AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 1995
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CALIFORNIA ENERGY COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2213782
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION) IDENTIFICATION NO.)
302 SOUTH 36TH STREET, SUITE 400, OMAHA, NEBRASKA 68131
(402) 341-4500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
STEVEN A. MCARTHUR, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
CALIFORNIA ENERGY COMPANY, INC.
302 SOUTH 36TH STREET, SUITE 400, OMAHA, NEBRASKA 68131
(402) 341-4500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
----------------
WITH COPIES TO:
PETER J. HANLON, ESQ. STACY J. KANTER, ESQ.
WILLKIE FARR & GALLAGHER SKADDEN, ARPS, SLATE, MEAGHER & FLOM
ONE CITICORP CENTER 919 THIRD AVENUE
153 EAST 53RD STREET NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10022 (212) 735-3000
(212) 821-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
==============================================================================
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE AMOUNT TO BE AGGREGATE PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER NOTE(1) PRICE(1) FEE
- --------------------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
% Limited Recourse Senior
Secured Notes Due 2003 $200,000,000 100% $200,000,000 $68,966
- --------------------------- -------------- --------------- --------------- --------------
==============================================================================
<PAGE>
<FN>
(1) Estimated solely for the purpose of determining the registration fee.
</TABLE>
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED MAY 17, 1995
LOGO
$200,000,000
California Energy Company, Inc.
% Limited Recourse Senior Secured Notes Due 2003
Interest payable June and December
----------------
The % 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 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) THE RESTRICTED PAYMENT RECOURSE AMOUNT
(AS DEFINED HEREIN). THE HOLDERS OF THE NOTES WILL HAVE NO OTHER RECOURSE TO
THE GENERAL ASSETS OF THE COMPANY.
On or prior to , 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 % 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 , 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."
----------------
SEE "INVESTMENT CONSIDERATIONS" 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
<PAGE>
COMMISSION PASSED UPON THE ACCURACY OR AD- EQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS COMPANY (1)
---------------- ----------------- ---------------
<S> <C> <C> <C>
Per Note ..... % % %
Total ........ $ $ $
(1) Plus accrued interest, if any, from , 1995.
</TABLE>
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 , 1995.
CS First Boston
The date of this Prospectus is , 1995.
<PAGE>
#############################################################################
IMAGES OMITTED ON INSIDE FRONT COVER OF PROSPECTUS;
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)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Net Megawatts (MW) Owned 354 581 1,008 1,321 1,698
Facility Gross MW Capacity 642 883 1,584 2,165 2,770
PROFILE OF PROJECTS(2)
<TABLE>
<CAPTION>
Facility MW
Capacity
----------------
Net MW Commercial
Project Gross Net Owned Fuel Type Operation
- ------------------------------ ------- ------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
PROJECTS IN OPERATION
Coso Project(3) 288 264 127 geothermal 1987-90
*Salton Sea Projects(4) 264 224 150 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 642 571 354
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 36 36 36 geothermal 1996
------- ------- -------- --------------- ------------
Total 575 536 445
AWARDED PROJECTS
*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 2,770 2,660 1,698
======= ======= ========
- ---------------
* 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 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.
</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 Report on Form 8-K dated May 16, 1995.
4. Magma's Annual Report on Form 10-K for the fiscal year ended December
31, 1993 (the "Magma 1993 10-K").
5. Magma's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1994, June 30, 1994 and September 30, 1994.
6. Magma's Current Reports on Form 8-K dated March 31, 1993, as amended,
October 7, 1994, December 9, 1994 and January 11, 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. and its subsidiaries (including Magma Power
Company), and references to "Magma" shall mean Magma Power Company and its
subsidiaries. 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 to develop geothermal
power production facilities. The Company is primarily engaged in the
exploration for, and development 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 0.5cents per kWh in the costs of Magma's operations.
The Company has an aggregate net ownership interest of 354 MW of electric
generating capacity in power production facilities in the United States
having an aggregate net capacity of 571 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 such plants and 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 36 MW of electric generating capacity in an additional project
having a net capacity of 36 MW, which is under construction (the "Salton Sea
Expansion Project" as described herein). The Company is also developing seven
additional projects with executed or awarded power sales contracts 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 representing an aggregate net capacity of
1,553 MW of additional potential electric generating capacity.
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 experience, project development 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."
5
<PAGE>
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 consist of: (i) the operation of seven geothermal power
plants with a 224 MW net capacity (the "Salton Sea Project Plants"), (ii) the
construction of a 36 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 geothermal power plants (the "Magma
Plants") are wholly owned by Magma and were purchased on March 31, 1993 from
Union Oil Company of California.
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 also receives royalties senior to each project's debt service
for providing geothermal resources to three of the Partnership Plants as well
as a special priority partnership distribution and a bonus if annual revenues
exceed certain specified amounts. In addition, Magma is reimbursed by 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.
In addition to the electricity sales revenue earned from its net ownership
position in the Partnership Plants, Magma receives significant fee and
royalty income from operating such plants and managing the production from
the geothermal resource for such facilities. Magma also receives royalty
income from the Mammoth and East Mesa Plants.
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 fixed energy payments (which do not escalate) over the
first 10 years of the term and thereafter equal to SCE's Avoided Cost of
Energy. The third Magma Plant sells 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 indices.
USE OF PROCEEDS AND THE MAGMA ACQUISITION
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.
CECI intends to lend the proceeds of the Offering to Magma in exchange for
a secured term note of Magma (the "Secured Magma Note"). Magma intends to
immediately use such proceeds to repay a portion of the funds borrowed from
CECI in connection with the Magma Acquisition, and simultaneously therewith
CECI will repay a portion of the Merger Facilities. See "Use of Proceeds,"
"The Magma Acquisition" and "Underwriting."
6
<PAGE>
THE OFFERING
Notes Offered .......... $200 million principal amount of % Limited
Recourse Senior Secured Notes due 2003 (the
"Notes").
Maturity Date .......... , 2003
Interest Payment Dates . June and December , commencing December
, 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 , 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 %
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 be
redeemable at the option of the Company, in
whole or in part, after , 2000,
initially at a redemption price equal to
%; declining to % on , 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 ............. The Notes are secured by an assignment and
pledge of 100% of the outstanding capital
stock of Magma. See "The Collateral."
Ranking ................ The Notes will be limited recourse senior
secured obligations of the Company with
recourse only to the Collateral (as
defined), the Company's interest in the
Secured Magma Note and payments thereon (the
"Magma Note Recourse Assets") and the
Restricted Payment Recourse Amount (as
defined). The Notes will rank senior to all
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
7
<PAGE>
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 completion of this Offering
and the application of the net proceeds
therefrom, the Company's total consolidated
indebtedness (excluding deferred income),
would have been $1,544.9 million, its total
consolidated assets would have been $2,339.8
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) THE
RESTRICTED PAYMENT RECOURSE AMOUNT. THE
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),
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."
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) the failure by the Company
to perform any covenant contained in the
Indenture, which breach continues for 30
days after written notice thereof, (iv) the
failure of the Company, Magma or any
Significant Subsidiary (as defined) to pay
when due beyond any applicable grace period,
or the acceleration of, Debt (other than
Non-Recourse Debt of Significant
Subsidiaries) in excess of $25 million, (v)
the entry by a court of one or more
judgments against the Company, Magma or any
Significant Subsidiary for an aggregate
amount in excess of $25 million, subject to
certain conditions, and (vi) the occurrence
of certain events of bankruptcy, insolvency
or reorganization of the Company, Magma or
any Significant Subsidiary. See "Description
of the Notes-- Events of Default."
8
<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 the
Notes offered hereby. 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 .................................................... 85,137 21,279
General and administrative and other ................................ 26,954 6,761
Royalties ........................................................... 9,888 2,821
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
Ratio of earnings to fixed charges(1) ................................ 1.3 1.3
Pro forma consolidated EBITDA(2) ..................................... $ 185,462 $ 49,263
Pro forma consolidated fixed charges(2) .............................. 98,190 26,133
OTHER FINANCIAL DATA AS ADJUSTED TO GIVE EFFECT TO THE OFFERING
AND COST SAVINGS:
Ratio of pro forma consolidated EBITDA to pro forma consolidated
fixed charges(3) ................................................... 2.0 2.0
- ---------------
(1) 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).
(2) "Pro forma consolidated EBITDA" and "Pro forma consolidated fixed charges"
are calculated in accordance with the respective definitions of such 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 1994 EBITDA balances are before the
extraordinary item associated with defeasance of CECI's 12% Senior Notes
due 1995. The consolidated fixed charges do not include interest
on CECI's non-recourse debt. Pro forma consolidated fixed charges and
the ratio of pro forma consolidated EBITDA to pro forma consolidated fixed
charges give effect to the change in interest expense reflecting
proceeds from the Offering at an assumed interest rate of 10.0% applied
to reduce the Merger Facilities which have a current weighted average
interest rate of 9.4%. Information concerning pro forma EBITDA is
presented here not as a measure of pro forma operating results, but
<PAGE>
rather as a measure of the Company's pro forma ability to service debt.
Pro forma EBITDA should not be construed as an alternative 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) The ratio is calculated by dividing Pro forma consolidated EBITDA by
Pro forma consolidated fixed charges and in addition 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.
See "Pro Forma Condensed Combined Unaudited Financial Data."
</TABLE>
9
<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 .......................... $ 54,191(2) $ 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
Ratio of earnings to fixed charges
(3) ............................... 8.3 8.8 5.4 5.8 1.6
Consolidated EBITDA (4) ............. $ 61,757 $102,140 $ 83,611 $ 20,690 $ 26,500
Ratio of consolidated EBITDA to
consolidated fixed charges ........ 378.8 18.5 67.2 18.4 2.5
- ---------------
(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) 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.
(4) "Consolidated EBITDA" and "Consolidated Fixed Charges" are calculated
in accordance with the respective definitions of such in the Indenture
described under "Description of the Notes --Certain Definitions."
EBITDA is presented here not as a measure of operating results, but
rather as a measure of Magma's ability to service debt. EBITDA should
not be construed as an alternative either (i) to operating income
(determined in accordance with generally accepted accounting
principles) or (ii) to cash flows from operating activities (determined
in accordance with generally accepted accounting principles).
</TABLE>
10
<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 $1,479,218
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
Ratio of earnings to fixed charges
(5) ............................... 3.2 2.8 1.7 2.1 1.5
Consolidated EBITDA (6) ............. $ 66,695 $ 80,712 $ 109,176 $ 17,835 $ 47,708
Ratio of consolidated EBITDA to
consolidated fixed charges (6) .... 6.3 5.6 2.3 3.8 2.0
<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) 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.
(6) "Consolidated EBITDA" and "Consolidated Fixed Charges" are calculated
in accordance with the respective definitions of such in the Indenture
described under "Description of the Notes --Certain Definitions." The
1994 EBITDA balances are before the extraordinary item associated with
the defeasance of CECI's Senior Notes. The consolidated fixed charges
do not include interest on CECI's non-recourse debt. Information
concerning EBITDA is presented here not as a measure of operating
results, but rather as a measure of the Company's ability to service
debt. EBITDA should not be construed as an alternative either (i) to
<PAGE>
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).
</TABLE>
11
<PAGE>
INVESTMENT CONSIDERATIONS
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 risk. The Company and Magma have in
development or 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 and Magma to expend significant sums for
preliminary engineering, permitting, legal and other expenses in preparation
for competitive bids which the Company or Magma 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 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
non-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, if developed,
that such projects will be developed through Magma or Magma's subsidiaries.
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 risks (including, without
limitation, uncertainties associated with first-time privatization efforts in
the countries involved, currency exchange rate fluctuations, currency
repatriation restrictions, political instability, civil unrest and
expropriation) and other structuring issues that have the potential to cause
substantial delays 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 may
develop 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 or Magma 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 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
12
<PAGE>
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 results of operations.
CONTRACT RISKS; EXPECTED 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 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 over at least the near
term. For example, for April 1995, the time period-weighted average of SCE's
Avoided Cost of Energy was 2cents 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 energy of approximately 12.5cents and 11.5cents
per kWh, for the Company and Magma, respectively. Thus, the revenues generated
13
<PAGE>
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
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. 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 "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 disposal
of various forms of waste, the construction or permitting of new facilities
and the drilling and operation of new wells. 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 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") following a
declaration of acceleration of the Notes would be sufficient to satisfy any
payment of the Notes. 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 the Restricted Payment
Recourse Amount. The 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 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. Although there can be no assurance, the Company
believes that Magma would be able to obtain such services from another party
on reasonable terms and conditions. However, if Magma were unable to obtain
such services, the value of the Collateral could be adversely affected.
14
<PAGE>
HOLDING COMPANY STRUCTURE. CECI is a holding company which derives
substantially all of its operating income from its subsidiaries' 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' 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. 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. 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. 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). After giving
pro forma effect to this Offering, as of March 31, 1995, the Company's
subsidiaries would have had approximately $880 million of indebtedness and
other liabilities, which are effectively senior to the Notes, substantially
all of which would have been secured by the assets of such subsidiaries. See
"Business--Other Company 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 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. 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 to the
Trustee (as defined) for its benefit and the benefit of the holders of the
Notes, a security interest in all of the Capital Stock (as defined) of Magma
now owned or hereafter acquired and all dividends, cash, instruments and
other property and proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any of the foregoing
(collectively, the "Collateral"). Other than the right to enforce their
security interest in the Collateral, the holders of the Notes will have no
recourse to any assets of the Company, other than the Magma Note Recourse
Assets and general assets in an amount equal to the Restricted Payment
Recourse Amount. As shown in the chart on the inside front cover page, the
Magma projects consist of the (i) Salton Sea Projects, (ii) Malitbog, (iii)
Salton Sea Expansion Project and (iv) BRPU.
The security interest in the Collateral will be a first priority security
interest. However, absent any Default (as defined), the Company will be able
to vote, as it sees fit in its sole discretion, the Capital Stock
15
<PAGE>
of Magma, 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 or the Secured Magma Note.
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 and 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" and (ii) if
after giving effect to such Magma Equity Offering any Person or group of
Persons would own 10% or more of the Capital Stock of Magma, such Person or
Persons shall 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.
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 to repay a portion of the funds borrowed from
CECI in connection with the Magma Acquisition and simultaneously therewith
CECI will repay a portion of the Merger Facilities. See "Summary--Use of
Proceeds and the Magma Acquisition," "The Magma Acquisition" and
"Underwriting." The Merger Facilities are described under "The Magma
Acquisition."
16
<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
Offering and the application of the net 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>
THE COMPANY
MAGMA(1) THE COMPANY AS ADJUSTED
------------ ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
INDEBTEDNESS: (2)
Merger Facilities ................................... $500,000 $ 500,000 $ 300,000
Limited recourse senior secured notes ............... -- -- 200,000
Construction loans .................................. -- 53,028 53,028
Project loans ....................................... 164,852 384,133 384,133
Senior discount notes ............................... -- 442,879 442,879
Convertible subordinated debentures ................. -- 100,000 100,000
Convertible debt .................................... -- 64,850 64,850
------------ ------------- -------------
Total indebtedness .................................. 664,852 1,544,890 1,544,890
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 .......................... 495,509 332,358 332,358
Retained earnings ................................... 7,207 151,257 151,257
Less treasury stock--102 shares at cost ............. -- (1,590) (1,590)
------------ ------------- -------------
Total stockholders' equity .......................... 502,716 485,403 485,403
------------ ------------- -------------
Total capitalization ................................ $1,167,568 $2,030,293 $2,030,293
============ ============= =============
<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>
17
<PAGE>
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 about 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 $968 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.
18
<PAGE>
BUSINESS
THE COMPANY
California Energy Company, Inc. was founded in 1971 to develop geothermal
power production facilities. The Company is primarily engaged in the
exploration for, and development 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 354 MW of electric generating capacity in power production
facilities in the United States having an aggregate net capacity of 571 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 such
plants and 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 36 MW of electric generating capacity in an additional project
having a net capacity of 36 MW, which is under construction (the Salton Sea
Expansion Project). The Company is also developing seven additional projects
with executed or awarded power sales contracts 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 representing an
aggregate net capacity of 1,553 MW of additional potential electric
generating capacity.
MAGMA
Magma's domestic activities are currently centered in the Imperial Valley
of California and consist of: (i) the operation of the Salton Sea Project
Plants with a 224 MW net capacity, (ii) the construction of the Salton Sea
Expansion with a 36 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 wholly owned by Magma and were purchased on March 31, 1993
from Union Oil Company of California.
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 also receives royalties senior to
each project's debt service for providing geothermal resources to three of
the Partnership Plants as well as a special priority partnership distribution
and a bonus if annual revenues exceed certain specified amounts. In addition,
Magma is reimbursed by 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.
In addition to the electricity sales revenue earned from its net ownership
position in the Partnership Plants, Magma receives significant fee and
royalty income from operating such plants and managing the production from
the geothermal resource for such facilities. Magma also receives royalty
income from the Mammoth and East Mesa Plants.
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 fixed energy payments (which do not escalate) over the
first 10 years of the term and thereafter equal to SCE's Avoided Cost of
Energy. The third Magma Plant sells 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 indices.
19
<PAGE>
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 1,698 MW of electric generating capacity in
projects in operation, under construction or in development, which projects
have an aggregate net generating capacity of 2,660 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 0.5cents 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 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
20
<PAGE>
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 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.
21
<PAGE>
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 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
22
<PAGE>
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 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"
23
<PAGE>
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 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.
THE COMPANY'S PROJECTS
The Company has net ownership interests of an aggregate of (i) 354 MW in
13 projects in operation representing an aggregate net capacity of 571 MW of
electric generating capacity, (ii) 445 MW in four projects under construction
representing an aggregate net capacity of 536 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 the latter
stages of development pursuant to signed power sales agreements or awarded
mandates.
24
<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 ..... 11 8 8 Imperial Valley, CA 7/1987 6/2017 Negotiated SCE
*Salton Sea II ... 20 18 18 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 642 571 354
--- --- ---
</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 ... 36 36 36 Imperial Valley, CA 1996 CO+30 Negotiated SCE
</TABLE>
PROJECTS WITH SIGNED POWER SALES CONTRACTS OR AWARDED DEVELOPMENT RIGHTS
<TABLE>
<CAPTION>
FACILITY
FACILITY NET NET PROJECTED
GROSS CAPACITY OWNERSHIP COMMERCIAL
CAPACITY (IN INTEREST OPERATION CONTRACT CONTRACT POWER
PROJECT (IN MW)(9) MW)(3)(9) (IN MW) LOCATION DATE EXPIRATION(8) TYPE PURCHASER(5)
- ------- ---------- ---------- ---------- -------------- ----------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
*BRPU(10) ........ 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 871 800 583
--- --- ---
<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 Company (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
25
<PAGE>
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).
(9) 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 completion of construction.
(10) 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>
25
<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
<TABLE>
<CAPTION>
FACILITY FACILITY NET PROJECTED
GROSS NET OWNERSHIP COMMERCIAL
CAPACITY CAPACITY INTEREST OPERATION CONTRACT CONTRACT POWER
PROJECT (IN MW)(7) (IN MW)(2)(7) (IN MW) 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(8) ....... 140 140 98 Luzon, the 1998 CO+20 Build, Own, NIA (GOP)(5)
Philippines Transfer
Bali(8)(9) ........ 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).
(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) 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 completion of construction.
(8) 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.
(9) Geothermal resource development rights have been awarded and the power
sales contract is subject to negotiation.
</TABLE>
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<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
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IMAGE OMITTED:
[Map of the Western United States]
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MAGMA 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 Salton Sea Project Plants are wholly owned by 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, the Vulcan Project partnership owns certain geothermal
resources supplying the Vulcan Project plant for which Magma receives certain
fees. In the case of the other three Partnership Plants, Magma owns 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 receives revenue for managerial
27
<PAGE>
services which totaled $6.0 million in 1994. In each case, a subsidiary of
Magma is the managing general partner, 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 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 103.7% 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 as-available capacity price is based on a payment schedule as
approved by the CPUC from time to time. The contract energy payment 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 11.8cents for 1995 and 12.6cents for
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 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 11.8cents for
1995 to 14.6cents 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 11.8cents in
1995 to 14.6cents 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 11.8cents in
1995 to 15.6cents 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"), 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 Project in Construction -- Salton Sea Expansion."
The capacity payment is based on the firm capacity price which is
currently $123.6/kW-year. The contract capacity payment adjusts quarterly
based on a basket of energy 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 (4.7cents per kWh for the second quarter of 1992)),
which is subject to quarterly adjustments based on a basket of indices. The
time period weighted average energy payment for unit 1 was 4.8cents per kWh
during 1994 and is substantially the same in 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 15,
1990. The contract capacity and contract nameplate are 15MW 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
10.6cents per kWh. Thereafter, the monthly energy payments will be 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 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. 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 9.8cents per kWh. Thereafter, the monthly energy payments will be 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
purchase 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.
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<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
in 1994.
OTHER COMPANY 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 11.0cents per kWh in 1994 to 14.6cents
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% in the year ended December 31, 1994 and 113% in the
three months ended March 31, 1995.
30
<PAGE>
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% 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% 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 3.5 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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<PAGE>
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 contract that expires December 31,
1995 and that may be extended on a year-to-year basis as agreed by the
parties. The price for electricity under this contract is 6.3cents per kWh,
comprising an energy payment of 1.8cents per kWh (which is adjustable
pursuant to an inflation-based index) and a capacity payment of 4.5cents per
kWh. The Company is currently negotiating the terms of an extension to this
contract.
MAGMA PROJECT IN CONSTRUCTION
Salton Sea Expansion. 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
ISO4") 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").
On April 26, 1995 the CPUC approved the restructuring of (i) the Salton
Sea Option and (ii) the Fish Lake ISO4, whereby the Fish Lake Project would
not be developed at its proposed site in Nevada but instead would be
developed at the Salton Sea known geothermal resource area under an amended
and restated 30-year power purchase agreement (the "Amended PPA") in
conjunction with the Salton Sea Option. Final CPUC approval is expected after
the expiration of a 30 day appeal period.
The Amended PPA, which consolidates the Salton Sea Option with the Fish
Lake Project (together, the "Salton Sea Expansion Project"), provides that
the price for contract capacity payments is $158/kW-year and the energy
payment schedule commences in 1996 at 8.8cents per kWh and increases to
12.4cents per kWh in 2005. Thereafter, the monthly energy payments will be
equal to SCE's Avoided Cost of Energy plus a predetermined spread. The Salton
Sea Expansion Project is being designed and constructed by The Dow Chemical
Company, and construction has commenced at the site. Based on the procurement
and construction schedule, commercial operation is presently expected by
mid-1996.
PROJECTS IN DEVELOPMENT -- GENERAL
The following is a summary description of certain information concerning
the Company's and Magma's projects 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.
MAGMA PROJECTS IN DEVELOPMENT
The BRPU Process. Magma is seeking new long-term final SO4 power purchase
agreements in southern California through the bidding process adopted by the
CPUC under its 1992 Biennial Resource Plan Update ("BRPU"). In its 1992 BRPU,
the CPUC cited the need for an additional 9,600 MW of power production
through 1999 among California's three investor-owned utilities, SCE, SDG&E
and Pacific Gas and Electric Company (collectively, the "IOUs"). Of this
amount, 275 MW was set aside for bidding by independent power producers (such
as Magma) utilizing renewable resources. Pursuant to an order of the CPUC
dated June 22, 1994 (confirmed on December 21, 1994), Magma was awarded 163
MW for sale to SCE (69 MW) and SDG&E (94 MW), with in-service dates in 1997
and 1998. However, the IOUs have to date challenged and may continue to
challenge the order and there can be no assurance that power sales contracts
will be executed or that any 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
32
<PAGE>
SCE in lieu of signing a power sales contract for the 69 MW of BRPU capacity.
The amount of the termination payments is subject to a confidentiality
agreement but provides SCE's ratepayers with substantial savings when
compared to payments that would otherwise be made to Magma over the life of
the proposed BRPU power sales contract. 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 contract for 69 MW of geothermal capacity and energy
on commercially reasonable prices and terms, without giving effect to the
termination payments previously paid.
COMPANY PROJECTS 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 contracts 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 contracts 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
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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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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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 PROJECTS 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 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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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.
COMPANY 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, the plant design has not been initiated
as 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. Consequently, the Company has not
commenced financing arrangements for the Alto Peak project.
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
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a production allowance equal to three percent of the Dieng Joint Venture's
net operating income from the 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 the Company, through a subsidiary, will be responsible for operating and
managing the Dieng Project.
The Dieng field has been explored domestically for over 20 years, and BHCO
has been active in the area for more than five years. 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 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 (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 obligations of the Company and
will be secured by a pledge of the Collateral. The Company will lend the
proceeds of the Notes to Magma in exchange for a secured term note of Magma
(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
, 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 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 % per annum and will
be payable semi-annually in arrears on each June and December ,
commencing December , 1995, to the Holders thereof at the close of business
on the preceding and , 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.
OPTIONAL REDEMPTION
The Notes may be redeemed at the Company's option, in whole or in part, at
any time on or after , 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,
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to the date of redemption, if redeemed during the 12-month period commencing
on or after of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------ ----------------
<S> <C>
2000 ................... %
2001 ................... %
2002 and thereafter ... %
</TABLE>
If less than all the outstanding Notes are to be redeemed, the Notes or
portions of Notes to be redeemed will be selected by the Trustee pro rata or
otherwise in such manner as the Trustee deems to be fair and appropriate in
the circumstances.
The Notes will not be subject to any mandatory sinking fund.
REDEMPTION UPON COMPANY EQUITY OFFERING
At any time, or from time to time, on or prior to , 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) 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
% 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 60 days after the
consummation of such Company Equity Offering. 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 of the Company or a wholly
owned Subsidiary of the Company, other than Magma and its Subsidiaries (other
than Redeemable Capital Stock), 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) 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 % 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 after the
consummation of such Magma Equity Offering. 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.
RANKING
The Notes will be limited recourse senior obligations of the Company and
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
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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 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.
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 stockholder's equity was $502.7 million. At such
date, on a pro forma basis, after giving effect to the use of the proceeds to
repay a portion of the debt incurred to finance the Magma Acquisition,
Magma's total consolidated indebtedness was $664.9 million (excluding
deferred income), its total consolidated assets were $1,387.9 million and its
stockholder's equity was $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. At such date, on a
pro forma basis, after giving effect to the completion of this Offering and
the use of the proceeds to repay a portion of the debt incurred to finance
the Magma Acquisition, the Company's total consolidated indebtedness
(including Magma) would have been $1,544.9 million (excluding deferred
income), its total consolidated assets would have been $2,339.8 million and
its stockholders' equity would have been $485.4 million. See
"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. See "Investment Considerations--Substantial Leverage."
SECURITY
Pursuant to the Indenture the Company will assign and pledge to the
Trustee, for its benefit and the benefit of the Holders of the Notes, a
security interest in all of the Capital Stock of Magma now owned or hereafter
acquired and all dividends, cash, instruments and other property and proceeds
from time to time received, receivable or otherwise distributed in respect of
or in exchange for any of the foregoing.
The security interest in the Collateral will be a first priority security
interest. However, absent any Default, the Company will be able to vote, as
it sees fit in its sole discretion, the Capital Stock of Magma, 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 or the Secured Magma Note.
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 of the Indenture 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, 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 and, thereafter, to pay the Default Amount on the Notes. However,
the Trustee's right under the Indenture to dispose of the Collateral upon an
Event of Default may be significantly impaired if CECI 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
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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 CECI 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. Such adequate
protection under the Bankruptcy Code may take various forms, including the
granting of a replacement lien or other relief that will enable the secured
creditor to realize the "indubitable equivalent" of its interest in the
Collateral. Accordingly, it is impossible to predict whether or when the
Trustee could dispose of the Collateral, or whether or to what extent the
Trustee would be compensated for any delay in payment or loss of value of the
Collateral through the requirement of "adequate protection" if CECI became
the subject of a bankruptcy or reorganization case.
Other than the right to enforce their security interest in the Collateral,
the holders of the Notes will have no recourse to any other assets of the
Company, other than the Magma Note Recourse Assets and general assets in an
amount equal to the Restricted Payment Recourse Amount.
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
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
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<PAGE>
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 beneficially own securities held by the
Depositary only through participants or indirect participants. The rules
applicable to the Depositary and the participants are on file with the
Commission. The Depositary agrees with and represents to its participants
that it will administer its book-entry system in accordance with its rules
and bylaws and requirements of law.
CERTAIN COVENANTS
The Indenture will contain certain covenants, including the ones
summarized below, which covenants will be applicable (unless they are waived
or amended or unless the Notes are defeased, see "Defeasance" below) so long
as any of the Notes are outstanding.
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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 or an Eligible Joint Venture (other than
to another Restricted Subsidiary 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 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)
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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, as evidenced by an
Officers' Certificate, or, if more than $15 million, by the Board of
Directors, as evidenced by a Board resolution) after the date of original
issuance of the Notes, is less than the sum (without duplication) of (i) 50%
of the Adjusted Consolidated Net Income of 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 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, Magma's Restricted Subsidiaries and
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 Eligible Joint Ventures to the Company, 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
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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 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 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 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 Magma 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 Magma 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
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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 Magma
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 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, as evidenced by an Officers' Certificate, or, if
more than $15 million, by the Board of Directors, as evidenced by a Board
resolution), (ii) at least 85% of such consideration is received in cash or
Cash Equivalents or, if less than 85%, the remainder of such consideration
consists of Property related to the business of Magma as described in the
first sentence of the covenant described under "Limitation on Business"
below, and (iii) unless otherwise required under the terms of Senior Debt, at
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
"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
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Property that does not constitute a Restricted Subsidiary or an Eligible
Joint Venture, (iii) Property that does not constitute a Restricted
Subsidiary or an Eligible Joint Venture for Property that does not constitute
a Restricted Subsidiary or an Eligible Joint Venture and (iv) Property that
does not constitute a Restricted Subsidiary or an Eligible Joint Venture for
Property that constitutes a Restricted Subsidiary or an Eligible Joint
Venture, provided that in each case the fair market value of the Property
received is at least equal to the fair market value of the Property exchanged
as determined in good faith by the Chief Financial Officer, as evidenced by
an Officers' Certificate, or, if more than $25 million, by the Board of
Directors, as evidenced by a Board resolution, provided, 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 determines, in good faith, as evidenced by an Officers'
Certificate, that repatriation of any or all of the Net Cash Proceeds of any
Foreign Asset Disposition would have a material adverse tax consequence to
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 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 Offer pursuant to this covenant if the Excess
Proceeds available therefor are less than $10 million, provided that the
lesser amounts of such Excess Proceeds will be carried forward and cumulated
for each 36 consecutive month period for purposes of determining whether an
Offer is required with respect to any Excess Proceeds of any subsequent Asset
Dispositions. Any such lesser amounts so carried forward and cumulated need
not be segregated or reserved and may be used for general corporate purposes,
provided that such use will not reduce the amount of cumulated Excess
Proceeds or relieve the Company of its obligation hereunder to make an Offer
with respect thereto.
The Company will make an Offer by mailing to each Holder, with a copy to
the Trustee, within 30 days after the receipt of Excess Proceeds that cause
the cumulated Excess Proceeds to exceed $10 million, a written notice that
will specify the purchase date, which will not be less than 30 days nor more
than 60 days after the date of such notice (the "Purchase Date"), that will
contain certain information concerning the business of the Company 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 Offer (including, without limitation, the right of
withdrawal) and the effect of such Offer on the Notes tendered. Holders that
elect to have their Notes purchased will be required to surrender such Notes
at least one Business Day prior to the Purchase Date. If at the expiration of
the Offer period the aggregate
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purchase price of the Notes properly tendered by Holders pursuant to the
Offer exceeds the amount of such Excess Proceeds, the Notes or portions of
Notes to be accepted for purchase will be selected by the Trustee in such
manner as the Trustee deems to be fair and appropriate in the circumstances.
If the Company is prohibited by applicable law from making the Offer or
purchasing Notes thereunder, the Company need not make an Offer pursuant to
this covenant for so long as such prohibition is in effect.
The Company will comply with all applicable tender offer rules, including,
without limitation, Rule 14e-1 under the Exchange Act, in connection with an
Offer.
Limitation on Transactions with Affiliates
The Company will not 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, transaction or series
of transactions is approved by a majority of the Board of Directors
(including a majority of the disinterested directors), which approval is set
forth in a Board resolution delivered to the Trustee certifying that, in good
faith, the Board of Directors believes that such business, transaction or
series of transactions complies with clauses (i) and (ii) above.
In addition to the foregoing, without complying with clause (iii) above,
the Company may provide to Magma, Magma's 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, Magma's Restricted Subsidiaries or 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 Magma
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
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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 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, or (x) Liens, in addition to
the foregoing, that secure obligations not in excess of $5 million in the
aggregate. The Company may not grant a Lien on (i) any Capital Stock of
Magma, except for the Lien securing the Notes, (ii) the Magma Note Recourse
Assets or (iii) the Restricted Payment Recourse Amount.
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
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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
telegram, telex, facsimile transmission or letter setting forth the name of
the Holder, the principal amount of Notes the Holder delivered for purchase,
and a statement that such Holder is withdrawing his election to have such
Notes purchased and (8) that Holders that elect to have their Notes purchased
only in part will be issued new Notes having a principal amount equal to the
portion of the Notes that were surrendered but not tendered and purchased.
On the Purchase Date, the Company will (i) accept for payment all Notes or
portions thereof tendered pursuant to the Change of Control Offer, (ii)
deposit with the Trustee money sufficient to pay the purchase price of all
Notes or portions thereof so tendered for purchase and (iii) deliver or cause
to be delivered to the Trustee the Notes properly tendered together with an
Officers' Certificate identifying the Notes or portions thereof tendered to
the Company for purchase. The Trustee will promptly mail, to the Holders of
the Notes properly tendered and purchased, payment in an amount equal to the
purchase price, and promptly authenticate and mail to each Holder a new Note
having a principal amount equal to any portion of such Holder's Notes that
were surrendered but not tendered and purchased, the Company will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Purchase Date.
If the Company is prohibited by applicable law from making the Change of
Control Offer or purchasing Notes thereunder, the Company need not make a
Change of Control Offer pursuant to this covenant for so long as such
prohibition is in effect.
The Company will comply with all applicable tender offer rules, including,
without limitation, Rule 14e-1 under the Exchange Act, in connection with a
Change of Control Offer.
Limitation on Business
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, 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.
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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 in good faith as
evidenced by an Officers' Certificate delivered to the Trustee in respect of
a transaction involving less than $25 million, or, if equal to or in excess
of $25 million, by the Board of Directors, as evidenced by a Board
resolution) and (iv) the Net Cash Proceeds of the sale-leaseback are applied
pursuant to the covenants described under "Limitation on Dispositions" above.
Limitation on Sale of Subsidiary Preferred Stock
The Company will not permit any of 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 and all of the net
proceeds therefrom are used to redeem the Notes as set forth under
"Redemption Upon Magma Equity Offering" above and (ii) if after giving effect
to such Magma Equity Offering any Person or group of Persons would own 10% or
more of the Capital Stock of Magma, such Person or Persons shall 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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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 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 Note, unless Magma shall
expressly assume in writing all the obligations of the Company under the
Indenture and the 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 or an Asset Disposition or the related definitions, (ii) make any
change that adversely affects the Holders' rights with respect the security
for the Notes 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
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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) failure to make an offer required under
either of the covenants described under "Limitation on Dispositions" or
"Purchase of Notes Upon a Change of Control" above or a failure to purchase
Notes tendered in respect of such offer, (iv) default in the performance, or
breach, of any covenant, agreement or warranty contained in the Indenture and
the Notes and such failure continues for 30 days after written notice is
given to the Company by the Trustee or the Holders of at least 25% in
principal amount of the outstanding Notes, as provided in the Indenture, (v)
default on any other Debt of the Company or Magma or any Significant
Subsidiary (other than Non-Recourse Debt of Significant Subsidiaries) if
either (x) such default results from failure to pay principal of such Debt in
excess of $25 million when due after any applicable grace period or (y) as a
result of such default, the maturity of such Debt has been accelerated prior
to its scheduled maturity and such default has not been cured within the
applicable grace period, and such acceleration has not been rescinded, and
the principal amount of such Debt, together with the principal amount of any
other Debt of the Company and Magma and their Significant Subsidiaries (not
including Non-Recourse Debt of the Significant Subsidiaries) that is in
default as to principal, or the maturity of which has been accelerated,
aggregates $25 million or more, (vi) the entry by a court of one or more
judgments or orders against the Company or Magma or any Significant
Subsidiary for the payment of money that in the aggregate exceeds $25 million
(excluding the amount thereof covered by insurance or by a bond written by a
Person other than an Affiliate of the Company 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 Significant Subsidiary,
except to the extent that such judgment is only against Property that secures
Non-Recourse Debt that was permitted under the Indenture, and 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 a Significant
Subsidiary) has occurred and is continuing, either the Trustee or the Holders
of not less than 25% in principal amount of the Notes then outstanding may
declare the Default Amount of all Notes to be due and payable immediately,
but upon certain conditions such declaration may be annulled and past
defaults (except, unless theretofore cured, a default in payment of principal
of, premium, if any, or interest on the Notes or any payment required in
connection with a Change of Control or an Asset Disposition, as the case may
be) may be waived by the Holders of a majority in principal amount of the
Notes then outstanding. If an Event of Default due to the bankruptcy,
insolvency or reorganization of the Company or 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.
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DEFEASANCE
Legal Defeasance
The Indenture provides that the Company will be deemed to have paid and
will be discharged from any and all obligations in respect of the Notes, on
the 123rd day after the deposit referred to below has been made (or
immediately if an Opinion of Counsel is delivered to the effect described in
clause (B)(iii)(y) below), and the provisions of the Indenture will cease to
be applicable with respect to the Notes (except for, among other matters,
certain obligations to register the transfer or exchange of the Notes, to
replace stolen, lost or mutilated Notes, to maintain paying agencies and to
hold monies for payment in trust) if, among other things, (A) the Company has
deposited with the Trustee, in trust, money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on
the Notes, on the respective Stated Maturities of the Notes or, if the
Company makes arrangements satisfactory to the Trustee for the redemption of
the Notes prior to their Stated Maturity, on any earlier redemption date in
accordance with the terms of the Indenture and the Notes, (B) the Company has
delivered to the Trustee (i) either (x) an Opinion of Counsel to the effect
that Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit, defeasance and
discharge had not occurred and the Company had paid or redeemed such Notes on
the applicable dates, which Opinion of Counsel must be based upon a ruling of
the Internal Revenue Service to the same effect or a change in applicable
federal income tax law or related Treasury regulations after the date of the
Indenture or (y) a ruling directed to the Trustee or the Company received
from the Internal Revenue Service to the same effect as the aforementioned
Opinion of Counsel, (ii) an Opinion of Counsel to the effect that the
creation of the defeasance trust does not violate the Investment Company Act
of 1940 and (iii) an Opinion of Counsel to the effect that either (x) after
the passage of 123 days following the deposit, the trust fund will not be
subject to the effect of Section 547 or 548 of the U.S. Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law or (y) based upon existing
precedents, if the matter were properly briefed, a court should hold that the
deposit of moneys and/or U.S. Government Obligations as provided in clause
(A) would not constitute a preference voidable under Section 547 or 548 of
the U.S. Bankruptcy Code or Section 15 of the New York Debtor and Creditor
Law, (C) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default, or event that after the giving of notice or lapse
of time or both would become an Event of Default, will have occurred and be
continuing on the date of such deposit or (unless an Opinion of Counsel is
delivered to the effect described in clause (B)(iii)(y) above) during the
period ending on the 123rd day after the date of such deposit, and the
deposit will not result in a breach or violation of, or constitute a default
under, any other agreement or instrument to which the Company is a party or
by which the Company is bound and (D) if at such time the Notes are listed on
a national securities exchange, the Company has delivered to the Trustee an
Opinion of Counsel to the effect that the Notes will not be delisted as a
result of such deposit, defeasance and discharge. Upon satisfaction of the
foregoing provisions, the Lien on the Capital Stock of Magma shall be
released.
Covenant Defeasance
The Indenture further provides that the provisions of clause (iii) under
"Mergers, Consolidations and Sales of Assets" and all the covenants described
herein under "Certain Covenants," clause (iv) under "Events of Default" with
respect to such covenants and with respect to clause (iii) under "Mergers,
Consolidations and Sales of Assets," clauses (i) and (iii) with respect to
certain offers for the Notes required by certain covenants and clauses (v)
and (vi) under "Events of Default" will cease to be applicable to the
Company, Magma, their Restricted Subsidiaries and their Eligible Joint
Ventures upon the satisfaction of the provisions described in clauses (A),
(B)(ii) and (iii), (C) and (D) of the preceding paragraph and the delivery by
the Company to the Trustee of an Opinion of Counsel to the effect that, among
other things, the Holders of the Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit and the
defeasance of certain covenants and Events of Default and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred and the Company had paid or redeemed such Notes on the applicable
dates.
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Defeasance and Certain Other Events of Default
If the Company exercises its option to omit compliance with certain
covenants and provisions of the Indenture with respect to the Notes as
described in the immediately preceding paragraph and the Notes are declared
due and payable because of the occurrence of an Event of Default that remains
applicable, the amount of money and/or U.S. Government Obligations on deposit
with the Trustee will be sufficient to pay amounts due on the Notes at the
time of their Stated Maturity or scheduled redemption, but may not be
sufficient to pay amounts due on the Notes at the time of acceleration
resulting from such Event of Default. The Company will remain liable for such
payments subject to the limitations on recourse described herein.
THE TRUSTEE
is the Trustee under the Indenture.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in
accordance with, the law of the State of New York, including Section 5-1401
of the New York General Obligations Law, but otherwise without regard to
conflict of laws rules.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definitions of all such terms as well as any other
capitalized terms used herein for which no definition is provided.
"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" 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 the Company or assumed in connection with the
acquisition of Property from any such Person (other than Property acquired in
the ordinary course of business), including Debt Incurred in connection with,
or in contemplation of, such Person being merged into 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
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a Subsidiary of the Referenced Person or is merged into or consolidated with
the Referenced Person or any of its Subsidiaries or all or substantially all
the Property of such other Person are acquired by the Referenced Person or
any of its Subsidiaries, (iii) the Net Income (if positive) of any Subsidiary
of the Referenced Person to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary to such Person or to
any other Subsidiary of such Net Income is not at the time permitted by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary, (iv) any gains or losses (on an after-tax basis) attributable to
Asset Sales (except, solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to the provision described in
clause (c) of the first paragraph of "Limitation on Restricted Payments"
above, any gains or losses of 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.
"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 or will be merged into or consolidated with Magma, any of its
Subsidiaries or any Joint Venture or (ii) an acquisition by Magma, any of its
Subsidiaries or any Joint Venture of the Property of any Person other than
Magma, any of its Subsidiaries or any Joint Venture that constitutes
substantially all of an operating unit or business of such Person.
"Asset Disposition" is defined to mean any sale, transfer, conveyance,
lease or other disposition (including by way of merger, consolidation or
sale-leaseback) by 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 Eligible Joint
Ventures 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 Eligible Joint
Ventures to, apply pursuant to the covenant described under "Limitation on
Dispositions" that portion of the Net Cash Proceeds from the sale, transfer,
conveyance or other disposition of such Unrestricted Subsidiary that is equal
to the portion of the total Investment in such Unrestricted Subsidiary that
is represented by the Investment that was made pursuant to clause (vii) of
the definition of "Permitted Payment." For purposes of this definition, any
disposition in connection with directors' qualifying shares or investments by
foreign nationals mandated by applicable law will not constitute an Asset
Disposition. In addition, the term "Asset Disposition" will not include (i)
any sale, transfer, conveyance, lease or other disposition of the Capital
Stock or Property of Restricted Subsidiaries or Eligible Joint Ventures
pursuant to the terms of any power sales agreements or steam sales agreements
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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 Magma
determines in good faith (evidenced by a Officers' Certificate) that such
provisions are customary (or, in the absence of any industry custom,
reasonably necessary) in order to effect such agreements and are reasonable
in light of comparable transactions in the applicable jurisdiction, (ii) any
sale, transfer, conveyance, lease or other disposition of Property governed
by the covenant described under "Mergers, Consolidations and Sales of Assets"
above, (iii) any sale, transfer, conveyance, lease or other disposition of
any Cash Equivalents, (iv) any transaction or series of related transactions
consisting of the sale, transfer, conveyance, lease or other disposition of
Capital Stock or Property with a fair market value aggregating less than $5
million and (v) any Permitted Payment or any Restricted Payment that is
permitted to be made pursuant to the covenant described under "Limitation on
Restricted Payments" above. The term "Asset Disposition" also will not
include (i) the grant of or realization upon a Lien permitted under the
covenant described under "Limitation on Liens" above or the exercise of
remedies thereunder, (ii) a sale-leaseback transaction involving
substantially all the Property constituting a Permitted Facility pursuant to
which a Restricted Subsidiary of 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, 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 (other than to Magma, another
Subsidiary of Magma or another Joint Venture) of (i) all or substantially all
of the Capital Stock of any Subsidiary of Magma or any Joint Venture 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.
"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 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
Magma or any duly authorized committee of such Board.
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"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 acceptable to the Trustee), (v) commercial paper
issued by (a) the parent corporation of any commercial bank organized in the
United States having capital and surplus in excess of $500,000,000 or any
commercial bank organized under the laws of any other country having total
assets in excess of $500,000,000, and (b) others having one of the two
highest ratings obtainable from either S&P or Moody's (or, if at any time
neither S&P nor Moody's may be rating such obligations, then from another
nationally recognized rating service acceptable to the Trustee) and in each
case maturing within one year after the date of acquisition, (vi) overnight
bank deposits and bankers' acceptances at any commercial bank organized in
the United States having capital and surplus in excess of $500,000,000 or any
commercial bank organized under the laws of any other country having total
assets in excess of $500,000,000, (vii) deposits available for withdrawal on
demand with any commercial bank organized in the United States having capital
and surplus in excess of $500,000,000 or any commercial bank organized under
the laws of any other country having total assets in excess of $500,000,000,
(viii) investments in money market funds substantially all of whose assets
comprise securities of the types described in clauses (i) through (vi) and
(ix), and (ix) auction rate securities or money market preferred stock having
one of the two highest ratings obtainable from either S&P or Moody's (or, if
at any time neither S&P nor Moody's may be rating such obligations, then from
another nationally recognized rating service acceptable to the Trustee).
"Change of Control" is defined to mean the occurrence of one or more of
the following events:
(i) for so long as at least $25 million principal amount of the
Company's 5% Convertible Subordinated Debentures due July 1, 2000 remain
outstanding and are not defeased, (x) a report is filed on Schedule 13D or
14D-1 (or any successor schedule, form or report) pursuant to the Exchange
Act, disclosing that any person (for the purposes of this provision only,
as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of
the Exchange Act or any successor provision to either of the foregoing)
has become the beneficial owner (as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act) of 50% or more of the then outstanding shares of the Voting
Stock of the Company and (y) such beneficial ownership
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is acquired by means of a tender offer in which cash is the sole
consideration paid and the purchase price for each share tendered is less
than the conversion price then in effect under the Company's 5%
Convertible Subordinated Debentures due July 1, 2000; provided that a
person will not be deemed to be the beneficial owner of, or to own
beneficially, any securities tendered until such tendered securities are
accepted for purchase under the tender offer;
(ii) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than Kiewit, is or becomes the beneficial owner
(as defined in clause (i) above), directly or indirectly, of more than 35%
of the total voting power of the Voting Stock of the Company (for the
purposes of this clause (ii), any person will be deemed to beneficially
own any Voting Stock of any corporation (the "specified corporation") held
by any other corporation (the "parent corporation"), if such person
"beneficially owns" (as so defined), directly or indirectly, more than 35%
of the voting power of the Voting Stock of such parent corporation) and
Kiewit "beneficially owns" (as so defined), directly or indirectly, in the
aggregate a lesser percentage of the voting power of the Voting Stock of
the Company and does not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
board of directors of the Company;
(iii) during any one-year period, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together
with any new directors elected by such Board of Directors or nominated for
election by the shareholders of the Company by a vote of at least a
majority of the directors of the Company then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason
to constitute a majority of the Board of Directors then in office, unless
a majority of such new directors were elected or appointed by Kiewit; or
(iv) the Company or its Restricted Subsidiaries sell, convey, assign,
transfer, lease or otherwise dispose of all or substantially all the
Property of the Company and the Restricted Subsidiaries taken as a whole;
provided that with respect to the foregoing subparagraphs (ii), (iii) and
(iv), a Change of Control will not be deemed to have occurred unless and
until a Rating Decline has occurred as well; 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 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
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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, 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, 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.
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"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, Magma, 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 Magma and Kiewit, if 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
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
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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 Dispositions, assuming such Asset Sales or Asset Acquisitions
occurred on the first day of the Reference Period.
"Foreign Asset Disposition" means an Asset Disposition in respect of the
Capital Stock or Property of a Restricted Subsidiary of 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 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
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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 Offering" is defined under "Redemption Upon Magma Equity
Offering."
"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
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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.
"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
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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 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 the Company, a
Restricted Subsidiary or an Eligible Joint Venture (except to the extent that
it has pledged the Capital Stock of its Subsidiaries and Joint Ventures to
secure Non-Recourse Debt) (a "Holding Company"), provided that such Debt (i)
does not require that interest be paid in cash at any time sooner than six
months after the final Stated Maturity of the Notes, (ii) does not require
any payment of principal at any time sooner than six months after the final
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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 permitted by the covenants described under
"Limitation on Dispositions" above and "Limitation on Business" above, (viii)
any Lien permitted under the provisions described under "Limitation on Liens"
above and (ix) bank deposits and other Investments (to the extent they do not
constitute Cash Equivalents) required by lenders in connection with any
Non-Recourse Debt, provided that the President or the Chief Financial Officer
of Magma 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
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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 the
Company (including, without limitation, at the option of the holder thereof
other than an option given to a holder pursuant to a "change of control" or
an "asset disposition" covenant that is no more favorable to the holders of
such Debt than comparable covenants for the Debt being defeased, redeemed,
purchased or acquired or, if none, the covenants described under "Limitation
on Dispositions" and "Purchase of Notes Upon a Change of Control" above and
such Debt is not in an amount (net of any original issue discount) greater
than, any Stated Maturity of the Debt being replaced and the proceeds of such
subordinated Debt are utilized for such purpose within 45 days of issuance or
(y) Capital Stock (other than Redeemable Stock), (iv) Restricted Payments in
an amount not to exceed $50 million in the aggregate provided that no payment
may be made pursuant to this clause (iv) if an Event of Default, or an event
that, after giving notice or lapse of time or both, would become an Event of
Default, has occurred and is continuing, (v) any payment or Investment
required by applicable law in order to conduct business operations in the
ordinary course, (vi) a Permitted Investment, (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
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Company of up to an aggregate amount of $50 million payable out of cash or Cash
Equivalents held by Magma 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, the Restricted Subsidiary or the Eligible Joint Venture
that made the original Investment from the Person in which such Investment was
made or any distribution or payment of such Investment to the extent that such
distribution or payment constituted either a Restricted Payment or a Permitted
Payment, provided that (x) the aggregate amount of such payments will not exceed
the amount of the original Investment by 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.
"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
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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 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 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 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
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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.
"Unrestricted Subsidiary" is defined to mean any Subsidiary of the Company
that becomes an Unrestricted Subsidiary in accordance with the requirements
set forth in the next sentence. The Company may designate any Restricted
Subsidiary as an Unrestricted Subsidiary if (a) such designation is in
compliance with the first paragraph of the covenant described under
"Limitation on Restricted Payments" above and (b) after giving effect to such
designation, such Subsidiary does not own, directly or indirectly, a majority
of the Capital Stock or the Voting Stock of any other Restricted Subsidiary
unless such other Restricted Subsidiary is designated as an Unrestricted
Subsidiary at the same time. Any such designation will be effected by filing
with the Trustee an Officers' Certificate certifying that such designation
complies with the requirements of the immediately preceding sentence. No Debt
or other obligation of an Unrestricted Subsidiary may be with recourse to the
Company, any of its Restricted Subsidiaries, any Eligible Joint Venture or
any of their respective Property. An Unrestricted Subsidiary may be
designated
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as a Restricted Subsidiary if, (i) all the Debt of such Unrestricted
Subsidiary could be Incurred under the provision described under "Limitation
on Subsidiary Debt" above and (ii) any portion of such Debt could not be
Incurred under such provision, if the Company could borrow all such remaining
Debt under the provision described in the first paragraph under "Limitation
on Debt" above.
"U.S. Government Obligations" is defined to mean securities that are (i)
direct obligations of the U.S. for the payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the U.S., the payment of which
is unconditionally guaranteed as a full faith and credit obligation by the
U.S., that, in either case are not callable or redeemable at the option of
the issuer thereof, and will also include a depository receipt issued by a
bank or trust company as custodian with respect to any such U.S. Government
Obligations or a specific payment of interest on or principal of any such
U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt, provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by
the custodian in respect of the U.S. Government Obligation or the specific
payment of interest on or principal of the U.S. Government Obligation
evidenced by such depository receipt.
"Voting Stock" is defined to mean, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote for the
election of directors (or persons fulfilling similar responsibilities) of
such Person.
UNDERWRITING
Under the terms and subject to the conditions contained in the
Underwriting Agreement, dated , 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 % of the principal amount per Note, and the Underwriter and
such dealers may allow a discount of % 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. The Merger Facilities
are secured by an assignment and pledge by CECI of the secured note of Magma
provided to CECI and 100% of the capital stock of Magma. See "The Magma
Acquisition."
The Company intends to use more than 10% of the net 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, is
75
<PAGE>
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
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 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 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.
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 and the Statement of Net Assets
Acquired as of March 31, 1993 and the Historical Summaries of Gross Revenues
and Direct Operating Expenses for each of the three years in the period ended
December 31, 1992 of the Imperial Valley Geothermal Interests, 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.
76
<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 52,122 -- 85,137
General and administrative ............. 13,012 13,942 -- 26,954
Royalties .............................. 9,888 -- -- 9,888
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 12,128 -- 21,279
General and administrative ............. 4,423 2,338 -- 6,761
Royalties .............................. 2,821 -- -- 2,821
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 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 $443,372,000.
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.
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
Investment Considerations ................ 12
The Collateral ........................... 15
Use of Proceeds .......................... 16
Capitalization ........................... 17
The Magma Acquisition .................... 18
Business ................................. 19
Description of the Notes ................. 42
Underwriting ............................. 75
Legal Matters ............................ 76
Experts .................................. 76
Index to Pro Forma Condensed Combined
Unaudited Financial Data ................ P-1
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
LOGO
California Energy Company, Inc.
$200,000,000
% Limited Recourse
Senior Secured Notes
Due 2003
PROSPECTUS
LOGO CS FIRST BOSTON
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered which will be paid
solely by the Company. All the amounts shown are estimates, except the
Commission registration fee and the NASD filing fee:
<TABLE>
<CAPTION>
<S> <C>
Commission Registration Fee ....... $68,966
NASD Fees .......................... 20,500
NYSE Listing Fee ................... *
Trustee Fees ....................... *
Rating Agency Fees ................. *
Printing and Engraving Expenses ... *
Legal Fees and Expenses ............ *
Accounting Fees and Expenses ...... *
Blue Sky Fees and Expenses ......... *
Miscellaneous Expenses ............. *
-------
Total ........................... $ *
=======
- ---------------
* To be completed by amendment.
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") grants each corporation organized thereunder, such as the Company,
the power to indemnify its directors and officers against liabilities for
certain of their acts. Article EIGHTH of the Company's Restated Certificate
of Incorporation and Article V of the Company's By-Laws provide for
indemnification of directors and officers of the Company to the fullest
extent permitted by the DGCL. Article V of the Company's By-Laws further
provides that the Company may enter into contracts providing indemnification
to the full extent authorized or permitted by the DGCL and that the Company
may create a trust fund, grant a security interest and/or use other means to
ensure the payment of such amounts as may become necessary to effect
indemnification pursuant to such contracts or otherwise.
Section 102(b)(7) of the DGCL permits a provision in the certificate of
incorporation of each corporation organized thereunder, such as the Company,
eliminating or limiting, with certain exceptions, the personal liability of a
director to the corporation or its stockholders for monetary damages for
certain breaches of fiduciary duty as a director. Article EIGHTH of the
Company's Restated Certificate of Incorporation eliminates the personal
liability of directors to the full extent permitted by the DGCL.
The foregoing statements are subject to the detailed provisions of
Sections 145 and 102(b)(7) of the DGCL, Article EIGHTH of the Company's
Restated Certificate of Incorporation and Article V of Company's By-Laws.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------
<S> <C>
*1.1 Form of Underwriting Agreement between the Registrant and CS First Boston.
Agreement and Plan of Merger, dated as of December 5, 1994, among California Energy Company,
Inc., CE Acquisition Company, Inc., and Magma Power Company (incorporated by reference to Exhibit
2.1 of the Registrant's Registration Statement on Form S-4 filed with the Commission on December
**2.1 23, 1994, File No. 33-57053).
*4.1 Form of Indenture between , as Trustee and California Energy Company, Inc.
*4.2 Form of Note (included in 4.1).
*5.1 Opinion of Willkie Farr & Gallagher regarding the legality of the Notes offered hereby.
12.1 Statement re: Computation of Consolidated Ratio of Earnings to Fixed Charges--The Company.
12.2 Statement re: Computation of Consolidated Ratio of Earnings to Fixed Charges-- Magma.
15.1 Awareness Letter for Review Report of Deloitte & Touche LLP.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
Consent of Willkie Farr & Gallagher (set forth in their opinion filed as Exhibit 5.1 to this
*23.3 Registration Statement).
24.1 Power of Attorney.
*26.1 Statement of Eligibility on Form T-1.
- ---------------
* To be filed by amendment.
** Previously filed.
</TABLE>
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
<PAGE>
(3) The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on May 17, 1995.
CALIFORNIA ENERGY COMPANY, INC.
By: /s/ David L. Sokol
-------------------------------------
David L. Sokol
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David L. Sokol Chairman of the Board of Directors and May 17, 1995
- ------------------------ Chief Executive Officer (Principal
David L. Sokol Executive Officer)
/s/ John G. Sylvia Senior Vice President, Chief Financial May 17, 1995
- ------------------------ Officer and Treasurer (Principal
John G. Sylvia Financial Officer)
/s/ Greg Abel Vice President, Controller and Chief May 17, 1995
- ------------------------ Accounting Officer
Greg Abel
* Director May 17, 1995
- ------------------------
Edgar D. Aronson
* Director May 17, 1995
- ------------------------
Judith E. Ayers
Director
- ------------------------
James Q. Crowe
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director May 17, 1995
- ------------------------
Richard K. Davidson
* Director May 17, 1995
- ------------------------
Ben M. Holt
* Director May 17, 1995
- ------------------------
Richard R. Jaros
* Director May 17, 1995
- ------------------------
Walter Scott, Jr.
- ------------------------ Director
Bernard W. Reznicek
* Director May 17, 1995
- ------------------------
John R. Shiner
* Director May 17, 1995
- ------------------------
David E. Wit
* The undersigned by signing his name hereto does hereby execute this
Registration Statement pursuant to the power of attorney filed as an exhibit
to this Registration Statement.
</TABLE>
* By: /s/ Steven A. McArthur
----------------------------------
Steven A. McArthur
Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
*1.1 Form of Underwriting Agreement Between the Registrant and CS
First Boston.
**2.1 Agreement and Plan of Merger, dated as of December 5, 1994, among
California Energy Company, Inc., CE Acquisition Company, Inc., and Magma
Power Company (incorporated by reference to Exhibit 2.1 of the
Registrant's Registration Statement on Form S-4 filed with the
Commission on December 23, 1994, File No. 33-57053).
*4.1 Form of Indenture between , as Trustee and California Energy
Company, Inc.
*4.2 Form of Note (included in 4.1).
*5.1 Opinion of Willkie Farr & Gallagher regarding the legality of the
Notes offered hereby.
12.1 Statement re: Computation of Consolidated Ratio of Earnings to
Fixed Charges -- The Company.
12.2 Statement re: Computation of Consolidated Ratio of Earnings to
Fixed Charges -- Magma.
15.1 Awareness Letter for Review Report of Deloitte & Touche LLP.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
*23.3 Consent of Willkie Farr & Gallagher (set forth in their opinion
filed as Exhibit 5.1 to this Registration Statement).
24.1 Power of Attorney.
*26.1 Statement of Eligibility of Trustee on Form T-1.
- ---------------
* To be filed by amendment.
** Previously filed.
</TABLE>
<PAGE>
EXHIBIT 12.1
CALIFORNIA ENERGY COMPANY, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS, EXCEPT RATIO)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income from continuing
operations ...................... $18,158 $12,657 $ 55,836 $61,258 $50,732 $34,866 $15,565
Capitalized interest, net of
amortization .................... (4,281) (2,642) (9,196) (6,174) (5,202) (4,979) (4,565)
--------- --------- ---------- --------- --------- --------- ---------
13,877 10,015 46,640 55,084 45,530 29,887 11,000
--------- --------- ---------- --------- --------- --------- ---------
Fixed Charges:
Interest expense and
amortization of deferred
finance charges on all
indebtedness ................... 28,191 9,233 62,837 30,205 20,459 29,814 35,369
Interest portion of lease rentals 15 27 109 247 253 217 677
--------- --------- ---------- --------- --------- --------- ---------
Total fixed charges ............ 28,206 9,260 62,946 30,452 20,712 30,031 36,046
--------- --------- ---------- --------- --------- --------- ---------
Earnings before income taxes, and
fixed charges ................... $42,083 $19,275 $109,586 $85,536 $66,242 $59,918 $47,046
========= ========= ========== ========= ========= ========= =========
Ratio of earnings to fixed
charges ......................... 1.492 2.082 1.741 2.809 3.198 1.995 1.305
========= ========= ========== ========= ========= ========= =========
</TABLE>
<PAGE>
EXHIBIT 12.2
MAGMA POWER COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS, EXCEPT RATIO)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income from continuing
operations ................... $10,202 $13,657 $58,381 $74,913 $49,667 $41,204 $36,694
Capitalized interest, net of
amortization ................. (3,008) 96 (326) 382 382 382 382
--------- --------- --------- --------- --------- --------- ---------
7,098 13,753 58,055 75,295 50,049 41,586 37,076
--------- --------- --------- --------- --------- --------- ---------
Fixed Charges:
Interest expense and
amortization of deferred
finance charges on all
indebtedness ................. 12,755 2,836 13,177 9,626 6,831 8,527 9,383
Interest portion of lease
rentals ..................... 0 0 0 0 0 0 0
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges ......... 12,755 2,836 13,177 9,626 6,831 8,527 9,383
--------- --------- --------- --------- --------- --------- ---------
Earnings before income taxes,
and fixed charges ............ $19,949 $16,589 $71,232 $84,921 $56,880 $50,113 $46,459
========= ========= ========= ========= ========= ========= =========
Ratio of earnings to fixed
charges ...................... 1.564 5.849 5.406 8.822 8.327 5.877 4.951
========= ========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
EXHIBIT 15.1
California Energy Company, Inc.
Omaha, Nebraska
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of California Energy Company, Inc. for the three month
periods ended March 31, 1995 and 1994 and Magma Power Company for the three
month period ended March 31, 1995, as indicated in our reports dated April
25, 1995; because we did not perform an audit, we expressed no opinion on
that information.
We are aware that our reports referred to above, which were included in
your Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 and
your Form 8-K dated May 16, 1995, respectively, are being incorporated by
reference in this Registration Statement on Form S-3.
We are also aware that the aforementioned reports, pursuant to Rule 436(c)
under the Securities Act of 1933, are not considered a part of the
Registration Statement prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of Sections 7 and
11 of the Act.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 17, 1995
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement of California Energy Company, Inc. on Form S-3 of the reports of
Deloitte & Touche LLP dated February 3, 1995 (which reports express an
unqualified opinion and include an explanatory paragraph referring to
California Energy Company, Inc.'s adoption effective January 1, 1993, of
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes), appearing in and incorporated by reference in the Annual Report on
Form 10-K of California Energy Company, Inc. for the year ended December 31,
1994 and to the reference to Deloitte & Touche LLP under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 17, 1995
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
of California Energy Company, Inc. (the "Company") on Form S-3 of our report
dated March 10, 1995 on our audits of the consolidated financial statements
of Magma Power Company and subsidiaries as of December 31, 1994 and 1993 and
for each of the three years in the period ended December 31, 1994 which
report is included in the Company's Form 8-K dated May 16, 1995, and to the
incorporation by reference of our report dated March 18, 1994, on our audits
of the consolidated financial statements and consolidated financial statement
schedules of Magma Power Company and subsidiaries as of December 31, 1993 and
1992 and for each of the three years in the period ended December 31, 1993,
included in the Annual Report on Form 10-K and to the incorporation by
reference of our report dated May 6, 1993 on our audits of the Statement of
Net Assets Acquired as of March 31, 1993 and Historical Summaries of Gross
Revenues and Direct Operating Expenses for each of the three years in the
period ended December 31, 1992 of the Imperial Valley Geothermal Interests
(acquired by Magma Power Company from Union Oil Company of California)
included in Form 8-K/A. We also consent to the reference to our Firm under
the caption "Experts."
COOPERS & LYBRAND L.L.P.
San Diego, California
May 16, 1995
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned, a member of the Board of Directors of California Energy
Company, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Steven A. McArthur and John G. Sylvia, as his/her true and lawful
attorneys-in-fact and agents, jointly and severally, with full power of
substitution and resubstitution, for and in his/her stead, in any and all
capacities, to sign on his/her behalf the Company's registration statement on
Form S-3 (the "Registration Statement") in connection with the Company's
offering of its limited recourse senior secured notes and to execute any
amendments thereto (including post-effective amendments) or certificates that
may be required in connection with the Registration Statement, and to file
the same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission and granting unto said
attorneys- in-fact and agents, jointly and severally, the full power and
authority to do and perform each and every act and thing necessary or
advisable to all intents and purposes as he/she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents,
jointly and severally, or his/her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
<PAGE>
POWER OF ATTORNEY
DATE: May 11, 1995
/s/ David L. Sokol /s/ Ben M. Holt
- ------------------------------ ------------------------------
DAVID L. SOKOL BEN M. HOLT
/s/ Edgar D. Aronson /s/ Richard A. Jaros
- ------------------------------ ------------------------------
EDGAR D. ARONSON RICHARD R. JAROS
/s/ Judith E. Ayres /s/ Walter Scott, Jr.
- ------------------------------ ------------------------------
JUDITH E. AYRES WALTER SCOTT, JR.
/s/ John R. Shiner
- ------------------------------ -----------------------------
JAMES Q. CROWE JOHN R. SHINER
/s/ Richard K. Davidson /s/ David E. Wit
- ------------------------------ -----------------------------
RICHARD K. DAVIDSON DAVID E. WIT
