
Covenants--Limitation on Restricted Payments."
"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
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from such date of determination to the dates of each successive scheduled
principal or involuntary liquidation value payment of such Debt security or
Preferred Stock, respectively, multiplied by (B) the amount of such principal
or involuntary liquidation value payment by (ii) the sum of all such
principal or involuntary liquidation value payments.
"Board of Directors" is defined to mean either the Board of Directors of
the Company or Magma, as the case may be, or any duly authorized committee of
such Boards.
"Business Day" is defined to mean a day that, in the city (or in any of
the cities, if more than one) where amounts are payable in respect of the
Notes, is neither a legal holiday nor a day on which banking institutions are
authorized or required by law, regulation or executive order to close.
"Capital Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) in, or interests (however
designated) in, the equity of such Person that is outstanding or issued on or
after the date of Indenture, including, without limitation, all Common Stock
and Preferred Stock and partnership and Joint Venture interests in such
Person.
"Capitalized Lease" is defined to mean, as applied to any Person, any
lease of any Property of which the discounted present value of the rental
obligations of such Person as lessee, in conformity with GAAP, is required to
be capitalized on the balance sheet of such Person, and "Capitalized Lease
Obligation" means the rental obligations, as aforesaid, under such lease.
"Cash Equivalent" is defined to mean any of the following: (i) securities
issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that the full
faith and credit of the United States of America is pledged in support
thereof), (ii) time deposits and certificates of deposit of any commercial
bank organized in the United States having capital and surplus in excess of
$500,000,000 or any commercial bank organized under the laws of any other
country having total assets in excess of $500,000,000 with a maturity date
not more than two years from the date of acquisition, (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clauses (i) or (v) that was entered into with any bank
meeting the qualifications set forth in clause (ii) or another financial
institution of national reputation, (iv) direct obligations issued by any
state or other jurisdiction of the United States of America or any other
country or any political subdivision or public instrumentality thereof
maturing, or subject to tender at the option of the holder thereof, within 90
days after the date of acquisition thereof and, at the time of acquisition,
having a rating of A from S&P or A-2 from Moody's (or, if at any time neither
S&P nor Moody's may be rating such obligations, then from another nationally
recognized rating service), (v) commercial paper issued by (a) the parent
corporation of any commercial bank organized in the United States having
capital and surplus in excess of $500,000,000 or any commercial bank
organized under the laws of any other country having total assets in excess
of $500,000,000, and (b) others having one of the two highest ratings
obtainable from either S&P or Moody's (or, if at any time neither S&P nor
Moody's may be rating such obligations, then from another nationally
recognized rating service) and in each case maturing within one year after
the date of acquisition, (vi) overnight bank deposits and bankers'
acceptances at any commercial bank organized in the United States having
capital and surplus in excess of $500,000,000 or any commercial bank
organized under the laws of any other country having total assets in excess
of $500,000,000, (vii) deposits available for withdrawal on demand with any
commercial bank organized in the United States having capital and surplus in
excess of $500,000,000 or any commercial bank organized under the laws of any
other country having total assets in excess of $500,000,000, (viii)
investments in money market funds substantially all of whose assets comprise
securities of the types described in clauses (i) through (vi) and (ix), and
(ix) auction rate securities or money market preferred stock having one of
the two highest ratings obtainable from either S&P or Moody's (or, if at any
time neither S&P nor Moody's may be rating such obligations, then from
another nationally recognized rating service).
"Change of Control" is defined to mean the occurrence of one or more of
the following events:
(i) for so long as at least $25 million principal amount of the
Company's 5% Convertible Subordinated Debentures due July 1, 2000 remain
outstanding and are not defeased, (x) a report is
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filed on Schedule 13D or 14D-1 (or any successor schedule, form or report)
pursuant to the Exchange Act, disclosing that any person (for the purposes
of this provision only, as the term "person" is used in Section 13(d)(3)
or Section 14(d)(2) of the Exchange Act or any successor provision to
either of the foregoing) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of 50% or more of the then
outstanding shares of the Voting Stock of the Company and (y) such
beneficial ownership is acquired by means of a tender offer in which cash
is the sole consideration paid and the purchase price for each share
tendered is less than the conversion price then in effect under the
Company's 5% Convertible Subordinated Debentures due July 1, 2000;
provided that a person will not be deemed to be the beneficial owner of,
or to own beneficially, any securities tendered until such tendered
securities are accepted for purchase under the tender offer;
(ii) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than Kiewit, is or becomes the beneficial owner
(as defined in clause (i) above), directly or indirectly, of more than 35%
of the total voting power of the Voting Stock of the Company (for the
purposes of this clause (ii), any person will be deemed to beneficially
own any Voting Stock of any corporation (the "specified corporation") held
by any other corporation (the "parent corporation"), if such person
"beneficially owns" (as so defined), directly or indirectly, more than 35%
of the voting power of the Voting Stock of such parent corporation) and
Kiewit "beneficially owns" (as so defined), directly or indirectly, in the
aggregate a lesser percentage of the voting power of the Voting Stock of
the Company and does not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
Board of Directors of the Company;
(iii) during any one-year period, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together
with any new directors elected by such Board of Directors or nominated for
election by the shareholders of the Company by a vote of at least a
majority of the directors of the Company then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason
to constitute a majority of the Board of Directors of the Company 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 such 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; or
(v) the Company ceases to beneficially own directly or indirectly at
least a majority of each of the Capital Stock and the voting power of the
Voting Stock of Magma.
"Collateral" is defined under "The Collateral."
"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 Equity Offering" is defined under "Redemption Upon Company Equity
Offering."
"Consolidated EBITDA" of any Person for any period is defined to mean the
Adjusted Consolidated Net Income of such Person, plus, only to the extent
deducted in computing Adjusted Consolidated Net Income and without
duplication, (i) income taxes, excluding income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or
Asset Sales, all determined on a consolidated basis for such Person and its
consolidated Subsidiaries in accordance with GAAP, (ii) Consolidated Fixed
Charges, (iii) depreciation and amortization expense, all determined on a
consolidated basis for such Person and its consolidated Subsidiaries in
accordance with GAAP and (iv) all other non-cash items reducing Adjusted
Consolidated Net Income for such period, all determined on a
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consolidated basis for such Person and its consolidated Subsidiaries in
accordance with GAAP, and less all non-cash items increasing Adjusted
Consolidated Net Income during such period, provided that depreciation and
amortization expense of any Subsidiary of such Person and any other non-cash
item of any Subsidiary of such Person that reduces Adjusted Consolidated Net
Income will be excluded (without duplication) in computing Consolidated
EBITDA, except to the extent that the positive cash flow associated with such
depreciation and amortization expense and other non-cash items is actually
distributed in cash to such Person during such period, provided further that
as applied to Magma, cash in respect of depreciation and amortization and
other non-cash items of Restricted Subsidiaries and Eligible Joint Ventures
may be deemed to have been distributed or paid to Magma to the extent that
such cash (I) is or was under the exclusive dominion and control of such
Restricted Subsidiary or such Eligible Joint Venture and is or was free and
clear of the Lien of any other Person, (II) is or was immediately available
for distribution and (III) could be or could have been repatriated to the
United States by means that are both lawful and commercially reasonable,
provided that the amount of the cash deemed by this sentence to have been
distributed or paid will be reduced by the amount of tax that would have been
payable with respect to the repatriation thereof, provided further that any
cash that enables the recognition of depreciation and amortization and other
non-cash items pursuant to this sentence may not be used to enable the
recognition of depreciation and amortization and other non-cash items with
respect to any prior or subsequent period, regardless of whether such cash is
distributed to Magma, and provided further that the recognition of any
depreciation and amortization and other non-cash items as a result of this
sentence will be determined in good faith by the Chief Financial Officer of
the Company or Magma, as the case may be, as evidenced by an Officers'
Certificate that will set forth in reasonable detail the relevant facts and
assumptions supporting such recognition. When the "Person" referred to above
is Magma, the foregoing references to "Subsidiaries" will be deemed to refer
to "Restricted Subsidiaries."
"Consolidated Fixed Charges" of any Person is defined to mean, for any
period, the aggregate of (i) Consolidated Interest Expense, (ii) the interest
component of Capitalized Leases, determined on a consolidated basis for such
Person and its consolidated Subsidiaries in accordance with GAAP, excluding
any interest component of Capitalized Leases in respect of that portion of a
Capitalized Lease Obligation of a Subsidiary that is Non-Recourse to such
Person, and (iii) cash and non-cash dividends due (whether or not declared)
on the Preferred Stock of any Subsidiary of such Person held by any Person
other than such Person and any Redeemable Stock of such Person or any
Subsidiary of such Person. When the "Person" referred to above is Magma, 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 Magma 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 Magma in respect of a
Guarantee by Magma 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) Magma is not actually making directly or indirectly
interest payments on such Debt and (ii) GAAP does not require Magma on an
unconsolidated basis to record such Debt as a liability of Magma. When the
"Person" referred to above is Magma, 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,
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procurement, construction and equipping of a Permitted Facility and to enable
it to commence commercial operations, provided that Construction Financing
may remain outstanding after the commencement of commercial operations of a
Permitted Facility, without any increase in the amount of such financing, and
such Construction Financing will not cease to be Construction Financing.
"Currency Protection Agreement" is defined to mean, with respect to any
Person, any foreign exchange contract, currency swap agreement or other
similar agreement or arrangement intended to protect such Person against
fluctuations in currency values to or under which such Person is a party or a
beneficiary on the date of the Indenture or becomes a party or a beneficiary
thereafter.
"Current Appraisal" means the most recent appraisal of the Appraised Fair
Market Value.
"Debt" is defined to mean, with respect to any Person, at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit, bankers' acceptances, surety, bid,
operating and performance bonds, performance guarantees or other similar
instruments or obligations (or reimbursement obligations with respect
thereto) (except, in each case, to the extent incurred in the ordinary course
of business), (iv) all obligations of such Person to pay the deferred
purchase price of property or services, except Trade Payables, (v) the
Attributable Value of all obligations of such Person as lessee under
Capitalized Leases, (vi) all Debt of others secured by a Lien on any Property
of such Person, whether or not such Debt is assumed by such Person, provided
that, for purposes of determining the amount of any Debt of the type
described in this clause, if recourse with respect to such Debt is limited to
such Property, the amount of such Debt will be limited to the lesser of the
fair market value of such Property or the amount of such Debt, (vii) all Debt
of others Guaranteed by such Person to the extent such Debt is Guaranteed by
such Person, (viii) all Redeemable Stock valued at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends and (ix) to the extent not otherwise included in this definition,
all net obligations of such Person under Currency Protection Agreements and
Interest Rate Protection Agreements.
For purposes of determining any particular amount of Debt that is or would
be outstanding, Guarantees of, or obligations with respect to letters of
credit or similar instruments supporting (to the extent the foregoing
constitutes Debt), Debt otherwise included in the determination of such
particular amount will not be included. For purposes of determining
compliance with the Indenture, in the event that an item of Debt meets the
criteria of more than one of the types of Debt described in the above
clauses, the Company, in its sole discretion, will classify such item of Debt
and only be required to include the amount and type of such Debt in one of
such clauses.
"Default Amount" is defined to mean 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 (A) Magma or (B) Magma and
Kiewit, if Kiewit is so designated by the Board of Directors of the Company
or Magma, together, directly or indirectly, own at least 50% of the Capital
Stock therein (of which Magma must own at least half (in any event not less
than 25% of the total outstanding Capital Stock)) and (iii) in respect of
which Magma alone or in combination with Kiewit, if so designated by the
Board of Directors of the Company or Magma, directly or indirectly, (a)
controls, by voting power, board or management committee membership, or
through the provisions of any applicable partnership, shareholder or other
similar agreement or under an operating, maintenance or management agreement
or otherwise, the management and operation of the Joint Venture or any
Permitted Facilities of the Joint Venture or (b) otherwise has significant
influence over the management or operation of the Joint Venture or any
Permitted Facility of the Joint Venture in all material respects (significant
influence includes, without limitation, the right to control or veto any
material act or decision) in connection with such management or operation.
Any Joint Venture that is an Eligible Joint Venture pursuant to this
definition because of the ownership of Capital Stock therein by Kiewit will
cease to be an Eligible Joint Venture if (x) Kiewit disposes of any
securities issued by the Company and, as a result of such disposition, Kiewit
becomes the beneficial owner (as such term is defined
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under Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act) of less than 25% of the outstanding shares of Voting Stock of
the Company or (y) (I) as a result of any action other than a disposition of
securities by Kiewit, Kiewit becomes the beneficial owner of less than 25% of
the outstanding shares of Voting Stock of the Company and (II) thereafter
Kiewit disposes of any securities issued by the Company as a result of which
the beneficial ownership by Kiewit of the outstanding Voting Stock of the
Company is further reduced, provided that thereafter such Joint Venture may
become an Eligible Joint Venture if Kiewit becomes the beneficial owner of at
least 25% of the outstanding shares of Voting Stock of the Company and the
other conditions set forth in this definition are fulfilled.
"Fixed Charge Ratio" is defined to mean the ratio, on a pro forma basis,
of (i) the aggregate amount of Consolidated EBITDA of any Person for the
Reference Period immediately prior to the date of the transaction giving rise
to the need to calculate the Fixed Charge Ratio (the "Transaction Date") to
(ii) the aggregate Consolidated Fixed Charges of such Person during such
Reference Period, provided that for purposes of such computation, in
calculating Consolidated EBITDA and Consolidated Fixed Charges, (1) the
Incurrence of the Debt giving rise to the need to calculate the Fixed Charge
Ratio and the application of the proceeds therefrom (including the retirement
or defeasance of Debt) will be assumed to have occurred on the first day of
the Reference Period, (2) Asset Sales and Asset Acquisitions that occur
during the Reference Period or subsequent to the Reference Period and prior
to the Transaction Date (but including any Asset Acquisition to be made with
the Debt Incurred pursuant to (1) above) and any related retirement of Debt
pursuant to an Offer (in the amount of the Excess Proceeds with respect to
which such Offer has been made or would be made on the Transaction Date if
the purchase of Notes pursuant to such Offer has not occurred on or before
the Transaction Date) will be assumed to have occurred on the first day of
the Reference Period, (3) the Incurrence of any Debt during the Reference
Period or subsequent to the Reference Period and prior to the Transaction
Date and the application of the proceeds therefrom (including the retirement
or defeasance of other Debt) will be assumed to have occurred on the first
day of such Reference Period, (4) Consolidated Interest Expense attributable
to any Debt (whether existing or being Incurred) computed on a pro forma
basis and bearing a floating interest rate will be computed as if the rate in
effect on the date of computation had been the applicable rate for the entire
period unless the obligor on such Debt is a party to an Interest Rate
Protection Agreement (that will remain in effect for the twelve month period
after the Transaction Date) that has the effect of fixing the interest rate
on the date of computation, in which case such rate (whether higher or lower)
will be used and (5) there will be excluded from Consolidated Fixed Charges
any Consolidated Fixed Charges related to any amount of Debt that was
outstanding during or subsequent to the Reference Period but is not
outstanding on the Transaction Date, except for Consolidated Fixed Charges
actually incurred with respect to Debt borrowed (as adjusted pursuant to
clause (4)) (x) under a revolving credit or similar arrangement to the extent
the commitment thereunder remains in effect on the Transaction Date or (y)
pursuant to the provision described in clause (iii) in the second paragraph
of "Limitation on Debt" above. For the purpose of making this computation,
Asset Sales and Asset Acquisitions that have been made by any Person that has
become a Restricted Subsidiary of Magma or an Eligible Joint Venture or been
merged with or into Magma or any Restricted Subsidiary of Magma 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
Acquisitions, 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 Magma 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 Magma's audited financial statements, including, without
limitation, those
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set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or
in such other statements by such other entity as approved by a significant
segment of the accounting profession.
"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Debt of any other Person
and, without limiting the generality of the foregoing, any Debt obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase
or pay (or advance or supply funds for the purchase or payment of) such Debt
of such other Person (whether arising by virtue of partnership arrangements
(other than solely by reason of being a general partner of a partnership), or
by agreement to keep-well, to purchase assets, goods, securities or services,
or to take-or-pay, or to maintain financial statement conditions or
otherwise) or (ii) entered into for purposes of assuring in any other manner
the obligee of such Debt of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part), provided that the term
"Guarantee" will not include endorsements for collection or deposit in the
ordinary course of business or the grant of a Lien in connection with any
Non-Recourse Debt. The term "Guarantee" used as a verb has a corresponding
meaning.
"Holder", "holder of Notes", "Noteholder" and other similar terms are
defined to mean the registered holder of any Note.
"Incur" is defined to mean with respect to any Debt, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to,
or become responsible for, the payment of, contingently or otherwise, such
Debt, provided that neither the accrual of interest (whether such interest is
payable in cash or kind) nor the accretion of original issue discount will be
considered an Incurrence of Debt. The term "Incurrence" has a corresponding
meaning.
"Interest Rate Protection Agreement" is defined to mean, with respect to
any Person, any interest rate protection agreement, interest rate future
agreement, interest rate option agreement, interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, interest rate
hedge agreement or other similar agreement or arrangement intended to protect
such Person against fluctuations in interest rates to or under which such
Person or any of its Subsidiaries is a party or a beneficiary on the date of
the Indenture or becomes a party or a beneficiary thereafter.
"Investment" in a Person is defined to mean any investment in, loan or
advance to, Guarantee on behalf of, directly or indirectly, or other transfer
of assets to such Person (other than sales of products and services in the
ordinary course of business).
"Investment Grade" is defined to mean with respect to the Notes, (i) in
the case of S&P, a rating of at least BBB-, (ii) in the case of Moody's, a
rating of at least Baa3, and (iii) in the case of a Rating Agency 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, Magma 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.
"Magma Equity Holder" is defined to mean each Subsidiary of the Company
who acquires shares of Capital Stock of Magma after the original issue date
of the Notes and each MEO Purchaser.
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"Magma Equity Offering" is defined under "Redemption Upon Magma Equity
Offering."
"Magma Equity Offering Pledged Shares" is defined under "Limitation on
Issuance of Capital Stock of Magma."
"Magma Equity Offering Purchaser" is defined under "Limitation on Issuance
of Capital Stock of Magma."
"Magma Note Recourse Assets" is defined under "Summary--The
Offering--Ranking."
"Magma 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 Debt of Magma Incurred pursuant to clauses (i), (iv),
and (vii) of "Limitation on Debt" and Debt Incurred pursuant to the first
paragraph under "Limitation on Debt" in an amount (or, if such new Debt
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, with an original issue
price) not to exceed the amount so exchanged or refinanced (plus accrued
interest and all fees, premiums (in excess of the accreted value) and
expenses related to such exchange or refinancing), for which purpose the
amount so exchanged or refinanced will be deemed to equal the lesser of (x)
the principal amount of the Debt so exchanged or refinanced and (y) if the
Debt being exchanged or refinanced was issued with an original issue
discount, the accreted value thereof (as determined in accordance with GAAP)
at the time of such exchange or refinancing, provided that (A) such Debt will
be subordinated in right of payment to the Notes and the Secured Magma Note
at least to the same extent, if any, as the Debt so exchanged or refinanced
is subordinated to the Notes and the Secured Magma Note, (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.
"Net Cash Proceeds" from an Asset Disposition is defined to mean cash
payments received (including any cash payments received by way of a payment
of principal pursuant to a note or installment receivable or otherwise, but
only as and when received (including any cash received upon sale or
disposition of any such note or receivable), excluding any other
consideration received in the form of assumption by the acquiring Person of
Debt or other obligations relating to the Property disposed of in such Asset
Disposition or received in any form other than cash) therefrom, in each case,
net of (i) all legal, title and recording tax expenses, commissions and other
fees and expenses of any kind (including consent and waiver fees and any
applicable premiums, earn-out or working interest payments or payments in
lieu or in termination thereof) incurred, (ii) all federal, state,
provincial, foreign and local taxes and other governmental charges required
to be accrued as a liability under GAAP (a) as a consequence of such Asset
Disposition, (b) as a result of the repayment of any Debt in any jurisdiction
other than the jurisdiction where the Property disposed of was located or (c)
as a result of any repatriation of any proceeds of such Asset Disposition,
(iii) a reasonable reserve for the after-tax cost of any indemnification
payments (fixed and contingent) attributable to seller's indemnities to the
purchaser undertaken by Magma, any of its Restricted Subsidiaries or any
Eligible Joint Venture in connection with such Asset Disposition (but
excluding any payments that by the terms of the indemnities will not, under
any circumstances, be made during the term of the Notes), (iv) all payments
made on any Debt that is secured by such Property, in accordance with the
terms of any Lien upon or with respect to such Property, or that must by its
terms or by applicable law or in order to obtain a required consent or waiver
be repaid out of the proceeds from or in connection with such Asset
Disposition, and (v) all distributions and other payments made to holders of
Capital Stock of Restricted Subsidiaries or Eligible Joint Ventures (other
than Magma 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.
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"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 or Magma, the
foregoing references to "Subsidiaries" will be deemed to refer to "Restricted
Subsidiaries," in the case of Magma, and "Restricted Subsidiaries" as defined
in the Indenture governing the 10 1/4 % Senior Discount Notes due 2004 of the
Company, in the case of the Company.
"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 Magma, any Restricted Subsidiary or any Eligible Joint
Venture other than any Restricted Subsidiary or any Eligible Joint Venture
that does not own any Property other than such Permitted Facility or a direct
or indirect interest therein, provided further that such financing may be
secured by a Lien on only (i) the Property that constitutes such Permitted
Facility, (ii) the income from and proceeds of such Permitted Facility, (iii)
the Capital Stock of the Restricted Subsidiary or Eligible Joint Venture that
owns the Property that constitutes such Permitted Facility and (iv) the
Capital Stock of the Restricted Subsidiary or Eligible Joint Venture
obligated with respect to such financing and of any Subsidiary or Joint
Venture (that is a Restricted Subsidiary or an Eligible Joint Venture) of
such Person that owns a direct or indirect interest in the Permitted
Facility, and provided further that an increase in the amount of Debt with
respect to a Permitted Facility pursuant to the financing provided pursuant
to the terms of this definition (except for the first refinancing of
Construction Financing) may not be Incurred to fund or enable the funding of
any dividend or other distribution in respect of Capital Stock. The fact that
a portion of financing with respect to a Permitted Facility is not
Non-Recourse will not prevent other portions of the financing with respect to
such Permitted Facility from constituting Non-Recourse Debt if the foregoing
requirements of this definition are fulfilled with respect to such other
portions. Notwithstanding anything in this definition to the contrary, (i)
Non-Recourse Debt in respect of any Permitted Facility that uses thermal
energy drawn from a single localized geothermal reservoir may be
cross-collateralized with the Property, income, proceeds and Capital Stock in
respect of any other Permitted Facility that uses thermal energy drawn from
the same localized geothermal reservoir, (ii) Acquired Debt of a Person that
was Incurred with respect to, and that is jointly secured by, two or more
Permitted Facilities (all of which need not use thermal energy drawn from the
same localized geothermal reservoir) (and other Property related to such
Permitted Facilities) will be deemed to be Non-Recourse if, upon such Person,
becoming a Restricted Subsidiary or an Eligible Joint Venture, such Acquired
Debt would fulfill the requirements of the first sentence of this definition
if such Permitted Facilities constituted a single Permitted Facility and
(iii) for the purpose of the Indenture, (a) the Permitted Facilities that
jointly secure a single Non-Recourse Debt pursuant to clause (i) of this
sentence will be deemed to be a single Permitted Facility and (b) the
Permitted Facilities that jointly secure a single Acquired Debt will be
deemed to be a single Permitted Facility.
"Officers' Certificate" is defined to mean a certificate signed by the
Chairman of the Board of Directors, the President or any Vice President and
by the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the
Controller, the Assistant Controller, the Secretary or any Assistant
Secretary of the Company or Magma, as the case may be, 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 Magma or
who may be other counsel satisfactory to the Trustee. Each such opinion will
comply with Section 314 of the Trust Indenture Act and include the statements
provided for in the Indenture, if and to the extent required thereby.
"Permitted Facility" is defined to mean (i) an electric power or thermal
energy generation or cogeneration facility or related facilities (including
residual waste management and facilities that use
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thermal energy from a cogeneration facility), and its or their related
electric power transmission, fuel supply and fuel transportation facilities,
together with its or their related power supply, thermal energy and fuel
contracts and other facilities, services or goods that are ancillary,
incidental, necessary or reasonably related to the marketing, development,
construction, management, servicing, ownership or operation of the foregoing,
owned by a utility or otherwise, as well as other contractual arrangements
with customers, suppliers and contractors or (ii) any infrastructure
facilities related to (A) the treatment of water for municipal and other
uses, (B) the treatment and/or management of waste water, (C) the treatment,
management and/or remediation of waste, pollution and/or potential pollutants
and (D) any other process or environmental purpose.
"Permitted Funding Company Loans" is defined to mean (a) Debt of a
Restricted Subsidiary, all the Capital Stock of which is owned, directly or
indirectly, by Magma and that (x) does not own any direct or indirect
interest in a Permitted Facility and (y) is not directly or indirectly
obligated on any Debt owed to any Person other than Magma, a Restricted
Subsidiary or an Eligible Joint Venture (a "Funding Company"), owed to a
Restricted Subsidiary or an Eligible Joint Venture that is not directly or
indirectly obligated on any Debt owed to any Person other than Magma, a
Restricted Subsidiary or an Eligible Joint Venture (except to the extent that
it has pledged the Capital Stock of its Subsidiaries and Joint Ventures to
secure Non-Recourse Debt) (a "Holding Company"), provided that such Debt (i)
does not require that interest be paid in cash at any time sooner than six
months after the final Stated Maturity of the Notes, (ii) does not require
any payment of principal at any time sooner than six months after the final
Stated Maturity of the Notes, (iii) is subordinated in right of payment to
all other Debt of such Restricted Subsidiary other than Debt Incurred
pursuant to clause (vii) of the covenant described under "Limitation on
Subsidiary Debt," all of which will be pari passu, and (iv) is evidenced by a
subordinated note in the form attached to the Indenture, and (b) Debt of a
Holding Company to a Funding Company.
"Permitted Investment" is defined to mean any Investment that is made
directly or indirectly by Magma 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 Magma (A) to any of its Restricted Subsidiaries (other
than an Eligible Joint Venture) up to 100% of the Construction Financing
required by such Restricted Subsidiary and (B) to any Eligible Joint Venture
a portion of the Construction Financing required by such Eligible Joint
Venture that does not exceed the ratio of the Capital Stock in such Eligible
Joint Venture that is owned directly or indirectly by Magma to the total
amount of the Capital Stock in such Eligible Joint Venture that is owned
directly and indirectly by Magma and Kiewit together (provided that Magma may
provide such Construction Financing to such Eligible Joint Venture only if
Kiewit provides the balance of such Construction Financing or otherwise
causes it to be provided), if, in either case, (x) the aggregate proceeds of
all the Construction Financing provided is not more than 85% of the sum of
the aggregate proceeds of all the Construction Financing and the aggregate
owners' equity investment in such Restricted Subsidiary or such Eligible
Joint Venture, as the case may be, (y) Magma 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 Magma, its Subsidiaries or the Eligible Joint Ventures) that is
permitted to be pledged for such purpose under applicable law and (z) neither
Magma 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 Magma's portion of the Construction Financing, (iii) any
Cash Equivalents, (iv) prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance and
other similar deposits in the ordinary course of business consistent with
past practice, (v) loans and advances to employees made in the ordinary
course of business and consistent with past practice, (vi) Debt incurred
pursuant to Currency Protection Agreements and Interest Rate Protection
Agreements as otherwise permitted by the Indenture, (vii) bonds, notes,
debentures or other debt securities and instruments received as a result of
Asset Dispositions to the extent
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permitted by the covenants described under "Limitation on Dispositions" above
and "Limitation on Business and New Magma Project Developments" above, (viii)
any Lien permitted under the provisions described under "Limitation on Liens"
above and (ix) bank deposits and other Investments (to the extent they do not
constitute Cash Equivalents) required by lenders in connection with any
Non-Recourse Debt, provided that the President or the Chief Financial Officer
of the Company determines in good faith, as evidenced by an Officers'
Certificate, that such bank deposits or Investments are required to effect
such financings and are not materially more restrictive, taken as a whole,
than comparable requirements in comparable financings in the applicable
jurisdiction.
"Permitted Joint Venture" is defined to mean a Joint Venture (i) that is
or will be formed with respect to the construction, development, acquisition,
servicing, ownership, operation or management of one or more Permitted
Facilities and (ii) in which (A) Magma or (B) Magma and Kiewit, if Kiewit is
so designated by the Board of Directors of the Company or Magma, together,
directly or indirectly, own at least 70% of the Capital Stock therein (of
which Magma 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 Magma may own, Magma must own at
least 70% of the amount of Capital Stock that it may own pursuant to such
law, which in any event must be not less than 35% of the total outstanding
Capital Stock therein and (iii) in respect of which Magma alone or in
combination with Kiewit, if Kiewit is so designated by the Board of Directors
of the Company or Magma, directly or indirectly, (a) controls, by voting
power, board or management committee membership, or through the provisions of
any applicable partnership, shareholder or other similar agreement or under
an operating, maintenance or management agreement or otherwise, the
management and operation of the Joint Venture or any Permitted Facilities of
the Joint Venture or (b) otherwise has significant influence over the
management or operation of the Joint Venture or any Permitted Facility of the
Joint Venture in all material respects (significant influence includes,
without limitation, the right to control or veto any material act or
decision) in connection with such management or operation. Any Joint Venture
that is a Permitted Joint Venture pursuant to this definition because of the
ownership of Capital Stock therein by Kiewit will cease to be a Permitted
Joint Venture if (x) Kiewit disposes of any securities issued by the Company
and, as a result of such disposition, Kiewit becomes the beneficial owner (as
such term is defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of less than 25% of the outstanding
shares of Voting Stock of the Company or (y) (I) as a result of any action
other than a disposition of securities by Kiewit, Kiewit becomes the
beneficial owner of less than 25% of the outstanding shares of Voting Stock
of the Company and (II) thereafter Kiewit disposes of any securities issued
by the Company as a result of which the beneficial ownership by Kiewit of the
outstanding Voting Stock of the Company is further reduced, provided that
thereafter such Joint Venture may become a Permitted Joint Venture if Kiewit
becomes the beneficial owner of at least 25% of the outstanding shares of
Voting Stock of the Company and the other conditions set forth in this
definition are fulfilled.
"Permitted Payments" is defined to mean, with respect to Magma, any of its
Restricted Subsidiaries or any Eligible Joint Venture, (i) any dividend on
shares of Capital Stock of Magma 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 Magma and
any distribution of Capital Stock (other than Redeemable Capital Stock) of
Magma 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 Magma, (ii) the
purchase or other acquisition or retirement for value of any shares of
Magma's Capital Stock, or any option, warrant or other right to purchase
shares of Magma'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 or the Secured Magma Note with the proceeds
from the issuance of (x) Debt that is subordinate to the Notes or the Secured
Magma Note at least to the extent and in the manner as the Debt to be
defeased, redeemed, purchased or otherwise acquired is subordinate in right
of payment to the Notes or the Secured Magma Note, provided that such
subordinated Debt provides for no mandatory payments of principal by way of
sinking fund, mandatory redemption or otherwise (including defeasance) by
Magma (including, without limitation, at the option of the holder
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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, (vii)
Investments in Unrestricted Subsidiaries and other Persons, other than the
Company, that are not Restricted Subsidiaries or Eligible Joint Ventures in
an amount not to exceed $50 million in the aggregate, provided that no
payment or Investment may be made pursuant to this clause (vii) to a
Subsidiary or Eligible Joint Venture of the Company unless such payment or
Investment is used for the construction, development, acquisition, servicing,
ownership, operation or management of one or more Permitted Facilities, and
provided further 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 and (viii) one or more dividends or other distributions to the
Company of up to an aggregate amount of $50 million payable out of cash or
Cash Equivalents held by Magma or its Subsidiaries on the date of original
issuance of the Notes and paid by Magma to the Company within one year after
the date of original issuance of the Notes. Notwithstanding the foregoing,
the amount of Investments that may be made pursuant to clauses (iv) or (vii),
as the case may be, may be increased by the net reduction in Investments of
the type made previously pursuant to clauses (iv) or (vii), as the case may
be, that result from payments of interest on Debt, dividends, or repayment of
loans or advances, the proceeds of the sale or disposition of the Investment
or other return of the amount of the original Investment to Magma, its
Restricted Subsidiaries or the Eligible Joint Venture that made the original
Investment from the Person in which such Investment was made or any
distribution or payment of such Investment to the extent that such
distribution or payment constituted either a Restricted Payment or a
Permitted Payment, provided that (x) the aggregate amount of such payments
will not exceed the amount of the original Investment by Magma, such
Restricted Subsidiary or Eligible Joint Venture that reduced the amount
available pursuant to clause (iv) or clause (vii), as the case may be, for
making Restricted Payments and (y) such payments may be added pursuant to
this proviso only to the extent such payments are not included in the
calculation of Adjusted Consolidated Net Income.
"Permitted Working Capital Facilities" is defined to mean one or more loan
or credit agreements providing for the extension of credit to Magma for
Magma's working capital purposes, which credit agreements will be ranked pari
passu with or subordinate to the Secured Magma Note in right of payment and
may be secured or unsecured.
"Person" is defined to mean an individual, a corporation, a partnership,
an association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Preferred Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) or preferred or preference stock of
such Person that is outstanding or issued on or after the date of original
issuance of the Notes.
"Property" of any Person is defined to mean all types of real, personal,
tangible or mixed property owned by such Person whether or not included in
the most recent consolidated balance sheet of such Person under GAAP.
"Purchase Money Debt" means Debt representing, or Incurred to finance, the
cost of acquiring any Property, provided that (i) any Lien securing such Debt
does not extend to or cover any other Property other than the Property being
acquired and (ii) such Debt is Incurred, and any Lien with respect thereto is
granted, within 180 days of the acquisition of such Property.
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"Rating Agencies" is defined to mean (i) S&P and (ii) Moody's or (iii) if
S&P or Moody's or both do not make a rating of the Notes publicly available,
a nationally recognized securities rating agency or agencies, as the case may
be, selected by the Company, which will be substituted for S&P, Moody's or
both, as the case may be.
"Rating Category" is defined to mean (i) with respect to S&P, any of the
following categories: BB, B, CCC, CC, C and D (or equivalent successor
categories), (ii) with respect to Moody's, any of the following categories:
Ba, B, Caa, Ca, C and D (or equivalent successor categories) and (iii) the
equivalent of any such category of S&P or Moody's used by another Rating
Agency. In determining whether the rating of the Notes has decreased by one
or more gradations, gradations within Rating Categories (+ and - for S&P, 1,
2 and 3 for Moody's or the equivalent gradations for another Rating Agency)
will be taken into account (e.g., with respect to S&P, a decline in a rating
from BB+ to BB, as well as from BB- to B+, will constitute a decrease of one
gradation).
"Rating Decline" is defined to mean the occurrence of the following on, or
within 90 days after, the earlier of (i) the occurrence of a Change of
Control and (ii) the date of public notice of the occurrence of a Change of
Control or of the public notice of the intention of the Company to effect a
Change of Control (the "Rating Date") which period will be extended so long
as the rating of the Notes is under publicly announced consideration for
possible downgrading by any of the Rating Agencies: (a) in the event that the
Notes are rated by either Rating Agency on the Rating Date as Investment
Grade, the rating of the Notes by both such Rating Agencies will be reduced
below Investment Grade, or (b) in the event the Notes are rated below
Investment Grade by both such Rating Agencies on the Rating Date, the rating
of the Notes by either Rating Agency will be decreased by one or more
gradations (including gradations within Rating Categories as well as between
Rating Categories).
"Redeemable Stock" is defined to mean any class or series of Capital Stock
of any Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the Notes or the Secured Magma Note, (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 the Secured
Magma Note 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 or the Secured Magma Note, provided
that any Capital Stock that would not constitute Redeemable Stock but for
provisions thereof giving holders thereof the right to require the Company or
Magma 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 or the Secured Magma Note will not constitute Redeemable Stock
if the "asset sale" or "change of control" provision applicable to such
Capital Stock is no more favorable to the holders of such Capital Stock than
the provisions contained in the covenants described under "Limitation on
Dispositions" and "Purchase of Notes Upon a Change of Control" above and such
Capital Stock specifically provides that the Company or Magma will not
purchase or redeem any such Capital Stock pursuant to such covenants prior to
the Company's purchase of Notes required to be purchased by the Company under
the covenants described under "Limitation on Dispositions" and "Purchase of
Notes Upon a Change of Control" above.
"Reference Period" is defined to mean the four most recently completed
fiscal quarters for which financial information is available preceding the
date of a transaction giving rise to the need to make a financial
calculation.
"Restricted Payment" is defined to mean (i) any dividend or other
distribution on any shares of Magma's Capital Stock, provided that a dividend
or other distribution consisting of the Capital Stock of an Unrestricted
Subsidiary will not constitute a Restricted Payment except to the extent of
the portion thereof that is equal to the portion of the total Investment in
such Unrestricted Subsidiary that is represented by the Investment that was
made pursuant to clause (vii) of the definition of "Permitted Payment," (ii)
any payment on account of the purchase, redemption, retirement or acquisition
for value of Magma's Capital Stock, (iii) any defeasance, redemption,
purchase or other acquisition or retirement for value prior to the scheduled
maturity of any Debt ranked subordinate in right of payment to the Notes
other than repayment of Debt of Magma to a Restricted Subsidiary or an
Eligible Joint Venture, (iv) any Investment made in a Person (other than
Magma or any Restricted Subsidiary or any Eligible Joint Venture) and (v)
designating a Restricted Subsidiary as an Unrestricted Subsidiary (the
Restricted Payment made upon such a designation to be determined as the fair
market value of the Capital Stock of such Restricted Subsidiary owned
directly or indirectly by Magma at the time of the designation, but
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in no event less than the amount of the Investment made in such Restricted
Subsidiary directly or indirectly by Magma). Notwithstanding the foregoing,
"Restricted Payment" will not include (i) 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" and
(ii) payments to the Company pursuant to the Secured Magma Note.
"Restricted Payment Recourse Amount" is defined under "Certain
Covenants--Limitation on Restricted Payments."
"Restricted Subsidiary" is defined to mean any Subsidiary of Magma that is
not an Unrestricted Subsidiary.
"Senior Debt" is defined to mean the principal of and interest on all Debt
of the Company or Magma, as the case may be, whether created, Incurred or
assumed before, on or after the date of original issuance of the Notes (other
than the Notes), provided that Senior Debt will not include (i) Debt that,
when Incurred and without respect to any election under Section 1111(b) of
Title 11, United States Code, was without recourse to the Company or Magma,
as the case may be, (ii) Debt of the Company or Magma, as the case may be, to
any Affiliate and (iii) any Debt of the Company or Magma, as the case may be,
that, by the terms of the instrument creating or evidencing the same, is
specifically designated as being junior in right of payment to the Notes or
the Secured Magma Note or any other Debt of the Company or Magma, as the case
may be.
"Significant Subsidiary" is defined to mean a Restricted Subsidiary that
is a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X
under the Securities Act and the Exchange Act.
"Stated Maturity" is defined to mean, with respect to any debt security or
any installment of interest thereon, the date specified in such debt security
as the fixed date on which any principal of such debt security or any such
installment of interest is due and payable.
"Subsidiary" is defined to mean, with respect to any Person including,
without limitation, Magma 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 Magma and, as appropriate, its
Subsidiaries, any Permitted Joint Venture, provided that in respect of any
Subsidiary that is not a Permitted Joint Venture, Magma must exercise control
over such Subsidiary and its Property to the same extent as a Permitted Joint
Venture.
"Subsidiary Refinancing Debt" is defined to mean Debt issued in exchange
for, or the proceeds of which are used to refinance (including to purchase),
outstanding Debt of a Restricted Subsidiary or an Eligible Joint Venture,
including, without limitation, Construction Financing, in an amount (or, if
such new Debt provides for an amount less than the principal amount thereof
to be due and payable upon a declaration of acceleration thereof, with an
original issue price) not to exceed the amount so exchanged or refinanced
(plus accrued interest or dividends and all fees, premiums (in excess of
accreted value) and expenses related to such exchange or refinancing), for
which purpose the amount so exchanged or refinanced will not exceed, in the
case of Debt, to the lesser of (x) the principal amount of the Debt so
exchanged or refinanced and (y) if the Debt being exchanged or refinanced was
issued with an original issue discount, the accreted value thereof (as
determined in accordance with GAAP) at the time of such exchange or
refinancing, and, in the case of an equity investment made in lieu or as part
of Construction Financing, Debt, in an amount not to exceed the capital and
surplus shown on the balance sheet of such Restricted Subsidiary or Eligible
Joint Venture, provided that (A) such Debt will be Non-Recourse if the Debt
so exchanged or refinanced is Non-Recourse and (B) the Average Life of the
new Debt will be equal to or greater than the Average Life of the Debt to be
exchanged or refinanced, provided further that upon the first refinancing of
any Construction Financing of a Restricted Subsidiary or an Eligible Joint
Venture, (i) the amount of the Subsidiary Refinancing Debt issued in exchange
for or to refinance such Construction Financing will not be limited by this
provision and (ii) the Subsidiary Refinancing Debt issued in exchange for or
to refinance such Construction Financing will not be subject to the
provisions of the foregoing clause (B) of this provision.
"Trade Payables" is defined to mean, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors Incurred, created, assumed or Guaranteed by such Person or any of
its Subsidiaries or Joint Ventures arising in the ordinary course of
business.
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"Unrestricted Subsidiary" is defined to mean any Subsidiary of Magma that
becomes an Unrestricted Subsidiary in accordance with the requirements set
forth in the next sentence. Magma may designate any Restricted Subsidiary as
an Unrestricted Subsidiary if (a) such designation is in compliance with the
first paragraph of the covenant described under "Limitation on Restricted
Payments" above and (b) after giving effect to such designation, such
Subsidiary does not own, directly or indirectly, a majority of the Capital
Stock or the Voting Stock of any other Restricted Subsidiary unless such
other Restricted Subsidiary is designated as an Unrestricted Subsidiary at
the same time. Any such designation will be effected by filing with the
Trustee an Officers' Certificate certifying that such designation complies
with the requirements of the immediately preceding sentence. No Debt or other
obligation of an Unrestricted Subsidiary may be with recourse to Magma, any
of its Restricted Subsidiaries, any Eligible Joint Venture or any of their
respective Property. An Unrestricted Subsidiary may be designated as a
Restricted Subsidiary if, (i) all the Debt of such Unrestricted Subsidiary
could be Incurred under the provision described under "Limitation on
Subsidiary Debt" above and (ii) any portion of such Debt could not be
Incurred under such provision, could be Incurred by Magma under the provision
described in the first paragraph under "Limitation on Debt" above.
"U.S. Government Obligations" is defined to mean securities that are (i)
direct obligations of the U.S. for the payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the U.S., the payment of which
is unconditionally guaranteed as a full faith and credit obligation by the
U.S., that, in either case are not callable or redeemable at the option of
the issuer thereof, and will also include a depository receipt issued by a
bank or trust company as custodian with respect to any such U.S. Government
Obligations or a specific payment of interest on or principal of any such
U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt, provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by
the custodian in respect of the U.S. Government Obligation or the specific
payment of interest on or principal of the U.S. Government Obligation
evidenced by such depository receipt.
"Voting Stock" is defined to mean, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote for the
election of directors (or persons fulfilling similar responsibilities) of
such Person.
UNDERWRITING
Under the terms and subject to the conditions contained in the
Underwriting Agreement, dated July 18, 1995 (the "Underwriting Agreement"),
CS First Boston Corporation (the "Underwriter") has agreed to purchase from
CECI all of the Notes.
The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions precedent and that the
Underwriter will be obligated to purchase all the Notes, if any are
purchased.
The Company has been advised by the Underwriter that it proposes to offer
the Notes to the public initially at the public offering price set forth on
the cover page of this Prospectus and to certain dealers at such price less a
concession of 1.25% of the principal amount per Note, and the Underwriter and
such dealers may allow a discount of .25% of such principal amount per Note
on sales to certain other dealers. After the initial public offering, the
public offering price and concession and discount to dealers may be changed
by the Underwriter.
The Notes are a new issue of securities with no established trading
market. The Company plans to apply to list the Notes on the NYSE. There can
be no assurance, however, that the Notes will be approved for listing or that
an active trading market for the Notes will develop or be sustained.
Credit Suisse, an affiliate of the Underwriter, has provided certain
credit facilities and commercial banking services to the Company from time to
time and was the agent bank in connection with certain borrowings by the
Company incurred in connection with the tender offer for Magma common stock
and is agent bank under the Merger Facilities. As of March 31, 1995, $500
million was outstanding under the Merger Facilities. See "The Magma
Acquisition." Credit Suisse has agreed to reimburse the Company for some or
all of its costs, fees, expenses and discounts and commissions related to the
Offering. The amount of such reimbursement will be based on a number of
factors, including market conditions.
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The Company intends to use more than 10% of the proceeds from the sale of
the Notes to repay indebtedness owed by it to Credit Suisse. Accordingly, the
Offering is being made in compliance with the requirements of Section
44(c)(8) of Article III of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. This rule provides generally that if
more than 10% of the net proceeds from the sale of debt securities, not
including underwriting compensation, is paid to the underwriters of such debt
securities or their affiliates, the yield on the securities may not be lower
than that recommended by a "qualified independent underwriter" meeting
certain standards. Accordingly, Lehman Brothers Inc. is assuming the
responsibilities of acting as the qualified independent underwriter in
pricing the Offering and conducting due diligence. The yield on the Notes,
when sold to the public at the public offering price set forth on the cover
page of the Prospectus, is no lower than that recommended by Lehman Brothers
Inc.
The Underwriter and Lehman Brothers Inc. are advising the Company and
acting as initial purchasers in connection with the Funding Corporation
Offering.
The Underwriter acted as one of the underwriters in connection with the
Common Stock Offering for which it received customary underwriting fees and
commissions.
The closing of the Offering is conditioned upon the repayment in full of
the Merger Facilities.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriter may be required to make in
respect thereof.
LEGAL MATTERS
Certain legal matters with respect to the issuance and sale of the Notes
offered hereby will be passed upon for the Company by Steven A. McArthur,
Esq., Senior Vice President and General Counsel of the Company, and Willkie
Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New
York 10022. Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York,
New York, will pass on certain legal matters for the Underwriter in
connection with the Offering.
EXPERTS
The financial statements and the related financial statement schedules of
the Company and its subsidiaries incorporated in this Prospectus by reference
to the Company's 1994 10-K have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports (which reports express an
unqualified opinion and include an explanatory paragraph referring to the
Company's adoption effective January 1, 1993, of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes") which are
incorporated herein by reference, and have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
With respect to the Company's and Magma's unaudited interim financial
information for the period ended March 31, 1995, incorporated herein by
reference, Deloitte & Touche LLP 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
Report on Form 10-Q for the quarter ended March 31, 1995 and included in the
Company's Current Report on Form 8-K dated May 16, 1995 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 LLP 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 a registration statement
prepared or certified by an accountant within the meaning of Sections 7 and
11 of the Securities Act.
The consolidated balance sheets of Magma and subsidiaries as of December
31, 1994 and 1993 and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1994, incorporated by reference in this
Prospectus have been incorporated herein in reliance on the reports of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
82
<PAGE>
INDEX TO PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL DATA
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Pro Forma Condensed Combined Unaudited Statements of Earnings of the Company and
Magma for the Year Ended December 31, 1994 ........................................ P-3
Pro Forma Condensed Combined Unaudited Statements of Earnings of the Company and
Magma for the Three Months Ended March 31, 1995 ................................... P-4
Notes to Pro Forma Condensed Combined Unaudited Financial Data of the Company and
Magma ............................................................................. P-5
</TABLE>
P-1
<PAGE>
PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL DATA
The following Pro Forma Condensed Combined Unaudited Statements of
Earnings for the year ended December 31, 1994 and the three months ended
March 31, 1995 combine the historical consolidated statements of income as if
the Magma Acquisition had been effected at the beginning of each of the
periods presented. The Magma Acquisition is recorded under the purchase
method of accounting, after giving effect to the pro forma adjustments and
assumptions described in the accompanying notes. Under this method of
accounting, which is in accordance with generally accepted accounting
principles, assets and liabilities of Magma are adjusted to the estimated
fair value and combined with the recorded values of the assets and
liabilities of the Company. This Pro Forma Condensed Combined Unaudited
Financial Data should be read in conjunction with the financial data
appearing in, and are qualified in their entirety by, the consolidated
financial statements, including the notes thereto, of the Company and Magma,
included in the documents incorporated by reference herein.
The Company has completed its preliminary assessment of the fair values of
Magma's assets and liabilities, which are reflected in the accompanying Pro
Forma Condensed Combined Unaudited Financial Data. The Company expects to
finalize its fair value assessment in 1995. Accordingly, the final pro forma
combined amounts may differ from those set forth herein.
The Pro Forma Condensed Combined Unaudited Financial Data are intended for
information purposes only and are not intended to present the results that
would have actually occurred if the acquisition had been in effect on the
assumed dates and for the assumed periods, and are not necessarily indicative
of the results that may be obtained in the future.
P-2
<PAGE>
PRO FORMA CONDENSED COMBINED UNAUDITED STATEMENTS OF EARNINGS
THE COMPANY AND MAGMA
FOR THE YEAR ENDED DECEMBER 31, 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
THE ADJUSTMENT PRO FORMA
COMPANY MAGMA (5 C) COMBINED
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES
Sales of electricity and steam ......... $154,562 $158,374 $ -- $312,936
Royalties .............................. -- 21,067 -- 21,067
Interest and other income .............. 31,292 5,466 (8,460) 28,298
Management services .................... -- 5,975 -- 5,975
---------- ---------- ------------ -----------
Total revenue ........................ 185,854 190,882 (8,460) 368,276
---------- ---------- ------------ -----------
COSTS AND EXPENSES
Plant operations ....................... 33,015 42,358 -- 75,373
General and administrative ............. 13,012 13,942 -- 26,954
Royalties .............................. 9,888 9,764 -- 19,652
Depreciation and amortization .......... 21,197 23,985 14,934 60,116
Other non-plant costs .................. -- 29,983 _ 29,983
Interest expense ....................... 62,837 13,177 47,848 123,862
Less interest capitalized .............. (9,931) (708) (8,869) (19,508)
---------- ---------- ------------ -----------
Total costs and expenses ............. 130,018 132,501 53,913 316,432
---------- ---------- ------------ -----------
Income before income taxes ............. 55,836 58,381 (62,373) 51,844
Provision for income taxes ............. 17,002 19,832 (21,718) 15,116
---------- ---------- ------------ -----------
Income from continuing operations ..... 38,834 38,549 (40,655) 36,728
Preferred dividends .................... 5,010 -- -- 5,010
---------- ---------- ------------ -----------
Income available to common stockholders $ 33,824 $ 38,549 $(40,655) $ 31,718
========== ========== ============ ===========
INCOME PER COMMON AND COMMON EQUIVALENT
SHARE
Assuming no dilution ................... $0.95 $0.59
========== ===========
Weighted average common shares
outstanding ........................... 35,721 53,891
========== ===========
</TABLE>
The accompanying notes to the Pro Forma Condensed Combined Unaudited
Financial Data are an integral part of these statements.
P-3
<PAGE>
PRO FORMA CONDENSED COMBINED UNAUDITED STATEMENTS OF EARNINGS
THE COMPANY AND MAGMA
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
THE ADJUSTMENT PRO FORMA
COMPANY MAGMA (5 C) COMBINED
--------- --------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES
Sales of electricity and steam ......... $40,928 $35,362 $ -- $76,290
Royalties .............................. -- 4,397 -- 4,397
Interest and other income .............. 6,820 3,218 (2,115) 7,923
Management services .................... -- -- -- --
--------- --------- ------------ -----------
Total revenue ........................ 47,748 42,977 (2,115) 88,610
--------- --------- ------------ -----------
COSTS AND EXPENSES
Plant operations ....................... 9,151 10,535 -- 19,686
General and administrative ............. 4,423 2,338 -- 6,761
Royalties .............................. 2,821 1,593 -- 4,414
Depreciation and amortization .......... 5,849 6,159 3,733 15,741
Other non-plant costs .................. -- -- -- --
Interest expense ....................... 17,414 3,481 11,962 32,857
Less interest capitalized .............. (1,464) (675) (2,217) (4,356)
--------- --------- ------------ -----------
Total costs and expenses ............. 38,194 23,431 13,478 75,103
--------- --------- ------------ -----------
Income before income taxes ............. 9,554 19,546 (15,593) 13,507
Provision for income taxes ............. 3,057 6,255 (5,430) 3,882
--------- --------- ------------ -----------
Income from continuing operations ..... 6,497 13,291 (10,163) 9,625
Preferred dividends .................... 1,080 -- -- 1,080
--------- --------- ------------ -----------
Income available to common stockholders $ 5,417 $13,291 $(10,163) $ 8,545
========= ========= ============ ===========
INCOME PER COMMON AND COMMON EQUIVALENT
SHARE
Assuming no dilution ................... $0.13 $0.16
========= ===========
Weighted average common shares
outstanding ........................... 41,341 52,549
========= ===========
</TABLE>
The accompanying notes to the Pro Forma Condensed Combined Unaudited
Financial Data are an integral
part of these statements.
P-4
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL DATA
THE COMPANY AND MAGMA
(Tables in thousands)
The Magma Acquisition has been accounted for as a purchase. The resulting
adjustments are based on the historical consolidated financial statements of
the Company and Magma, the fair market value of the assets of Magma at or
near the effective time of the Merger and the proceeds from the sale of the
Company's Common Stock and funds borrowed which were used to finance the
acquisition of Magma.
The Pro Forma Condensed Combined Unaudited Financial Data are based on the
following assumptions:
1. The Magma Acquisition occurred at the beginning of the periods
presented for statements of earnings purposes.
2. The sale of 18,170,000 shares of Common Stock to fund a significant
portion of the purchase price for Magma (the "Common Stock Offering"). Such
shares include 16,670,000 shares that were sold in a public offering at a
price sufficient to provide net proceeds (after discounts and commissions but
before expenses) of approximately $16.49 per share to the Company. The
remaining 1,500,000 shares were sold in a direct sale to Peter Kiewit Sons,
Inc. at a price sufficient to provide net proceeds (after discounts and
commissions but before expenses) of $17.00 per share to the Company.
3. 12,400,000 shares of Magma Common Stock outstanding as of January 10,
1995 were purchased for cash in an amount of $483,600,000 and 11,549,000
shares of Magma Common Stock outstanding on February 24, 1995 were purchased
for cash in an amount of $444,372,000.
4. Outstanding Magma options were retired for approximately $7,187,000 in
cash.
5. The pro forma adjustments to reflect the effect of the transaction are
as follows:
A. The adjustments which have been made to the net assets of Magma and
the Company to give effect to the Magma Acquisition follow:
<TABLE>
<CAPTION>
<S> <C> <C>
Cash consideration plus direct costs incurred in
consummating the Magma Acquisition ............... $ 937,870
Cost of retiring outstanding Magma options ....... 7,187
Cost of 200,000 Magma shares owned by the Company
prior to the Merger .............................. 5,552
Net assets of Magma ............................... $389,816
Adjustment to eliminate goodwill of Magma ........ (9,180) (380,636)
---------- -----------
Excess of purchase price over carrying value of
net assets acquired .............................. 569,973
Allocated to:
Property and plant ............................... (456,492)
Property and plant--other ........................ 10,799
Investments and other assets ..................... 9,160
Other accrued liabilities ........................ 7,303
Deferred income taxes on allocated costs ........ 169,545
-----------
Goodwill .......................................... $ 310,288
===========
</TABLE>
P-5
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL DATA
THE COMPANY AND MAGMA--(CONTINUED)
B. The cash which the Company paid in order to effect the Magma
Acquisition has been provided for in the pro forma adjustments as follows:
<TABLE>
<CAPTION>
<S> <C>
Reduce cash on hand ..................... $169,209
Proceeds from the Common Stock Offering 298,630
Increase long-term debt ................. 500,000
----------
Total sources of cash ................... $967,839
==========
Payments to Magma common stockholders .. $927,972
Payments to Magma stock option holders . 7,187
Other direct acquisition costs .......... 9,898
Financing costs ......................... 22,782
----------
Total uses of cash ...................... $967,839
==========
</TABLE>
C. The pro forma adjustments to the Pro Forma Condensed Combined
Unaudited Statements of Earnings are as follows:
i. Record amortization of the excess of purchase price over net assets
acquired over a 40-year period, eliminate the amortization of goodwill
from the historical operating results of Magma, provide depreciation
expense on costs allocated to property and plant and capitalize interest
on costs allocated to plants under development and construction. The
Company's policy is to provide depreciation and amortization expense
beginning upon the commencement of energy production over the estimated
remaining useful life of plant and equipment or the contract period for
costs applicable to power sales and development contracts. Costs of $98.5
million have been allocated to power sales and development contracts and
plant for which energy production is not expected to commence until 1996
or later. Accordingly, revenues, period operating costs and amortization
of future costs to be incurred in the completion of such facilities
together with amortization of this allocation of acquisition costs are not
included in the pro forma combined statements of earnings.
ii. Increase interest expense relating to amortization of deferred
financing costs over ten years and cash used to finance the Magma
Acquisition, utilizing a 9% annual interest rate assumption applied to
additional borrowings and a 5% annual interest rate assumption applicable
to the reduction of cash on hand.
iii. Change income tax expense as a result of pro forma adjustments
which affect taxable income.
The pro forma income per common and common share equivalent has been
determined on the basis of weighted average shares which have been adjusted
to include the number of shares of Common Stock sold pursuant to the Common
Stock Offering.
6. The pro forma condensed combined unaudited financial data presented do
not reflect the effects of the Offering or the expected consummation of a
concurrent offering (the "Funding Corporation Offering") by Salton Sea
Funding Corporation (the "Funding Corporation"), a special-purpose
corporation and a wholly owned subsidiary of Magma, of certain debt
securities amounting to $475 million. $253 million of the net proceeds from
the Funding Corporation Offering will be used to repay the funds borrowed
from CECI in connection with the Magma Acquisition, and simultaneously
therewith CECI will repay the Merger Facilities. Approximately $102 million
of the net proceeds from the Funding Corporation Offering will be used to
repay existing Salton Sea Project debt and the remaining approximately $115
million of the net proceeds will be utilized to finance the Salton Sea
Expansion Project.
On a pro forma basis, after giving effect to the consummation of the
Offering and the Funding Corporation Offering, income available to common
shareholders for the year ended December 31, 1994 and the three months ended
March 31, 1995 would have been $32.9 million and $9.1 million, respectively.
Income per common and common equivalent share for the year ended December 31,
1994 and the three months ended March 31, 1995 would have been $0.61 and
$0.17, respectively.
P-6
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Available Information .................... 3
Incorporation of Documents by Reference . 4
Prospectus Summary ....................... 5
Risk Factors ............................. 14
The Collateral ........................... 18
Use of Proceeds .......................... 19
The Funding Corporation Offering ........ 20
Capitalization ........................... 21
The Magma Acquisition .................... 22
Business ................................. 23
Description of the Notes ................. 46
Underwriting ............................. 81
Legal Matters ............................ 82
Experts .................................. 82
Index to Pro Forma Condensed Combined
Unaudited Financial Data ................ P-1
</TABLE>
<PAGE>
[LOGO]
California Energy Company, Inc.
$200,000,000
9 7/8 % Limited Recourse
Senior Secured Notes
Due 2003
PROSPECTUS
[LOGO] CS FIRST BOSTON
